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Investment Analysis And Portfolio Management For SIA Engineering Company

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Question:

Describe about the Investment Analysis and Portfolio Management for SIA Engineering Company.

 

Answer:

Introduction

“SIA Engineering Company Limited”, incorporated in the year 1982, operates in Singapore along with its subsidiaries. It is directly a subsidiary of the “Singapore Airlines Limited”. The main operation of the company is to carry out overhaul, maintenance and repair activities primarily in the Asia-Pacific region. The main operating division of the company mainly provides the fleet management, overhaul operations and repair of engines facilities mainly by the overhaul and the repair segments of the company (Sg.finance.yahoo.com. 2016). Some of the general service provided by the company includes refurbishment programs, routine maintenance, specialized maintenance in the non- route segment. The division of company is responsible for the line maintenance of the company providing aircraft certification and different types of technical ground handling facilities such as equipment for ground support of aircraft and push back towing services. The company consists of total employee strength of 6188 employees. “SIA Engineering Company Limited” is also known to provide specialized service in passenger to freight conversion, aircraft painting and the various other types of the services related to train of the employees.  Furthermore, the company is known to provide various types of services in overhauling, repairing and equipment maintenance for the Boeing and Airbus aircraft (Siaec.com.sg. 2016).

As per the recent financial performance, the company has shown several improvement in the attributable profit as it was able to increase it to 176.6 million. Although in the times the companies has experienced lower revenues as it fell by 0.7% (Siaec.com.sg. 2016).

Moreover, the expenditure of the company fell by 2.7%. As per the latest reports the share of profits from the related joint ventures organization companies of $94.2 million saw a decrease of 12.1 million. In several occasions, the company experienced a loss of $4.3 million and further made a provision for the impairments. In the positive side, the equities attributable to the owners of the parent company increased by 12.1 % than in March 2015 (Sg.finance.yahoo.com. 2016).

Financial Ratio Worksheet for (Year to Year)                                            

 

Formula

2015

2014

2013

Remarks

A. Profitability [show the company’s ability and efficiency in generating profit]

Gross profit ratio

Gross profit x 100%

Sales

84.2%

84.2%

81.3%

It has been observed that over the years the gross profit ratios has almost remained the same, hence the company needs to improve significantly.

 

Net profit ratio

net profit x 100%

Sales

16.32%

16.32%

23.5%

The net profit ratio signifies that the year 2014 and 2015 the company has suffered greatly in terms of net profit this is due to increase in the subcontract and staff cost.

 

 

Return on capital employed (ROCE)

[CE=Equity+ Debt]

net profit x 100%

equity + debt

19.3%

19.54%

21.04%

The ROCE, access the measure of efficiency and profit making ability of the company with which the capital has been invested in the business. The decreasing amount of the ROCE percentage, clearly suggest that the company needs to improve in this field.

 

Return on assets (ROA)

[TA= FA+CA]

net profit x 100%

Total Assets

15.8%

15.91%

16.71%

This ratio indicates the extent of profitability of the business related to the total assets available. The analysis of this clearly states that over the years the amounts of return on assets have decreased from 16.71 % on 2013 to 15.8% in the year 2015.

 

 

Return on equity (ROE)

 

net profit x 100%

Equity

19.78%

19.95%

21.13%

 

Return on equity shows the measurement of the units of profit on with respect to each dollar invested in a business. The decreasing amount of return on the equity further suggests that the company needs to improve in terms of shareholder equity to increase the return on network

 

 

Formula

2015

2014

2013

Remarks

B. Liquidity [show the company’s ability in repaying short term debt]

Current ratio

Current assets

Current liabilities

 

3.01

3.13

3.01

The current assets of the company in form of cash, inventory and marketable securities have been stagnant with 3.01 both in the year 2013 and 2015.

Quick ratio

Current assets-inventories

Current liabilities

 

2.31

0.71

2.33

As per the quick ratio evaluated by subtracting the inventory from the current assets, it has been observed that company has intended for quick ratio and needs to improve significantly.

Stock turnover ratio

[COGS=cost of goods sold]

Closing inventory x 365days

COGS

 

204.60 days

175 days

184.21 days

The increasing amount of stock turnover ratio is further suggested that needs to maintain adequate stock to replenish the used items.

Debtors collection period

A/R: acc receivable=debtor

[refer  to Notes]

Trade A/R x 365 days

Credit sales

35days

44days

33 Days

The decreasing amount of debtors collection period is further suggested that the increasing amount of time required to collect the trade debt are increasing which is negative sign for the company

Creditor payment periods

A/P: acc payabable=creditor

[refer  to Notes]

Trade A/P x 365 days

Credit purchases

Nil days

171 days

160 Days

The credit payment is also seen to be increasing in the chosen company which is  a negative sign

 

C. Gearing (= Leverage) [show the company’s capital structure]

Gearing ratio

Debt

equity

2015   

2014

2013

Remarks

Debt ratio

[TA= FA + CA]

Debt

Total Assets

0.02

0.01

Nil

This ratio is used to calculate the financial leverage is calculated by taking into consideration the long-term debt divided by the total asset. The increasing amount of debt to equity ratio the threat for the company however it is able to maintain the ratio under 0.5, which is a positive sign (Siaec.com.sg. 2016).

Interest coverage ratio

[int = financial charges

or expenses]

Net Profit

Interest Expenses

 

0.014

0.008

Nil

This ratio depicts the profitability ratio and the debt ratio for accessing the ease of payment of interest of a company on the outstanding debt or the ability to pay the interest. Lower amount of this ratio suggests a negative impact on the company

D.Investment [show the return to the company’s investors]

Earnings per share (EPS)

[refer to P/L statement]

 

Net profit

No. of shares

16 cents

16 cents

24 cents

The decreasing amount of earnings-per-share shows the degrading performance of the company.

Price earnings (PE)

 

Market price of shares

EPS

16.2

21.4

20.7

The various additions given under the price earnings ratio shows the evaluation of the company in terms of its relative share price earnings to the present share price. Decreasing amount of this suggests a negative impact on the shareholders and it needs to improve significantly (Siaec.com.sg. 2016).

Dividend per share

[find out from the annual report]

Total Dividend paid

No of shares

 

19 cents

22 cents

22 cents

The recent times the dividend per-share has reduced by three cents, which is a negative sign for the company (Siaec.com.sg. 2016).

 

Graphical representation of the financial ratios

A. Profitability

 

 

 

 

2015

2014

2013

Gross profit ratio

84.2

84.2

81.3

Net profit ratio

16.32

16.32

23.53

Return on capital employed

19.3

19.54

21.04

Return on assets

15.8

15.91

16.71

Return on equity (ROE)

19.78

19.95

21.13

B. Liquidity

 

 

 

 

2015

2014

2013

Current ratio

3.01

3.13

3.01

Quick ratio

2.31

0.71

2.33

Stock turnover ratio

204.60

175.13

184.21

Debtors collection period

35.00

44

33.00

Creditor payment periods

Nil

171

160

C. Gearing

 

 

 

 

2015

2014

2013

Gearing ratio

0.02

0.01

Nil

Debt ratio

0.014

0.008

Nil

Interest coverage ratio

Nil

Nil

Nil

D. Investment

 

 

 

 

2015

2014

2013

Earnings per share

16

16

24

Price earnings (PE)

16.2

21.4

20.7

Dividend per share

19

22

22

SWOT Analysis “SIA Engineering Company”

Strengths

·         The main  strength of the airline company lies in the servicing in 80 varied airline operating worldwide

·         It is recognized as the best MRO as per the recommendation given by reeds and Asian Aviation magazine

·         It is having joint ventures, OEM, and the various airline companies operating in Taiwan, Indonesia, Singapore and many other locations.

·         The company is further observed to have technical knowhow related to the transfer of the process in the different types of the joint ventures associations such as Rolls-Royce

·         The company has further approvals from many different countries provide dedicated service to several aircraft registered in Japan and USA.

Weakness

·         From the background analysis it has been observed that the majority of the revenues generated from Singapore, and it is highly dependent only on regional incomes.

·         It has been observed that most of the airlines company in today’s airline business has their own service providers (Siaec.com.sg. 2016).

Opportunity

·         Due to the differentiated services the company has a scope for the increased demand for air travel which needs a dedicated MRO service

·         the company does an augmented focus on the customers and hence they should be a key differentiator

·         Does observed that several large companies often take advantage of economies of scale in purchasing (Siaec.com.sg. 2016)

Threat

·         The recent downturn in the US and Europe may be a negative factor for the growth of the company

·         It has been further observed that the engineering company is highly dependent only on the leisure air travel and the different types of size and age of the fleets.

·         The competition from several other competitors such as Hong Kong aircraft engineering Company limited, Singapore technologies engineering limited and TIMCO Aviation Services possesses high amount of threat to the company. (Store.globaldata.com. 2016).


Recommendation and conclusion

Based on the several types of financial analysis it can be observed that the operating environment for the related MRO services of the company remains a challenge. The company needs to continue invest in newer competencies to test the capability to meet the various types of changing demands. Moreover, as the airlines decide to replace the previous fleets with the new generation Boeing 787 and Airbus 350 has a high scope of improvement in generation of greater amount of revenue through the maintenance and repair operations. The company further strives to maintain a lower work content and maintain a longer period for checking intervals and management of several costs for improving the financial ratios relating to debt equity ratio, current ratio and return on equity. The joint venture program with Airbus and Boeing will prove to change significant amount of financial position and will ensure a long-term growth of the industry.

 

List of Reference and Bibliography

Al Mamun, A., 2013. Performance Evaluation of Prime Bank Limited in Terms of Capital Adequacy. Global Journal of Management and Business Research, 13(9).

Brigham, E.F. and Ehrhardt, M.C., 2013. Financial management: Theory & practice. Cengage Learning.

Brigham, E.F. and Houston, J.F., 2012. Fundamentals of financial management. Cengage Learning.        

Damodaran, A., 2016. Damodaran on valuation: security analysis for investment and corporate finance (Vol. 324). John Wiley & Sons.

Healy, P.M. and Palepu, K.G., 2012. Business Analysis Valuation: Using Financial Statements. Cengage Learning.

Kohansal, M.R., Dadrasmoghadam, A., Mahjori Karmozdi, K. and Mohseni, A., 2013. Relationship between financial ratios and stock prices for the food industry firms in Stock Exchange of Iran. World Applied Programming, 3.

Leary, M.T. and Roberts, M.R., 2014. Do peer firms affect corporate financial policy?. The Journal of Finance, 69(1), pp.139-178.

Ongore, V.O. and Kusa, G.B., 2013. Determinants of financial performance of commercial banks in Kenya. International Journal of Economics and Financial Issues, 3(1), p.237.

Sg.finance.yahoo.com. (2016). S59.SI Key Statistics | SIA Engineering Stock - Yahoo! Singapore Finance. [online] Available at: https://sg.finance.yahoo.com/q/ks?s=S59.SI [Accessed 26 Sep. 2016].

Sg.finance.yahoo.com. (2016). S59.SI Profile | SIA Engineering Stock - Yahoo! Singapore Finance. [online] Available at: https://sg.finance.yahoo.com/q/pr?s=S59.SI [Accessed 26 Sep. 2016].

Siaec.com.sg. (2016). [online] Available at: https://www.siaec.com.sg/pdf/10May2016.pdf [Accessed 26 Sep. 2016].

Siaec.com.sg. (2016). [online] Available at: https://www.siaec.com.sg/pdf/AnnualReport_2014.pdf [Accessed 26 Sep. 2016].

Siaec.com.sg. (2016). [online] Available at: https://www.siaec.com.sg/pdf/AnnualReport_2013.pdf [Accessed 26 Sep. 2016].

Siaec.com.sg. (2016). [online] Available at: https://www.siaec.com.sg/pdf/AnnualReport_2015.pdf [Accessed 26 Sep. 2016].

Siaec.com.sg. (2016). SIA Engineering Company. [online] Available at: https://www.siaec.com.sg/company_profile.html [Accessed 26 Sep. 2016].

Siaec.com.sg. (2016). SIA Engineering Company. [online] Available at: https://www.siaec.com.sg/history.html [Accessed 26 Sep. 2016].

Siaec.com.sg. (2016). SIA Engineering Company. [online] Available at: https://www.siaec.com.sg/mission_core_values.html [Accessed 26 Sep. 2016].

Store.globaldata.com. (2016). SIA Engineering Company Limited (S59) - Financial and Strategic SWOT Analysis Review | Aerospace and Defense | Company Reports | Global Company Intelligence | GlobalData . [online] Available at: https://store.globaldata.com/company-reports/aerospace-and-defense/sia-engineering-company-limited-s59-financial-and-strategic-swot-analysis-review#.V-lH_ih94dU [Accessed 26 Sep. 2016].

Vogel, H.L., 2014. Entertainment industry economics: A guide for financial analysis. Cambridge University Press.

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