Comparative Analysis Of Financial Performance Of Sakae Holdings And Soup Restaurant In Singapore Stock Exchange

Discuss about the Financial Reporting Of Singapore Limited.

The objective of the paper is to conduct a comparative analysis of the selected companies Sakae Holdings and Soup Restaurant that is listed in Singapore stock exchange. Moreover, a comparative summary for two years regarding the selected companies’ profitability, liquidity, asset efficiency and gearing will be provided within the report. Additionally, a reflective statement associated with the learning journey of the report will also be provided.

Soup Restaurant is positioned as among the best niche restaurant in Chinatown that offers herbal soups and home cooked food at affordable costs (Almamy, Aston & Ngwa, 2016). Sakae Holdings is a renowned restaurant that offers quality dining Sushi, crepes and cream and catering services. Both these companies are listed in Singapore Exchange Limited. 

Gross margin ratio is important in measuring how much efficient will be the companies in their business operations. Gross margin ratio of Sakae Holdings is observed to decrease by 13.50% in the year 2016 in comparison to Soup Restaurant Company that is observed to increase from the year 2015 to year 2016 by 2.55% (Altman et al.2017). Such increasing trend of this ratio indicates that the company retains increased amount on every dollar of its sales in order to service its debt obligations along with other costs. Sakae Holding’s decreasing percentage indicates a decrease in competitiveness of the company’s services and products (Sakae Holdings, 2018). It also signifies overall profitability of the company is getting poor each year with decreased sales of its products. 

Net margin ratio is important in indicating profitability of a company. Net margin ratio of Sakae Holdings Company is observed to decrease by 97% from the year 2015 to year 2016 (Kou, Peng & Wang, 2014). Such decrease is observed because of the reason that financial health of the company is poor than Soup Restaurant Company and this signifies the company is proficient enough in transforming its revenue into profits which is further available for all its shareholders. It can also be gathered from the results of the company that it has less parentage of revenue left after all expenses are decreased from the sales and it is extracting less amount of profit after its total sales. Net margin ratio of Soup Restaurant Company is observed to increase by 11.56% from the year 2015 to year 2016. This indicates that the company is efficient enough in converting its revenue into profits. This also signifies the business performance of the company is not that effective in facilitating it to attain enough net margins.

Discussion

Return on capital employed is important in analysing the ways in which a company employs its assets in attaining high revenues. Return on capital employed ratio of Sakae Holdings is observed to decrease by 15% from the year 2015 to year 2016. However, and Soup Restaurant Company has constant ROCE in both 2015 and 2016. Such results indicate that company’s performance within the capital intensive sectors like the restaurants. This does not offer a good indication regarding these companies financial performance of the significant debt (Sakae Holdings, 2018). Moreover, such decreasing and fixed trend of return of capital employed makes it clear that these companies might occasionally have an inordinate cash amount in hand but as the cash is not actively used within the business. There are some limitations in using this ratio as it considers that the companies require increasing this ratio for the reason that the investors are likely to favour the organizations with stable and increasing return on capital employed ratio.

Return in equity facilitates in analysing the company’s capability in attaining profit for every dollar invested by shareholders. Return on equity of Sakae is observed to decrease over the years from 2015 to 2016, while the situation is just the opposite for Soup. This is because of the reason that Sakae Holdings is not that capable in attaining increased profit for every dollar of common shareholders’ equity (Sakae Holdings, 2018).

Return on total assets of both the companies is observed to decrease for Sakae and increase for Soup Restaurant over the years from 2015 to 2016. This is because of the reason that Sakae Company is highly capable to attain increased profit percentage in comparison to its overall resources that is not same in case of Soup Restaurant because of which it is attaining less profit (Sakae Holdings, 2018).

Current ratio is important in analysing the company’s current total assets in consideration to its current total liabilities. Current ratio of Sakae Holdings is observed it decrease by 33.42% from the year 2015 in the year 2016. Moreover, current ratio for Soup Restaurant is observed to decrease by 17.36% from the year 2015 in the year 2016 (Bansal, 2014). Decreasing trend of this ratio for Sakae Holdings Company indicates that the company is losing its capability to address both its short and long term obligations. It can also be observed in case of the company that its liabilities are increasing in comparison to its assets that make it incapable to address all its debt obligations. It also signifies that Soup Restaurant Company has better liquidity position than Sakae Holdings Company as the results indicate this organization is capable enough in settling its current liabilities with its current assets. There is a limitation in using this ratio as it considers analysing inventory that can lead to overestimation of liquidity position of the companies. 

Profitability Ratios

Quick ratio is important in evaluating the liability of companies that measures the ways in which they address their short term financial liabilities. Quick ratio of Sakae Holdings is observed it decrease by 39.01% from the year 2015 in the year 2016 (Buehlmaier & Whited, 2016). Such decreasing trend indicates that the company is not that efficient in maintaining its liquidity and address all its shot tem obligations with its most liquid assets. On the other hand, quick ratio for Soup Restaurant is observed to decrease by 17% from the year 2015 in the year 2016.This signifies that the company has increased accounts receivables that make it difficult for the organization in collecting its receivables (Collier, 2015). There is a limitation of this ratio as a decreasing quick ratio not always indicates that it has increased risk of bankrupts; it can signify the company is focussing greatly on inventory or over assets for paying off its short term liabilities.

Average inventory of both Sakae Holdings and Soup Restaurant Company is observed to increase from the year 2015 to year 2016 (Damodaran, 2016). This indicates that both the companies’ inventories are sold and replaced many times over a time period. This also signifies value of the inventory attained by these companies is increasing over the specific time and they are efficient enough in adjusting the values associated with inventory items from their previous purchase.

Asset turnover ratios of both Sakae Holdings has increased and Soup Restaurant is observed to increase from the year 2015 to year 2016 (Dokas, Giokas& Tsamis, 2014). This indicates that these companies do not have enough capability in gathering enough sales from its assets through comparing net sales with its average total assets. This also signifies that these companies are not that capable enough in employing its assets for gathering enough sales. It can be observed from the results of the companies that these are not that efficient in measuring enough number of revenue dollars gathered by one dollar of the company’s assets (Goldmann, 2017). The value of these companies’ sales and revenues gathered in comparison to its assets value is deemed to be lesser as signified by lower asset turnover ratio of these companies.

Receivables turnover ratio of Sakae Holdings is observed to increase from the year 2015 in the year 2016. This indicates that the company is efficient enough in employing its assets that quantifies the company’s efficiency in extending credit along with gathering debts on such credit (Grinblatt& Titman, 2016). Receivables turnover ratio of Soup Restaurant is observed to increase from the year 2015 in the year 2016. Such result signifies that the company is highly capable in gathering its credit that is issued by the company to its consumers. Therefore, it can be stated that the credit practices of the company is proving beneficial for it (Grinblatt& Titman, 2016).

Gross Margin

Inventory turnover ratio of Sakae Holdings is observed to decrease from the year 2015 to year 2016. However, the ratio for Soup Restaurant is expected to remain the same over the year due to greater market demand. Such results indicate that Soup Restaurant inventory is not replaced and sold over a period of time (Hotchkiss, Strömberg & Smith, 2014). Soup Restaurant acquired larger inventory amounts over the past two years and were not capable enough to sell them in increased amounts in order to enhance their turnover.

It has been observed that the payables turnover of Soup has increased over the year, as it has been allowing extended credit terms to its debtors. However, the scenario is just the reverse for Sakae Holdings, since it has reduced its debtor terms for retaining greater cash in hand so that it could be invested in business operations.

This ratio is important in analysing an organizations overall earnings for its shares. This is also an indication of the fraction of an organizations financing which derives from investors and creditors (Kou, Peng & Wang, 2014). Earnings per share ratio of Sakae Holdings are observed to decrease by 185% and 3% from the year 2015 to 2016. On the other hand, the earnings per share of Soup Restaurant are expected to increase by 3% in 2016. Such decrease in this ratio of Sakae Holdings indicates that Sakae Holdings is employing more debt in order to finance its assets in consideration to the shareholders equity value (Soup Restaurant, 2018). There is also certain limitation in using this ratio as an organization might have high discretion in deciding aspects those are unique and there is a scope of manipulation.

This ratio is important as it focuses on determining how easily an organization can address their interest expenses on the outstanding debt. Interest cover ratio of Soup Restaurant is observed to increase from the year 2015 to 2016 (Goldmann, 2017). Such results indicated that the organization has the capability to make certain interest payments on its debt within a timely manner. On the other hand, the ratio for Sakae Holdings has decreased in the same year denoting its fall in capability to meet its interest expense with operating income. As this ratio is indicating a increasing trend which makes sure that Soup is making enough money in addressing all its interest payments. If this ratio keeps on increasing then it can be considered less risky that will never attain a high bank financing (Grinblatt& Titman, 2016). However, there are certain limitations of employing this ratio as this ratio at times fails to provide a clear picture of the company’s stability with regards to defaults and certain interest payments. This ratio keeps on fluctuating that questions the reliability of the results.

Net Margin

Price earnings ratio has significance in evaluating the company’s increased growth in future. Price earnings ratio of both Sakae Holdings and Soup Restaurant Company is observed to decrease by 72% and 18% from the year 2015 to year 2016. As these companies are losing money they are observed to have very less or no price earnings ratio. This indicates that for both the companies the investors are not willing to pay an increased amount per dollar of its earnings (Sakae Holdings, 2018). However, there are certain limitations of using this ratio as this employs estimated earnings in order to attain high price earnings ratio. 

Dividend cover ratio is vital in analysing the number of times a company is able to pay dividends to all its shareholders that is gathered from profits earned within an accounting period. Dividend cover ratio of both Sakae Holdings and Soup Restaurant Company is observed to be 0 from the year 2015 to year 2016. This indicates that both the companies are capable enough in paying off all its necessary preferred dividend payments and it faces no difficulty in addressing preferred dividend requirements (Sakae Holdings, 2018). Some limitations of using this ratio includes proper estimation of deducting any dividends paid for the irredeemable preference shares from the net profit gathered over the accounting period for estimating earnings to be attained by ordinary shareholders.

Dividend yield ratio is significant in analysing the basis on which the organizations pay dividends on quarterly basis and evaluators the dividend paying capability of the organization. Dividend yield ratio of both Sakae Holdings and is observed to be 0 and Soup Restaurant Company is observed to decrease by 34% from the year 2015 to year 2016. This indicates that both the companies do not pay a huge percentage of market prices of their shares to all its shareholders in the dividend form (Soup Restaurant, 2018). However, there are certain limitations of employing this ratio as it estimates that a company used for analysis continuously prefer making dividend payments at the similar or increased rate like usual.

Capital gearing ratio is necessary in a company’s capital structure that includes the fraction of equity and debt used by the company. Capital gearing ratio of both Sakae Holdings and Soup Restaurant Company is observed to decrease by 22% and 87% from the year 2015 to year 2016. This indicates that the capital structure of the company is not that low geared as a decreased fraction of their capital is encompassed of common stockholders’ equity (Soup Restaurant, 2018). Few drawbacks of employing thus ratio includes the complexity of this ratio in understanding whether the organization is high or low geared along with the performance of the organization in covering the interest payment with gathering a constant profit.

Return on Capital Employed

Conclusion

The objective of the paper is to conduct a comparative analysis of the selected companies Sakae Holdings and Soup Restaurant that is listed in Singapore stock exchange. The report revealed that profitability of Sakae Holdings Company is poor in comparison to Soup Restaurant. Moreover, ratio analysis also explained that gearing ratios and asset efficiency ratios of Sakae holdings is negative in comparison to Soup Restaurant that signifies the company needs increased improvement in these ratios. For improvement of the profitability ratios, Sakae Holdings Ltd is recommended to decrease its inventory, boost conversion rate and review its recent pricing structure. However, the investors are recommended to invest in the shares of the Soup Restaurant due to positive returns on investment, greater profit margin and higher dividend payouts.

Through carrying out the comparative ratio analysis of the selected companies, I have carried out comparative summary for two years regarding the selected companies profitability, liquidity, asset efficiency and gearing will be provided within the report. Moreover, through completing this paper I have learned that profitability ratios can be efficiently used in evaluating the company’s performance along with operational efficiency. I have learned that these ratios indicate the association among the profit along with resources used within the business. From analysing the ratios of the selected companies I have learned that ratio analysis is an effective process of determining along with analysing the numerical relationships relied on the financial statements. I have also learned that ratio analysis serves as a statistical yardstick which offers a measure of association among two figures and variables. After completion of the report, I have attained a great understanding on the fact that ratio analysis provides decision makers with increased information and facilities superior quality decision making. This also facilitates directors, managers along with other interested members in deciding important figures such as turnover and profit. After analysing the ratios of the selected companies, I have gathered knowledge regarding the fact that liquidity serves as a measure of a company’s capability to address daily expenditure. I have also gathered an understanding regarding the fact that the companies require holding liquid assets in order to make sure that it can address their financial commitments to an extent as liquid assets has a tendency to gather low returns. I have also gained knowledge on the fact that financial statement analysis must centre majorly on extracting necessary information for a specific decision. Such information needed can take several forms that encompass comparisons like comparing variations within similar item for same organization over several years. This can facilitate in comparing changes for the similar items for the same organization over several years for comparing major relationships within the identical year. I have also realised that ratio analysis of the companies facilitates comparison of financial performance of them along with facilitating calculation of different ratios for a broad variety of purposes.

Return on Equity

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