Technical Note: Financial Data Reports

Transcription

1 Technical Note: Financial Data Reports Contents Background... 2 Data Source... 3 Price Volume Data... 3 Financials... 3 Ratio Analysis... 4 Market Related... 4 Corporate... 6 Bank / NBFI... 8 Insurance Definitions of Some Financial Inputs, Assumptions & Data Limitations Cautionary Notes and FAQs

2 Background The Stock Exchange of Mauritius (SEM) and CARE Ratings (Africa) Private Limited (CRAF) have joined hands to provide financial information summarized in a more appropriate usable form on listed companies on SEM. The objective of these reports is to use publicly available information and convert that into Financial Data Report that can be useful input for various stakeholders of the company including the senior management, promoters, shareholders, etc. The reports are prepared by CRAF and will be hosted on the website of the SEM. This note explains the technical aspects related to the reports. 2

3 Data Source Only publicly available information is used for the purpose of preparing the reports. Price Volume Data The closing price on each trading day is provided by the SEM The value traded is provided by the SEM. The Market Capitalization is provided by the SEM. Both price and value traded are publicly available on the stock exchange from day to day. However, SEM has provided the same in a specific format which is more suitable for preparation of reports. Financials Annual Reports and quarterly financial reports that are publicly available are used. 3

4 Ratio Analysis Market Related Ratio Calculation Interpretation Current Market Price 52 Week H/L Market Capitalization P/B Closing Price on a Defined Day Highest and Lowest closing price in 250 trading days Number of Shares x Current Market Price Current Market Price / Book Value per share (as on the end of last annual financials) OR Market Capitalization / Tangible Net Worth (as on the end of last annual financials) Tangible Net Worth = Total Equity minus Intangible Assets Book Value Per Share (BVPS) = Tangible Net Worth / number of shares Gives the latest closing price of the entity and acts as a reference point for other ratios Highest and Lowest closing prices provide a range of price movement. They are also compared with the Current Market Price to see whether the stock is trading close to the low or high end of its historical value. Indicates the total value of the company based on the most recent closing price. The value is converted into MUR irrespective of the trading currency. Price to Book value compares the price that the market is putting on a security with the value (Assets minus Liabilities) that is on the books of the company. This ratio is typically compared with the industry peers to understand whether the stock is over or undervalued. The ratio should be used in conjunction with other measures to take a view on the company. Use to Tangible Net Worth is a conservative measure. P/E Dividend Yield % In case the currency for traded shares and financial data is different, appropriate exchange rate is considered Current Market Price / Earnings Per Share (as on the end of last annual financials) In case the currency for traded shares and financial data is different, appropriate exchange rate is considered Dividend Per Share (as on the end of last annual financials) / Current Market Price x 100 A valuation ratio of a company's current share price compared to its per-share earnings. This ratio is also compared with the industry peers to understand whether the stock is over or undervalued. The ratio should be used in conjunction with other measures to take a view on the company. Dividend yield is a way to measure how much cash flow investor is getting for each rupee invested in a company. Investors can earn either through appreciation in value of a share or through dividend paid by the company. The benchmark dividend yields vary from industry to industry and also depend upon the growth stage of the company. 4

5 Stock Returns and Index Returns (Annualized) (CMP Pt0)/ Pt0 x 100 x 12 / T Where Pt0 = Price at the Start of the Period (3 Months, 6 Months, 12 Months, 36 Months) CMP = Current Market Price (as used in the report) T = Time Period {3, 6, 12, 36} Stock Returns Index Returns % Change in the market price of the Stock or the Index. Indicates the annualized returns. Excess return earned by the stock over the index Relative Return Value Traded (MUR 000) Monthly value of the value of stock traded over the previous one year Indicates the market activity of the stock. If a stock is generally traded more, it indicates higher level of liquidity in the stock for investors. 5

6 Corporate Ratio Calculation Interpretation EBITDA Margin (%) PAT Margin (%) PAT Margin on Total Revenue (%) RoCE (%) RoE (%) Total Debt / Networth (times) or Debt - Equity (times) Earnings Before Interest, Tax, Depreciation & Amortization (EBITDA) / Operating Revenue x 100 PAT / Operating Revenue x 100 PAT / Total Revenue x 100 EBIT / Average Capital Employed x 100 = [EBIT current year / (Capital Employed current year + Capital Employed previous year / 2)] x 100 WHERE Capital Employed = Total Assets less Intangible Asset less Current Liabilities (excl. short term debt) PAT / Average Tangible Net Worth x 100 = [PAT current year / (Tangible Net Worth current year + Tangible Net Worth previous year / 2)] x 100 WHERE Tangible Net Worth = Total Equity less Intangible Assets (Long Term Debt + Short Term Debt) / Tangible Networth Cash margin available for covering fixed costs such as interest, taxes and debt repayments. A key indicator of profitability in any manufacturing/service activity. Margin available to service equity shareholders Margin available to service equity shareholders compared to total income. This ratio is computed to overcome data limitations in quarterly financials because the bifurcation between total and operating revenue is not clear. Otherwise the interpretation is same as PAT Margin Reflects the earnings capacity of the assets deployed, ignoring taxation and financing mix. It is a useful tool for comparison of performance of companies within an industry. Capital Employed is also computed as Tangible Net Worth (Total Equity less intangibles) + Net Working Capital + Borrowings and is an indicator of total capital employed in business, ignoring the source of the funding. Since EBIT reflects the performance during the year, the average capital employed is used a proxy for the capital employed during the year. Indicates returns available to equity shareholders. It is a useful tool for comparison of performance of companies across industries. Intangible assets are removed from total equity to compute Tangible or tangible net worth. While some intangible assets do bring value to the company, this is a simplified analytical adjustment that is generally accurate. In few specific cases, bearer biological assets have been included as part of intangibles. PAT being a during the year measure is compared with average Tangible networth for the year. Indicates extent of financial leverage and are a measure of financial risk. Though higher leverage would indicate higher returns to equity shareholders, the degree of risk increases for debt holders in case of uncertainty or volatility of earnings. 6

7 Interest Coverage (times) Current Ratio (times) Inventory Days Receivable Days Diluted EPS EBIT / Interest Expenses Total Current Assets / Total Current Liabilities Average Inventories / Cost of Sales x 365 = [(Inventory current year + Inventory previous year / 2)] / Cost of Sales current year x 365 Cost of Sales/Operating expenses have been used as proxy for Cost of sales in the calculation of the ratio. Average Trade Receivables / Operating Revenue x 365 = [(Trade Receivables current year + Trade Receivables previous year / 2)] / Cost of Sales current year x 365 Only the current portion of trade receivables have been used in the calculation of the ratio. Earnings Per Share is calculated by dividing the company s profit by the number of shares outstanding. Indicates extent of cover available to meet interest payments. Good indicator of profitability and extent of indebtedness. Indicates short-term liquidity position. Should be equal to at least one. Also should be seen in light of industry trends and banking norms. A high current ratio, however, may indicate inefficient use of current assets (by over dependence on own funds). Alternatively, it may be a signal for inability or unwillingness to obtain requisite finance for working capital. To be compared with normal inventory holding policy of the company, industry practice and bank norms. High average inventory period may indicate high levels of obsolescence of inventory while low levels of inventory may be inadequate to meet emergencies. Indicates quality of debtors. To be compared with normal credit period extended to customers, that of the industry and bank norms. Too low a figure can indicate strict trade terms resulting in possible loss in sales. Diluted EPS is a performance metric used to gauge the quality of a company s earnings per share is all convertible securities were exercised. The diluted EPS will be lower than the basic EPS. The report uses consistent terminology and has therefore used diluted EPS. In case there are no dilutive securities, diluted EPS will be equal to basic EPS. 7

8 Bank / NBFI Ratio Calculation Interpretation NIM (%) Cost to Income (%) ROTA (%) Net Interest Income / Average Total Assets Non-Interest Expenses (excluding impairments) / (Net Interest Income + Non- Interest Income) PAT / Average Total Assets Indicates the spread that the bank charges and measures the profitability of the fund based business of the bank. This ratio will also depend on the business model that the bank follows. Trend in the ratio should be observed. The calculated ratio might be different from the ratio reported in the annual report because of different methodology used. Indicates operating efficiency of the bank. The adequacy of net interest income in covering the operational expenses is indicated by this ratio. Indicator of overall profitability of the bank with respect to its asset base. RoE (%) PAT / Average Tangible Net Worth x 100 = [PAT current year / (Tangible Net Worth current year + Tangible Net Worth previous year / 2)] x 100 WHERE Tangible Net Worth = Total Equity less Intangible Assets less Deferred Tax Assets Reported GNPA% Indicates returns available to equity shareholders. It is a useful tool for comparison of performance of companies across industries. Intangible assets are removed from total equity to compute Tangible or tangible net worth. While some intangible assets do bring value to the company, this is a simplified analytical adjustment that is generally accurate. PAT being a during the year measure is compared with average Tangible networth for the year. An indicator of asset quality of the bank without taking provisions into account. GNPA (%) CAR (%) Tier I CAR (%) Reported CAR% Reported Tier I CAR% Reflects the solvency position of the bank. 8

9 Debt / Networth (times) C/D Ratio (times) (Deposits + Other Borrowings) / Tangible Net Worth Loans & Advances / Deposits Additional indicator of solvency of the bank. It is a more simplistic ratio compared to CAR but still gives an overall view on the solvency. Although banks might not consider deposits as debt when they calculate this ratio, they have included for analytical purposes in the calculation of the ratio in the report. The calculated ratio might be different from the ratio reported in the annual report because of different methodology used. Indicates the extent of deposits deployed by way of lending/advances. 9

10 Insurance Ratio Calculation Interpretation Retention Ratio (%) NPW / GPW Indicates the level of risk retained with the company, the balance being passed on to the re-insurer. Loss Ratio (%) Expense Ratio (%) Combined Ratio(%) Return on Revenue (%) Return on Equity (%) Return on Total Assets (%) Solvency Margin (%) Technical Reserves / Net Worth (times) Net Claims Incurred / Net Premium Earned (Net Commission + Op Exp) / NPE Loss Ratio + Expense Ratio PBT / (NPE + Income from Investments + Other Income) PAT / (Average Tangible Net Worth) PAT / (Average Total Assets) Reported Solvency Margin (Claims Outstanding + Reserve for Unexpired Risk + IBNR Reserves) / (Tangible Net Worth) Measures the extend of premium earned during the year which was expensed for claims. If the pricing of premiums is not done correctly, then they would not be sufficient for paying the claims. Measures to operating expense related to the insurance businesses. Measures the overall underwriting profit / loss. If the ratio is more than 100, the company is making an underwriting loss. Indicator of overall profitability including underwriting and investment business. Same interpretation as in case of Corporate & Banks. Same interpretation as mentioned for ROTA earlier. Indicator of Solvency position of the company with respect to the insurance related risks. Technical reserve, apart from being the statutory reserves required to pay estimated claims, is also a balance sheet indicator of cumulative business done by the insurance company. This ratio measures the volume of business done per unit of capital. 10

11 Definitions of Some Financial Inputs, Assumptions & Data Limitations If the breakup of certain balance sheet items (like current liabilities, non-current liabilities, current assets, etc) and certain P&L items (other income, interest expense, cost of goods sold, etc) is not available, then aggregate amount is presented. This has impact on certain ratios as the accurate value cannot be computed in the absence of data. NM / NA = Either Not Meaningful or Not Available Other income includes non-operating revenue, finance income (where breakup is available) and non-recurring income. EPS is the stated EPS value in the Annual Report / Financials. If not available, it is not computed. PAT excludes comprehensive income Total Revenue includes other income EBITDA, PBT, PAT is as per the published figures. If not available directly, then the values are computed. For EBITDA and EBIT, they are estimated in case limited information is provided. (Certain abridged accounts might not have details on depreciation and other amortizations.). The estimates are consistent for all the companies who have not directly provided these figures. If Group income is significantly different (more or less) than Company income AND / OR if Group total assets are significantly different from Company total assets, then report using Group financials is prepared, otherwise report uses company financials. Quarter End Vs Year End: Each report will contain information on both quarter end and year end financials. In case the period for year end and quarter end is overlapping, only year-end financials will be presented. Certain ratios will differ from what is reported in annual reports because of different methodology used. Careful interpretation of Ratios for specific types of companies: o Investment / Holding Companies: Likely to have more volatility in the income and profit related ratios because of the nature of business. Balance sheet ratios more relevant Interest Expenses = Finance Costs Tangible Networth = Total Equity less intangible assets Underwriting Surplus = NPE minus Claims minus Commissions Exchange Rates o If balance sheet is in non-mur currency, the values are converted for ratio calculation using the balance sheet date appropriate exchange rate. o If price is in non-mur currency, the values are converted for ratio calculation using the appropriate exchange rate prevailing on the day the price is recorded. 11

12 Cautionary Notes and FAQs Can this data be used to compare companies? Is a higher EBITDA margin for company A vs company B indicative of better profitability of company A? We would strictly caution the use of this data to draw simple conclusions. Companies and businesses differ in nature and operations and it would be incorrect to make direct comparisons between companies without understanding the differences in their models. At the same time, these ratios can be used to understand trends over a period of time and also compare companies within the same business lines. So if company A and B in the question are in the same business, having similar business model, yes it would be fair to draw the conclusion that company A is better. If they are in different business segment, a combination of other data will have to be considered. What are Annualized Returns and why are Annualized returns -100% in some cases? Annualized returns put the returns calculated for different periods into one standardized form. They are the returns company would have earned over a year if it continued to earn at the same rate as it did during the return period. For example, if a company s price rose by 4% in a quarter, its price would have increased by 16% during the full year using a simple average method. Annualized return of -100% in some cases indicates a sharp fall during that period, which if continued at that rate would lead to significant price fall. However, it does not mean that the price will actually fall by 100%! It is just a statistical calculation that the rate at which it is falling is can lead to almost nil price by the end of the period. Group vs Company Financials: Why are group financials used in some cases while company financials in others? As a best practice group consolidated financials should be shown by the companies in their financial reports. However, for analytical purposes, if the Group operations are not significantly different from Company operations, it is preferable to use Company financials for ratio and summary calculations. How do we adjust prices for stock splits / stock dividends etc? As an analytical adjustment, all historical prices are adjusted in the ratio of shares post the event divided by shares prior to the event. For example, a stock was trading at 200 and then there was a 1:10 stock split. It price will move to 20 per share immediately because of increase in number of shares. In this case we divide the prices of all previous periods by 10 to make them comparable to the current prices. Why do some reports contain quarterly financials while some don t? All reports cover the latest financial data available on that period. If Annual results are released at the same time as quarterly results, then only annual results are shown. For e.g. if a company has June ending financials, for the report of June 30, 2015 only annual results will be shown. 12

13 Whereas if another company had December ending, then its annual performance till December 31, 2014 and its quarterly performance till June 30, 2015 would be shown. Why is 52-week High / Low price not provided for some companies? Such companies would be listed for less than 1 year. What happens to the ratios of conglomerates? The interpretation of ratios of conglomerates which are into diverse business lines is more difficult than single business companies. Therefore, there has to be extra caution taken while using this data for such companies to avoid making errors of judgement. Are ratios for General and Life insurance business the same? There are a lot of ratios that a common to the two businesses while there are some which differ. However, we have tried to compile the commonly used ratios to allow for basic understanding. How do we determine which template to use? The template (Corporate or Bank or Insurance) is based on the SEM classification and the business operations. In a few cases, analytical call has been taken to use a different template. How do we know when new reports will be published? For quarterly financial statements, CRAF will provide the reports within 75 days from the quarter ending (45 days for official release of data by companies + 30 days for update). For eg., the report for the quarter ending 31 st March 2016 will be released by 15 th June For annual abridged financial statements, CRAF will provide the reports within 120 days from the year ending (90 days for official release of data by companies + 30 days for update). For e.g, the report for the year ending 31 st December 2015 will be updated by 30 th April A lot of data which is available only in available report will not be available in the abridged financial statements and hence would be left as NM/NA. Annual report release is not predictable but typically should be within 120 days from the year ending. Once the annual report is released, CRAF will update the annual data in the report (which were earlier based on abridged statements) within 45 days of the release of the annual report. This may happen along with quarterly update / annual update if the quarter ending is near the release of the report. 13

14 Contact: Saurav Chatterjee Amit Ramsohoy Disclaimer The Financial Data Reports are prepared by CARE Ratings (Africa) Private Limited (CRAF). CRAF has taken utmost care to ensure accuracy and objectivity while developing these reports based on information available in public domain. However, neither the accuracy nor completeness of information contained in these reports is guaranteed by CRAF or by the Stock Exchange of Mauritius Ltd (SEM). SEM and CRAF make no representations, give no warranty and disclaim all liability in respect thereof and shall not be held liable for any damage, loss or cost incurred resulting from any error in the information or any use of or reliance on the said information. SEM and CRAF are not responsible for any errors or omissions in analysis/inferences/views or for results obtained from the use of information contained in these reports and especially state that SEM and CRAF has no financial liability whatsoever to the user of these reports. Appropriate independent advice should be obtained before making any investment or relying on the contents contained in this report. 14