Fundamentals of Value Creation in Business

Executive Summary of Bisalloy Steel Group Limited Analysis

Bisalloy Steel Group Limited is the leading manufacturer of high quality steel products. It has been analysed that it is highly responsive to the demand of the customers and trends of the market happening anywhere in the world and laid emphasis on continuous improvement and development of its products. The main vision of the company is to enable effective innovations with the steel. In this report, the analysis of profitability, liquidity and solvency ratios of the Bisalloy Steel Group Limited has been after calculating such ratios with the help of relevant formulas. It has been estimated that in 2019, EBITDA margin was 8.8% and it has been increased to 11.11% in the year 2020. The net profit margin of the company has increased from 4.51% in 2019 to 6.19% in 2020 which shows that company is considering effective measures to reduce the cost and improve its profitability. The current ratio has improved significantly from 1.37 in 2019 to 1.67 in 2020. This indicates that company can effectively meet its current short term debt obligations 1.67 times over. Quick ratio is calculated assess the liquidity position of the enterprise. This represents how well the organization can pay off its short term debts without selling any of its inventory. It has been found that solvency ratios helps the business owners to keep a track on the downtrends that might suggest the likely occurrence of bankruptcy in the future period of time. The solvency ratio, namely, debt to assets ratio that helps in measuring the amount of assets of the company that are being financed through the debt or borrowings. This ratio is calculated by dividing the amount of total liabilities by total assets of the company. This ratio is consistent for the last four years. In 2020, it is calculated as 0.51 which indicates that Bisalloy Steel Group Limited has $2 worth of assets for every $1 of the amount of debt.

Introduction to Bisalloy Steel Group Limited Analysis

Bisalloy steels is one of the leading manufacturers of highly tensile and tempered steel plates that are effectively used for structural, armour applications. The manufactured products are marketed in the brand name Bisalloy and are exported to the host of countries throughout South America, Middle East, Asia, North America and Europe (Bisalloy, 2019). Being the only Australian manufacturer of high strength steels, it is positioning itself as the clear home market leader. It manufactures highly efficient products and has earned global reputation for its technical backup and high quality of its products. It considers health and safety of its people at the first place (Annual report, 2019). It is highly responsive to the demand of the customers and trends of the market happening anywhere in the world and laid emphasis on continuous improvement and development of its products. Bisalloy Steel Group Limited has launched a programme, named BisEnergy, to convey a culture of regular enhancement and improvements in different parts of its business (Bisalloy, 2019). End – users and supplying manufactures in a wide range of industries comprises of mining, general fabrication, construction, defence and pressure vessel. It distributes its products with the help of network distributors present across Australia which provides the products directly to the end users, via its businesses in Indonesia, People’s Republic of China, Thailand and with the help of agents present in at least 12 countries all over the world (Bisalloy, 2019). The main vision of the company is to enable effective innovations with the steel. The steel produced by Bisalloy is considered to be less tough towards the environment as it is used to develop hard wearing components that last longer in application demand and thus, lead to declined requirements for emissions – intensive steelmaking and energy (Bisalloy, 2019).

Profitability Analysis

Profitability ratios are defined as the financial ratios that are effectively used by the investors and analysts to measure and estimate the capability of the organization to produce income in relation to its revenue, shareholders’ equity, operating costs and balance sheet assets during a particular period of time (Rachlin, 2019). They indicate how the company is utilizing its assets to acquire profitable situation and returns to the shareholders. They act as a useful ratios when compared to past years performance. EBITDA indicates Earnings before interest, taxes, depreciation and amortization (Kadim et al., 2020). It presents the profit level of the organization prior to taking into consideration non-operating items such as taxes and interest and non – cash items such as amortization and depreciation. This ratio is maximum in 2020 as compared to past 5 years. In 2019, EBITDA margin was 8.8% and it has been increased to 11.11% in the year 2020. Net profit margin offers the final view of the organization after undertaking all the expenses. It measures the overall success of the organization (Chowdhury, 2018). Higher level of net profit margin shows that the company has pried its products in correct manner and is undertaking effective control over the cost of its products. The net profit margin of the company has increased from 4.51% in 2019 to 6.19% in 2020 which shows that company is considering effective measures to reduce the cost and improve its profitability. Return on equity is calculated by dividing the net income by the shareholders’ equity. This ratio helps in evaluating the ability of the company in utilising its assets to generate income for the people who have invested funds in the organization (Chowdhury et al., 2019). This ratio has significantly improved from 12.59% in 2019 to 16.04% in 2020. Return on assets shows the profitability of the business organization with respect to its assets. It provides the idea to the analyst or investor regarding how the company or management of the company is using its assets to generate earnings (Kartikasari & Merianti, 2016). This ratio for Bisalloy Steel Group Limited has increased from 1.53% to 2.09% from 2019 to 2020 respectively. This indicates that the management is working effectively and efficiently to use its assets to produce high amount of income. Return on invested capital is used to evaluate the efficiency of the management of the company in allocating the amount of invested capital to highly generated return investments under its control and supervision. This ratio is almost consistent for the last three years.

ITEM

2015

2016

2017

2018

2019

2020

Net profit margin (%)

4.58

3.14

2.74

4.35

4.51

6.19

EBIT margin (%)

8.48

6.17

5.66

7.18

6.98

9.26

EBITDA margin (%)

10.61

8.63

7.98

8.99

8.79

11.11

ROE (%)

10.95

6.80

6.40

12.61

12.59

16.04

ROA (%)

1.49

0.92

0.89

1.57

1.53

2.09

ROIC (%)

0.08

0.05

0.05

0.10

0.12

0.13

Liquidity Analysis

Liquidity analysis takes into consideration several ratios to evaluate or estimate the capability or competency of the organization to pay off its short term debts at the required interval of time. This type of analysis is considered essential for the creditors and lenders who provided funds to the company to meet its requirements (Rashid, 2018). So, it becomes significant for them to assess its financial position before providing them with the amount of credit. Quick ratio and current ratio are used to compare current or liquid assets with the short term liabilities. In current ratio, all the current assets of the company are compared with the current liabilities during the specified period of time (Hossain & Nguyen, 2016).

Current ratio = Current assets / Current liabilities

The current ratio has improved significantly from 1.37 in 2019 to 1.67 in 2020. This indicates that company can effectively meet its current short term debt obligations 1.67 times over. In order to considered as liquidity firm, the company is required to maintain its current ratio to at least 1.0 which shows that the company is efficient in meeting its short term debt related obligations. In case of Bisalloy Steel Group Limited, the firm is more liquid than that. It can effectively pay off its current debt obligations and will have a little left over.

After calculating the current ratio, quick ratio is calculated assess the liquidity position of the enterprise. This represents how well the organization can pay off its short term debts without selling any of its inventory (Kontus & Mihanovic, 2019). Out of all the current assets, inventory is considered as the least liquid assets as the company has to find the potential buyer to sell off its inventory. This ratio has improved from 0.55 to 0.57 from 2019 to 2020 respectively. However, 0.57 ratio indicates that the company may not be able to meet its short term debt commitments without selling any part of inventory as the quick ratio is calculated as less than 1.

Quick ratio = Current assets – inventory / current liabilities

Item

2015

2016

2017

2018

2019

2020

Current ratio

2.24

3.06

1.98

1.59

1.37

1.67

Quick ratio

1.16

1.35

1.13

0.77

0.55

0.57

Solvency Analysis

The analysis of solvency ratios basically helps in measuring the ability of the company in fulfilling its long term obligations and commitments. The size of the profitability of the company is measured with the help of solvency ratios which is then compared with the obligations of the company (Demir et al., 2017). Solvency ratios also helps the business owners to keep a track on the downtrends that might suggest the likely occurrence of bankruptcy in the future period of time. By effectively analysing the solvency ratios, the investor or analyst obtains knowledge regarding the company’s ability to pay off its long term financial commitments. Also, they can keep a check on the amount that the company is raising with the help of borrowings in comparison to the earnings and assets of the corporation. If these ratios are calculated as high then it indicates that the company has strong financial strength. On the other hand, if these ratios are computed as low, then it is estimated that the company would face financial struggles in the future period of time. These ratios effectively show the financial health and performance of the company with regard to its debt obligations. Debt to equity ratio acts as a fundamental indicator of the amount of leverage that is being used by the business organization. Debt here generally refers to the long term financial obligations on which the firm is required to pay interest at regular intervals of time and the principal amount at the time of maturity. Equity refers to the shareholders’ equity that is recorded in the balance sheet.

The second solvency ratio is debt to assets ratio that helps in measuring the amount of assets of the company that are being financed through the debt or borrowings (Lian & Ma, 2018). This ratio is calculated by dividing the amount of total liabilities by total assets of the company. This ratio is consistent for the last four years. In 2020, it is calculated as 0.51 which indicates that Bisalloy Steel Group Limited has $2 worth of assets for every $1 of the amount of debt.

Debt to assets ratio = Total debt / total assets

The other solvency ratio is equity to assets ratio which is computed by dividing total equity with the total assets. This ratio helps in evaluating the effectiveness of the company in financing its assets with the help of shareholder equity (Rezaei Pitenoei & Gholamrezapoor, 2019). If this ratio is high, then it indicates that the company requires less amount of debt to acquire the assets for carrying out its operations. This ratio for Bisalloy Steel Group Limited has improved from 0.46 to 0.49 from 2019 to 2020.

Interest coverage ratio measures the ability of the company to meet the long term debt commitments and obligations (Greenwald, 2019). This ratio is calculated by dividing the company’s earnings before interests and taxes by the interest expenses with regard to the long term liabilities. There is significant increase in this ratio from the last year. It has increased from 5.75 in 2019 to 8.29 in 2020.

Item

2015

2016

2017

2018

2019

2020

Debt to equity ratio

0.96

0.72

0.99

1.24

1.18

1.03

Equity to assets ratio

0.51

0.58

0.50

0.45

0.46

0.49

Debt to assets ratio

0.49

0.42

0.50

0.55

0.54

0.51

Net interest cover

5.51

5.15

3.65

7.23

5.75

8.29

Conclusion on Bisalloy Steel Group Limited Analysis

It can be concluded that Bisalloy Steel Group Limited is rising continuously from the past 3 years. Its growth initiatives are developing to strategy that is strengthening its business operations in Australia and resulted in growth of profit and volume in its international business processes and operations. It has launched a programme, named as BisEnergy, to convey a culture of regular improvement and enhancement across different parts or its business. It undertakes distribution of its products with the help of network distributors present across Australia which provides the products directly to the end users, via its businesses in Indonesia, People’s Republic of China, Thailand and with the help of agents present in at least 12 countries all over the world. The current ratio has improved significantly from 1.37 in 2019 to 1.67 in 2020. This indicates that company can effectively meet its current short term debt obligations 1.67 times over. Higher level of net profit margin shows that the company has pried its products in correct manner and is undertaking effective control over the cost of its products. The net profit margin of the company has increased from 4.51% in 2019 to 6.19% in 2020 which shows that company is considering effective measures to reduce the cost and improve its profitability. Debt to assets ratio that helps in measuring the amount of assets of the company that are being financed through the debt or borrowings. This ratio is consistent for the last four years. In 2020, it is calculated as 0.51 which indicates that Bisalloy Steel Group Limited has $2 worth of assets for every $1 of the amount of debt. There is significant increase in interest coverage ratio from the last year. It has increased from 5.75 in 2019 to 8.29 in 2020.

References for Bisalloy Steel Group Limited Analysis

Annual report. (2019). Bisalloy Steel Group Limited. Retrieved from https://www.bisalloy.com.au/wp/wp-content/uploads/2019/12/Bisalloy-AR-2019-Final.pdf

Bisalloy. (2019). About Bisalloy. Retrieved from https://www.bisalloy.com.au/about-bisalloy/

Bisalloy. (2019). Our company. Retrieved from https://www.bisalloy.com.au/about-bisalloy/our-company/

Bisalloy. (2019). Sustainability. Retrieved from https://www.bisalloy.com.au/about-bisalloy/sustainability/

Bisalloy. (2019). Vision and values. Retrieved from https://www.bisalloy.com.au/about-bisalloy/vision-values/

Chowdhury, L. A. M., Rana, T., & Azim, M. I. (2019). Intellectual capital efficiency and organisational performance. Journal of Intellectual Capital.

Chowdhury, M. (2018). Performance Measures through Financial Ratio Analysis of (Doctoral dissertation, Daffodil International University).

Demir, R., Wennberg, K., & McKelvie, A. (2017). The strategic management of high-growth firms: A review and theoretical conceptualization. Long Range Planning, 50(4), 431-456.

Greenwald, D. (2019). Firm debt covenants and the macroeconomy: The interest coverage channel. Manuscript, July.

Hossain, A. T., & Nguyen, D. X. (2016). Capital structure, firm performance and the recent financial crisis. Journal of Accounting and Finance, 16(1).

Kadim, A., Sunardi, N., & Husain, T. (2020). The modeling firm's value based on financial ratios, intellectual capital and dividend policy. Accounting, 6(5), 859-870.

Kartikasari, D., & Merianti, M. (2016). The effect of leverage and firm size to profitability of public manufacturing companies in Indonesia. International Journal of Economics and Financial Issues, 6(2), 409-413.

Kontuš, E., & Mihanović, D. (2019). Management of liquidity and liquid assets in small and medium-sized enterprises. Economic research-Ekonomska istraživanja, 32(1), 3247-3265.

Lian, C., & Ma, Y. (2018). Anatomy of corporate borrowing constraints. Unpublished working paper.

Rachlin, R., 2019. Return on Investment Manual: Tools and Applications for Managing Financial Results: Tools and Applications for Managing Financial Results. Routledge.

Rashid, C. A. (2018). Efficiency of Financial Ratios Analysis for Evaluating Companies’ Liquidity. International Journal of Social Sciences & Educational Studies, 4(4), 110.

Rezaei Pitenoei, Y., & Gholamrezapoor, M. (2019). Free Cash Flow, Institutional Ownership and Long-Term Performance. Advances in Mathematical Finance and Applications, 4(2), 31-42.

Remember, at the center of any academic work, lies clarity and evidence. Should you need further assistance, do look up to our Accounting and Finance Assignment Help

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