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Amarit PLC Financial Performance Report - 2024 Analysis
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Comprehensive Report on Amarit PLC's Financial Performance 1. Introduction Aramit Company Description Aramit Limited manufactures and markets of coated roofing materials, drainage pipes, and ceiling insulating sheet in Bangladesh. Its product portfolio includes large section and light-weight corrugated sheets for use in roofing and wall cladding; flat sheets that is used mainly for ceiling and partition; and pipes for use in rainwater, drain water, soil, irrigation, and chimney applications. The company offers moulding products, such as two-piece close fitting adjusted ridges, barge board, ridge finial, corner piece, expansion joint cover piece, one piece ridge cap, and louvers, as well as provides re-sale products. The company was founded in 1963 and is based in Chittagong, Bangladesh. Aramit Limited Country Bangladesh Founded 1963 Industry Fabricated Structural Metal Products Employees 179 Rukhmila Zaman CEO 2.Objectives of the Analysis Reformulate financial statements in line with operating and financial categories. Conduct Level 1, Level 2, and Level 3 analysis of profitability. Apply class concepts including Accounting Earnings vs. Cash Flows. 3. Financial Statement Reformulation Balance Sheet Category Item 30 June 2024 (Taka) 30 June 2023 (Taka) 30 June 2022 (Taka) 30-Jun-21 30-Jun-19 30-Jun-18 Non-Current Assets Property, Plant & Equipment 90450625 74752974 86594726 97374101 117907291 115088094 Investment 132670508 175170668 217103614 418920516 213627597 256122580 223121133 249923642 303698340 516294617 331534888 371210674 Inventories 308139021 291019608 235578394 177607053 149145971 141728197 Total Non-Current Assets Current Assets Trade Receivables 35186847 33166218 83034175 66937173 26089908 22958882 Advances, Deposits and Prepayments 38558255 58099882 81833511 129250143 117906422 98513764 Short Term Investments 30013781 32134244 30766397 44118407 48666039 63803903 Interest Receivable 278875 399628 323952 390398 406891 855616 463614773 429591120 409819299 390404300 322367169 296892067 30338050 76156252 70318576 62106748 62594821 25631672 Total Current Assets 906129602 920566952 911674304 870814222 727177221 650384101 Total Assets 1129250735 1170490594 1215372644 1387108839 1058712109 1021594775 Due from Associated Companies Cash and Cash Equivalents 1 Shareholders’ Equity Share Capital 60000000 60000000 60000000 60000000 60000000 60000000 Reserves 385488028 385488028 385488028 385488028 385488028 385488028 Dividend Equalisation Fund 50738247 50738247 50738247 50738247 50738247 50738247 Retained Earnings 277991543 293093286 299020429 406356253 327521143 337367522 Unrealised Surplus of Financial Assets 42357215 80607360 118403313 185924378 2207495 41152203 816575033 869926921 913650017 1088506906 825954913 874746000 Provision for Employees' Retiral Gratuity 51795610 43219700 45360843 35936955 32619040 28442959 Deferred Income Tax -3955245 3894538 8117627 18648908 23960 4072885 47840365 47114238 53478470 54585863 32643000 32515844 Creditors and Accruals 243985756 238456041 233584139 228996088 191580905 104215121 Provision for WPP & WF 1504267 2356929 3774722 3226977 1433817 126254 Provision for Taxation 4711267 -3805780 -4269735 -1811867 -6511993 — Unclaimed Dividend 17132297 16442245 15155033 13604872 13611467 9991556 Loan 16924283 - - 284257870 253449435 248244159 244016070 200114196 114332931 1148673268 1170490594 1215372646 1387108839 1058712109 1021594775 136.1 144.99 152.28 181.42 137.66 145.79 30 June 2022 (Taka) 30-Jun-21 30-Jun-19 30-Jun-18 Total Shareholders’ Equity Non-Current Liabilities Total Non-Current Liabilities Current Liabilities Total Current Liabilities Total Equity and Liabilities Net Assets Value Per Share (NAVPS) Reformulated Balance sheet Category Non-Current Assets Current Assets Item Property, Plant & Equipment Inventories Trade Receivables Advances, Deposits and Prepayments Cash and Cash Equivalents Total Operating Assert Non-Current Liabilities Provision for Employees' Retiral Gratuity Deferred Income Tax Provision for WPP & WF Provision for Taxation Total Operating Liabilities Net Operating Asset Investment Short Term Investments Interest Receivable Due from Associated Companies Total Financial Asset Creditors and Accruals Unclaimed Dividend Loan Total Financial Obligations Net Financial Obligation(Asset) Share Capital Reserves Dividend Equalisation Fund Retained Earnings 30 June 2024 (Taka) 30 June 2023 (Taka) 90450625 74752974 86594726 97374101 117907291 115088094 308139021 35186847 291019608 33166218 235578394 83034175 177607053 66937173 149145971 26089908 141728197 22958882 38558255 58099882 81833511 129250143 117906422 98513764 30338050 76156252 70318576 62106748 62594821 25631672 502672798 533194934 557359382 533275218 473644413 403920609 51795610 43219700 45360843 35936955 32619040 28442959 -3955245 3894538 8117627 18648908 23960 4072885 1504267 2356929 3774722 3226977 1433817 126254 4711267 54055899 448616899 132670508 -3805780 45665387 487529547 175170668 -4269735 52983457 504375925 217103614 -1811867 56000973 477274245 418920516 -6511993 27564824 446079589 213627597 — 32642098 371278511 256122580 30013781 32134244 30766397 44118407 48666039 63803903 278875 399628 323952 390398 406891 855616 463614773 429591120 409819299 390404300 322367169 296892067 626577937 243985756 17132297 16924283 278042336 348535601 637295660 238456041 16442245 254898286 382397374 658013262 233584139 15155033 248739172 409274090 853833621 228996088 13604872 585067696 191580905 13611467 617674166 104215121 9991556 242600960 611232661 205192372 379875324 114206677 503467489 60000000 385488028 60000000 385488028 60000000 385488028 60000000 385488028 60000000 385488028 60000000 385488028 50738247 50738247 50738247 50738247 50738247 50738247 277991543 293093286 299020429 406356253 327521143 337367522 2 Unrealised Surplus of Financial Assets Total CSE total NFO & CSE 42357215 80607360 816575033 468039432 869926921 487529547 118403313 913650017 504375927 185924378 2207495 41152203 1088506906 477274245 825954913 446079589 874746000 371278511 3.2 Reformulated Income Statements Income Statement 2024 2023 2022 2021 2020 2019 245505031.0 0 214785371.0 0 254375810.0 0 213421467.0 0 461288034.0 0 369157855.0 0 539322067.0 0 449993718.0 0 Gross Profit 30719660.00 40954343.00 92130179.00 89328349.00 general & Administrative Expenses 49610862.00 50221625.00 63464178.00 64572274.00 Selling and Distribution Expenses 20270066.00 20979462.00 30332038.00 34618441.00 Other income operating 60301825.00 64178372.00 70872553.00 76513976.00 profit from operating activities 21140557.00 33931628.00 69206516.00 66651610.00 457624059. 00 384080667. 00 73543392.0 0 61015703.0 0 32293349.0 0 48655954.0 0 28890294.0 0 439982607. 00 375839341. 00 64143266.0 0 63028220.0 0 35185736.0 0 58331739.0 0 24261049.0 0 Finance Cost/Financial Expenses -4561098.00 -172068.00 -760149.00 -2200091.00 -664926.00 -227246.00 non-operating income/ (losses) 147881.00 21010.00 594110.00 88027.00 450963.00 617727.00 24651530.0 0 Revenue Costs of goods sold Profit before WPP welfare Fund 16727340.00 33780570.00 69040477.00 64539546.00 28676331.0 0 Contri bution to WPP and welfare fund (WPPF) -836367.00 -1689029.00 -3452024.00 -3226977.00 -1433817.00 -1232577.00 23418953.0 0 15890973.00 32091541.00 65588453.00 61312569.00 27242514.0 0 Current Income tax -6977295.00 -8042224.00 19094019.00 16960706.00 -6810629.00 -7891920.00 Deferred tax Income/(expense) 3599768.00 23539.00 3028941.00 1788038.00 -278264.00 4105507.00 -3377527.00 -8018685.00 16065078.00 15172668.00 -7088893.00 -3786413.00 Profit before Income Tax Income Tax Expense 12513446.00 24072856.00 49523376.00 46139901.00 20153621.0 0 unrealized gain or loss on available-for-sale of financial asset 42500160.00 41995503.00 75023405.00 204129869.0 0 43271897.0 0 19632540.0 0 12326256.0 0 35157124.0 0 deferred tax on unrealized gain/loss @ 10% 4250015.00 4199550.00 7502340.00 20412986.00 4327189.00 3515712.00 38944708.0 0 18791087.0 0 19315156.0 0 3.36 3.27 Profit for the year after Tax (NPAT) realized gain or loss on available-for-sale of financial asset 38250145.00 37795953.00 67521065.00 183716883.0 0 Total Comprehensive income 25736699.00 13723097.00 17997689.00 229856784.0 0 Earnings Per Share (Basic) 2.09 4.01 8.25 7.69 317384.00 Reformulated Income statement Catagories 2024 2023 2022 2021 Revenue 245505031.00 254375810.00 461288034.00 539322067.00 Costs of goods sold 214785371.00 213421467.00 369157855.00 449993718.00 2020 2024 457624059.0 0 384080667.0 0 439982607.0 0 375839341.0 0 Gross Profit 30719660.00 40954343.00 92130179.00 89328349.00 73543392.00 64143266.00 general & Administrative Expenses -49610862.00 -50221625.00 -63464178.00 -64572274.00 -61015703.00 -63028220.00 Selling and Distribution Expenses -20270066.00 -20979462.00 -30332038.00 -34618441.00 -32293349.00 -35185736.00 3 Expenses to generate sales -69880928.00 -71201087.00 -93796216.00 -99190715.00 -93309052.00 -98213956.00 162357222.0 0 Operating income from sales(before tax) 100600588.00 112155430.00 185926395.00 188519064.00 166852444.0 0 Tax reported 6977295.00 8042224.00 19094019.00 16960706.00 6810629.00 7891920.00 tax effect 988560.608 33836.992 37192.736 473102.336 47927.712 -87467.744 tax on other operating income -13379728.05 -14060102.18 -15169619.03 -16489574.78 -10624980.83 -12847311.45 tax on operating income from salse -5413872.44 -5984041.18 3961592.71 944233.56 -3766424.11 -5042859.19 167400081.1 9 operating income from sales (after tax) 106014460.44 118139471.18 181964802.29 187574830.44 170618868.1 1 other operating income(expense) Other income operating 60301825.00 64178372.00 70872553.00 76513976.00 48655954.00 58331739.00 Contri bution to WPP and welfare fund (WPPF) -836367.00 -1689029.00 -3452024.00 -3226977.00 -1433817.00 -1232577.00 total 59465458.00 62489343.00 67420529.00 73286999.00 47222137.00 57099162.00 tax on other operating income 13379728.05 14060102.18 15169619.03 16489574.78 10624980.83 12847311.45 other operating income after tax 46085729.95 48429240.83 52250909.98 56797424.23 36597156.18 44251850.55 after tax operating items -38250145.00 -37795953.00 -67521065.00 183716883.00 -38944708.00 -19315156.00 192336775.7 4 Operating income after tax 113850045.39 128772759.01 166694647.26 428089137.66 168271316.2 9 Finance Cost/Financial Expenses -4561098 -172068 -760149 -2200091 -664926 -227246 non-operating income/ (losses) 147881 21010 594110 88027 450963 617727 net financial expense -4413217 -151058 -166039 -2112064 -213963 390481 tax effect 988560.608 33836.992 37192.736 473102.336 47927.712 -87467.744 net financial expense -3424656.392 -117221.008 -128846.264 -1638961.664 -166035.288 303013.256 Total Comprehensive income -25736699.00 -13723097.00 -17997689.00 229856784.00 -18791087.00 317384.00 3.3 Reformulated Cash Flow Statement Cash Flow Statement Description 2024 2023 2022 2021 2020 2019 Cash Received Against Revenue and Others/Collections from Turnover and Other Income 281388800 330711907 494410590 637397461 502977067 468261513 Cash Paid to Suppliers -196816523 -205646561 -356439469 -344634736 -249133098 -268359275 Cash Paid to and on behalf of Employees -82458551 -88359309 -100842045 -105814350 -92087064 -103751004 due to associated companies -1651622 15930077 -1780286 13212828 Cash Paid for Cost and Other Operating Expenses -2142146 -7818909 19779267 -151768640 -48432173 -33384155 cash paid for interest expense -621778 Income Tax Paid -17882782 -7578269 -21551887 -12260580 -13322624 -14272770 WPPF -1689029 -3106822 -2904279 -1433817 -126254 -2710226 Net Cash Provided/(Used) by Operating Activities -21873631 34132114 30671891 34698166 99875854 45784083 Acquisition of Financial Assets - -62559 -65703 -1163050 -31023405 -35711446 Proceeds from Sale of Financial Assets -626 31878 149889 - -776914 -1342173 Acquisition/Purchase of Property, Plant and Equipment -26873066 -149013 -9170824 -9579235 450000 - Short Term Investment 2120460 -1367847 13352010 4547631 - 21286575 Due from Associate Companies - - -25475102 1656563 4 Sale of Fixed Assets - - 499999 - 15137864 -38769018 Dividend Received 147881 21010 94111 88027 963 617727 Interest Received 1985763 2116947 1890442 2681594 2617289 783217 Net Cash Used in Investing Activities -22619588 590416 6749924 -3425033 -39069305 -51478555 Dividend Paid -14309948 -28712788 -28449839 -30006596 -23178476 -27198333 Term Loan 16924283 - - - - - Financial Expenses -3939320 -172067 -760149 -1754611 -664926 -227246 Net Cash Provided/(Used) From Financing Activities -1324985 -28884855 -29209988 -31761207 -23843402 -27425579 Net Increase/(Decrease) in Cash and Cash Equivalents -45818204 5837675 8211827 -488074 36963147 -33120051 Cash and Cash Equivalents at Opening 76156252 70318576 62106748 62594821 25631672 58751723 Cash and Cash Equivalents at Closing 30338048 76156251 70318575 62106748 62594821 25631672 Net Operating Cash Flow Per Share -3.65 5.69 5.11 5.78 16.65 7.63 Reformulated Cash Flow statement 2024 2023 2022 2021 2020 2019 Cash receipts from customers 281388800 330711907 494410590 637397461 502977067 468261513 Payroll and other payments to employees -82458551 -88359309 -100842045 -105814350 -92087064 -103751004 Payments to suppliers, contractors and others -196816523 -205646561 -356439469 -344634736 -249133098 -268359275 Interest received 1985763 2116947 1890442 2681594 2617289 783217 Income tax paid -17882782 -7578269 -21551887 -12260580 -13322624 -14272770 Net cash from operating activities Reported -13783293 31244715 17467631 177369389 151051570 82661681 Net Interest Expense -621778 Tax on Interest 248711.2 Net Interest After Tax -373066.8 Net operating cash after tax -13410226.2 31244715 17467631 177369389 151051570 82661681 Payment for acquisition of assets 0 -62559 -65703 -1163050 -31023405 -35711446 Acquisition/Purchase of Property, Plant and Equipment -26873066 -149013 -9170824 -9579235 450000 0 Proceeds from sale of assets -626 31878 149889 0 -776914 -1342173 Net cash used in investing activities -26,873,692 -179,694 -9,086,638 -10,742,285 -31,350,319 -37,053,619 Free Cash Flow -48,746,697 33,983,101 21,501,068 25,118,931 43,377,349 -48,746,697 Item Cash flows from operating activities Cash flows from Investing activities Total Financing Flows to claimants 5 Proceeds from short-term bank loan 16924283 Net Interest After tax -373066.8 - - - - - Equity Financing Payment of dividend -14309948 -28712788 -28449839 -30006596 -23178476 -27198333 Cash used in Investing -22619588 590416 6749924 -3425033 -39069305 -51478555 Increase in Cash equivalents -45818204 5837675 8211827 -488074 36963147 -33120051 -82747740 -22284697 -13488088 -33919703 -25284634 -111796939 -37,302,603 -28,122,372 -21,699,915 -33,431,629 -62,247,781 -78,676,888 Total Financing Flows 4.1 Level 1 Analysis: Overall Profitability ROCE (Return on Common Equity) RNOA (Return on Net Operating Assets) 4.2 Level 2 Analysis: Decomposing RNOA Profit Margin (PM) = Operating Income/Sales Asset Turnover (ATO) = Sales/NOA Other Operating Income to NOA 4.3 Level 3 Analysis: Deeper Decomposition Gross Margin Ratio Expense Ratio (Admin, Selling, R&D) Inventory Turnover PPE Turnover Days in Accounts Payable Fiscal Year Current FY 2024 FY 2023 FY 2022 FY 2021 FY 2020 Period Ending 29-Apr-25 30-Jun-24 30-Jun-23 30-Jun-22 30-Jun-21 30-Jun-20 Market Capitalization 929,400,000 1,422,000,000 1,619,400,000 1,656,000,000 1,833,600,000 1,246,800,000 Market Cap Growth -37.59% -12.19% -2.21% -9.69% 47.06% -39.87% Enterprise Value 876,219,780 1,360,469,440 1,517,881,900 1,590,145,780 1,753,555,970 1,203,510,060 Last Close Price 154.9 234.239 264.195 265.247 288.646 192.586 PE Ratio 41.605 113.638 67.271 33.439 39.74 61.865 PS Ratio 3.196 5.792 6.366 3.59 3.4 2.725 PB Ratio 1.208 1.741 1.862 1.813 1.907 1.403 P/TBV Ratio 1.208 1.741 1.862 1.813 1.907 1.403 P/FCF Ratio 35.788 - 47.653 77.019 72.997 28.743 P/OCF Ratio 17.579 - 47.445 53.991 52.844 16.758 EV/Sales Ratio 3.013 5.542 5.967 3.447 3.251 2.63 EV/EBITDA Ratio 72.038 - 121.299 28.389 31.543 22.499 6 EV/EBIT Ratio - - 2903.381 44.095 54.929 47.592 EV/FCF Ratio 33.74 - 44.666 73.957 69.81 27.745 Debt / Equity Ratio - 0.021 - - - - Asset Turnover 0.265 0.214 0.213 0.373 0.453 0.427 Inventory Turnover 0.862 0.718 0.813 1.795 2.769 2.657 Quick Ratio 0.413 0.362 0.56 0.743 0.711 0.688 Current Ratio 4.161 3.421 3.632 3.672 3.569 3.947 Return on Equity (ROE) 2.77% 1.48% 2.70% 5.28% 4.99% 2.29% Return on Assets (ROA) -0.09% -0.69% 0.03% 1.82% 1.68% 1.48% Return on Capital (ROIC) -0.12% -0.94% 0.04% 2.40% 2.16% 1.79% Return on Capital Employed (ROCE) - - 0.10% 3.70% 3.10% 2.70% Earnings Yield 2.40% 0.88% 1.49% 2.99% 2.52% 1.62% FCF Yield 2.79% -3.43% 2.10% 1.30% 1.37% 3.48% Dividend Yield 1.29% 0.85% 0.95% 1.89% 1.73% 2.60% Payout Ratio 63.04% 114.36% 119.28% 57.45% 65.03% 115.01% Buyback Yield / Dilution 0.26% - - - - - Total Shareholder Return 1.55% 0.85% 0.95% 1.89% 1.73% 2.60% 5. Accounting Earnings vs. Cash Flows net Income cash flow from operation Cash Flow to Net Income Ratio 2024 12,513,446 -21,873,631 -1.74801018 negative 2023 24,072,856 34,132,114 1.417867244 Ratio > 1 2022 49,523,376 30,671,892 0.619341702 Ratio < 1 2021 46,139,901 34,698,166 0.752020816 Ratio < 1 2020 20,153,621 74,400,754 3.691681708 Ratio > 1 Negative Cash Flow from Operations: A negative value in the Cash Flow from Operations section of the cash flow statement indicates that the company’s core business activities are not generating sufficient cash. This could happen for various reasons, such as: High non-cash expenses (e.g., large depreciation charges). Negative changes in working capital, such as an increase in accounts receivable or inventory. Investments in long-term assets that are not yet generating cash. Ratio > 1: A ratio greater than 1 indicates that the company is generating more cash than it is reporting as net income. This suggests that the company is producing cash that can be used for further investment, debt repayment, or other operational needs, which is a positive sign of financial health. Ratio < 1: A ratio less than 1 indicates that the company is reporting profits but is not generating enough cash from operations to support them. This could be a warning sign that the company may be relying on non-cash earnings, such as changes in working capital or accounting adjustments, to report profitability. 7 6. Overview of Amarit PLC's Financial Performance and Recommendations for Improvement Amarit PLC has experienced significant volatility in its financial performance over the past few years. Despite a strong history of profitability, the company is facing challenges related to cash generation, operational efficiency, and liquidity. Below is an analytical overview based on the financial performance analysis, along with recommendations to improve its financial position. 1. Profitability and Earnings Quality Net Income Growth: Amarit PLC's Net Income has shown a declining trend, with a significant decrease of 48.02% in FY 2024 compared to the previous year. The Earnings Growth has been erratic, with fluctuations between negative and positive growth rates. For instance, there was a 7.33% increase in FY 2022, followed by a sharp decrease in FY 2024. Gross Margin: The Gross Margin has been steadily declining, dropping from 19.63% in 2022 to 12.33% in 2024. This signals a decrease in the company's ability to control its production costs or price its products effectively. Operating Margin and Profitability Ratios: Amarit PLC’s Operating Margin turned negative in FY 2024 at -5.20%, signaling inefficiency in covering operating expenses with revenue. Additionally, the Return on Capital Employed (ROCE) and Return on Net Operating Assets (RNOA) have been low, indicating that the company is not using its assets efficiently to generate returns. 2. Cash Flow and Liquidity Challenges Negative Cash Flow from Operations: One of the most concerning aspects of Amarit PLC’s financial performance is the negative Cash Flow from Operations in FY 2024. Despite reporting a positive net income, the company generated a negative cash flow of -21.87 million. This suggests that Amarit PLC’s core business operations are not generating sufficient cash, which could be problematic for maintaining liquidity and meeting obligations. Cash Flow to Net Income Ratio: The Cash Flow to Net Income Ratio for FY 2024 is negative (-1.75), indicating that the company’s reported earnings are not supported by actual cash flow from operations. This discrepancy is a red flag, suggesting that Amarit may be relying on non-cash earnings, such as depreciation or working capital changes, to report profitability. Free Cash Flow: Amarit’s Free Cash Flow was negative in FY 2024, further highlighting the company’s struggle with cash generation. A negative Free Cash Flow (-48.75 million) in 2024 indicates that Amarit PLC is not generating enough cash to fund its investments or pay dividends, which poses a risk to its financial health in the long term. 3. Asset Utilization and Operational Efficiency Asset Turnover: Amarit PLC's Asset Turnover ratio has been low, decreasing from 0.453 in 2020 to 0.265 in 2024. This indicates that the company is not using its assets efficiently to generate sales. A lower asset turnover suggests that Amarit may be underutilizing its asset base or facing declining demand for its products. Inventory Management: The Inventory Turnover ratio has also decreased, suggesting inefficiencies in inventory management. A declining ratio (from 2.769 in 2020 to 0.862 in 2024) indicates that the company may be holding onto unsold inventory, which ties up capital and affects cash flow. 4. Debt and Capital Management Debt/Equity Ratio: Amarit PLC has a low debt/equity ratio, suggesting that it is not overly reliant on debt to finance its operations. This is a positive sign in terms of financial risk management, but it also indicates that the company may not be leveraging debt to fund growth opportunities effectively. Dividend Payout: The company’s dividend payout has decreased significantly in FY 2024, with a -20.00% reduction in the dividend per share. This reduction may signal cash flow constraints, as the company is struggling to generate enough cash to sustain its dividend payments. Recommendations for Improvement 1. Improve Cash Flow Generation: o Amarit PLC must focus on improving its cash flow from operations. This can be achieved by optimizing working capital, reducing inventory levels, and improving receivables management. Tightening control over accounts receivable and inventory can help improve cash flow. 8 2. Increase Operational Efficiency: o The company should focus on improving its asset turnover and inventory turnover ratios by better utilizing its assets and reducing excess inventory. Streamlining operations and increasing productivity will be key to improving the efficiency of its asset base. 3. Enhance Profit Margins: o With declining gross margins, Amarit should consider cost-cutting measures to reduce production costs. Additionally, reassessing pricing strategies and seeking efficiencies in its supply chain could help improve profitability. 4. Strengthen Financial Liquidity: o Given the negative free cash flow in FY 2024, Amarit should focus on improving its liquidity position. This could involve reducing capital expenditures or finding new revenue streams that generate immediate cash flow. 5. Leverage Debt More Efficiently: o The company has a low debt/equity ratio, which can be a strength. However, Amarit could explore opportunities to use debt financing to fund expansion and strategic investments, provided it can maintain adequate cash flow to service the debt. 6. Reevaluate Dividend Policy: o The significant reduction in dividends should be addressed, and Amarit could explore ways to sustain or gradually increase dividend payouts as cash flow improves. This would maintain investor confidence and stabilize the stock price. Conclusion Amarit PLC’s financial performance has shown mixed results, with positive profitability but significant challenges in cash flow and operational efficiency. While the company remains profitable, its ability to generate consistent cash flow, manage assets efficiently, and maintain liquidity is a concern. By focusing on improving cash flow management, operational efficiency, and profitability, Amarit can strengthen its financial position and create a more sustainable path for growth. 9 Glossary of Key Financial Terms Net Income The profit of a company after all expenses, taxes, and interest have been deducted from total revenue. It is the 'bottom line' on the income statement, reflecting the company's profitability over a given period. Cash Flow from Operations The cash generated or used by a company’s core business activities during a given period. It is found in the cash flow statement and excludes non-operating cash activities like investment or financing. Cash Flow to Net Income Ratio A financial metric that compares a company's cash flow from operations to its net income. It indicates how much of the reported net income is supported by actual cash flow. A higher ratio is considered a sign of financial health. Formula: Cash Flow from Operations / Net Income Free Cash Flow The cash generated by the company after deducting capital expenditures (e.g., purchasing new equipment, buildings, or upgrading facilities). It represents the cash available to investors (equity and debt holders) and can be used to pay dividends or reinvest in the business. Operating Margin A profitability ratio that shows what percentage of revenue is left over after paying for variable costs of production, such as wages and raw materials. Formula: Operating Income / Revenue Gross Margin Indicates the percentage of revenue that exceeds the cost of goods sold (COGS). This metric is crucial for assessing the basic profitability of the company’s operations. Formula: Gross Profit / Revenue Asset Turnover A financial ratio that measures how effectively a company uses its assets to generate revenue. A higher asset turnover ratio indicates more efficient use of assets. Formula: Sales / Average Total Assets Inventory Turnover A ratio that measures how many times a company’s inventory is sold and replaced over a period. A higher ratio indicates that a company is selling its inventory quickly. Formula: Sales / Average Inventory PPE Turnover Measures how efficiently the company is using its property, plant, and equipment (PPE) to generate sales. Formula: Sales / Property, Plant, and Equipment (PPE) Days in Accounts Payable A measure of how long it takes a company to pay its suppliers. This metric helps assess liquidity and the efficiency of the company's working capital management. Formula: Accounts Payable / COGS * 365 EBIT (Earnings Before Interest and Taxes) A measure of a company’s profitability that excludes interest and income tax expenses. It focuses on the company's core operations. EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) A measure of a company's operating performance. It is used to evaluate the company's profitability without the impact of non-operating expenses such as interest, taxes, and depreciation. 10 Effective Tax Rate The percentage of a company's pre-tax profits that is paid in taxes. It reflects how much of the company’s income goes towards tax obligations. Dividend Yield A financial ratio that shows how much money a company returns to its shareholders in the form of dividends relative to its stock price. Formula: Dividend per Share / Market Price per Share * 100 Payout Ratio The proportion of earnings paid out as dividends to shareholders. It helps assess how sustainable the company’s dividend policy is. Formula: Dividends per Share / Earnings per Share (EPS) * 100 11
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