Smrt Aaa Analysis

Ngee Ann Polytechnic Accounting Applications & Analysis

Background

In this report, we will be presenting the analysis we have done for SMRT Corporation Ltd (SMRT), a leader in Singapore as a multi-modal public transport operator. 2. Company Profile Established in 1987, SMRT Corporation Ltd was listed on the Singapore Exchange on 26 July 2000, SMRT has market capitalizations of more than $2. 5 billion backed by total assets of $1.

4 billion. A leader in Singapore as a multi-modal public transport operator, it is also a transport engineering and service solutions provider.The corporate structure is as follows: SMRT is an investment holding company and through its subsidiaries, SMRT operates in six segments: 1. Rail Operations, 2. Taxi Operations, 3.

Bus Operations, 4. Rental, 5. Advertising, 6. Engineering and other services. 2. 1Railway operation SMRT operates the first mass rapid transit (MRT) system in Singapore.

SMRT also operates Singapore’s first fully automated light rapid transit (LRT) system – the Bukit Panjang LRT system. 2. 2The Circle Line The Circle Line is coloured orange on the Singapore mapThe Circle Line (CCL) is a fully underground orbital line, linking all MRT lines leading to the city. We believe that the CCL will bring a sturdy increment in SMRT’s net profit. 2.

3Taxis operations The bus and charter hire services that SMRT provides for have daily ridership of 730,000 passengers. 2. 4Bus operation SMRT currently has a fleet of 861 buses running 83 routes from West to North and the rest of the Singapore. Apart from the daily bus services provided, SMRT Buses also operates Singapore’s first night service, the SMRT NightRider. 2. 5Financial Highlights (Appendix A)For the past 3 years, according to the financial highlights we believe that there will be a stable growth in revenue for the next 2 years, as there has been steady growth in the past 3 years as seen from the recent financial highlights.

There has also been positive free cash flow for the past 3 years, with the exception of the 2nd quarter of the fiscal year 2011. This could be due to funds being tied up in the construction to complete the final phrase of the Circle Line. 3. Strengths, Weakness, Opportunities and Threats (SWOT) Based on our research on SMRT, we did a SWOT analysis of the company. . 1Strengths 1.

Proven track record 2. Main operator of Singapore’s public transport backbone network, MRT system 3. 2Weaknesses 1. Fares are regulated by PTC, beyond SMRT’s control 2. Operations and services subject to Licensing and Operating Agreement by LTA 3.

Subject to fluctuation in energy costs 3. 3Opportunities 1. Doubling of Rapid Transport System by 2020 services 2. Various initiatives by Singapore government to promote public transport 3. Expansion of transport and engineering services 3.

4Threats 1. Deregulation and competitive bidding of public transport services 2.Affected by potential security, safety and disease outbreak risks 4. Financial Ratios (Appendix B) The purpose of the ratios is to allow stakeholders of the firm to see its overall performance. 4. 1Definitions There are 4 main categories of ratios: Liquidity, Activity, Debt and Profitability.

Liquidity ratios measure the ability to satisfy short-term obligations when due. Activity ratios measure the speed of converting various accounts into sales or cash. Debt ratios measure the extend to which the firm’s activities are financed by borrowing and the firm’s ability to service the debt.Profitability ratios measure the return the firm’s activities provide to investors and owners. Liquidity ratios were above average for the company except for the year 2009 where it was below the rule of thumb of 2. Activity ratios were in favour of the company such as a reduced average collection period and a good indication that assets have been used more efficiently in over the 3-year period.

There was also a reduced debt ratio and times interest earned ratio for the company over the 3-year period. 4. 2AnalysisFrom the profitability ratios, it is evident that SMRT has increased its profits (Net Profit Margin) over the 3 years and other profitability ratios from 2009 to 2010. However ratios such as ROA, ROE and P/E ratio are lower than industry averages, showing ineffectiveness in generating profits with assets, owner’s investments and how willing investors are invest for every dollar earned. 5. Factors – Profitability ; Sustainability (Appendix C) Operating costs, ridership and foreign investments are some of the factors that may affect profits and sustainability.

Operating costs such as oil prices play a very important part in determining SMRT’s profitability. With the opening of the remaining Circle Line stations, we believe that there will be an increase in MRT ridership, thus leading to profitability and sustainability. 6. Assumptions and Limitations There were no assumptions made; however the data of the Cost Of Goods Sold was not available. This resulted in not being able to calculate the inventory turnover and the average payment period. The calculation of Activity Ratios uses the average figure of Accounts Receivables and Total Assets.

. Recommendation Comparing the ratios with the industry average, SMRT can do better to be more profitable as compared to other competitors in the industry. Their profitability may be hindered by the high debt ratio. However, SMRT has commendable liquidity ratios which are higher than the industry average and with the upcoming commencement of the remaining Circle Line stations, we expect profits to increase in the next few years. As such, we would recommend the client to invest in SMRT.

(1000 Words Only) 8. Appendix A – Financial HighlightsAppendix B – Financial Ratios WorkingSMRT Ratios (2008)Liquidity Ratio 1. Net Working Capital = Total Current Assets – Total Current LiabilitiesNet Working Capital (Group) = $355 386 – $299 903 = $125 483Net Working Capital (Company) = $311 090 – $102 562 = $208 528 2. Current Ratio =Total Current AssetsTotal Current LiabilitiesCurrent Ratio (Group) = $355 386$229 903 =1. 55Current Ratio (Company) =$311 090$102 562 = 3. 3 3.

Quick Ratio =Quick AssetsTotal Current LiabilitiesQuick Assets (Group) = $355 386 – $31 872 = $323 514Quick Ratio (Group) = $323 514$229 903 = 1. 41Quick Assets (Company) = $311 090 -$0 = $311 090Quick Ratio (Company) = $311 090$102 562 = 3. 03Activity Ratio 1. Inventory Turnover = COGSInventory = (N. A)(NO COGS) 2.Account Receivable Turnover = Credit SalesAccounts ReceivablesAccount Receivable Turnover (Group) = $802 124($60 717+48 489)? 2 = 14.

69 Account Receivable Turnover (Company) = $802 124($261 003+164133)? 2 = 3. 77 3. Average Collection Period = Accounts ReceivablesAverage Sales per Day Average Collection Period (Group) = ($60 717+$48 489)? 2$802 124 ? 360 = 24. 1 Average Collection Period (Company) = ($261 003+$164 133)? 2$802 124 ? 360 = 95. 40 4.

Average Payment Period = Accounts PayableAverage Purchases per Day = N. A (NO COGS) 5. Total Asset Turnover = Sales Total AssetsTotal Asset Turnover (Group) = $802 124($1 437 601+$1 378 952)? 2 = 0. 570Total Asset Turnover (Company) = $802 124($647 454+$645 406)? 2 = 1. 4Debt Ratio 1. Debt Ratio = Total LiabilitiesTotal AssetsDebt Ratio (Group) = $760 460$1 437 601 = 0.

529 = 52. 9%Debt Ratio (Company) = $353 486$647 454 = 0. 546 = 54. 6% 2. Times Interest Earned Ratio = Net Profit before tax and interest expenseInterest ExpenseTimes Interest Earned Ratio = $176 162+$4294$4294 = 42.

03Profitability Ratio 1. Gross Profit Margin = N. A (NO COGS) 2.Net Profit Margin = Net Profit after taxesNet SalesNet Profit Margin = $149 939$802 124 = 0. 187 = 18.

7% 3. Return on Total Assets = Net Profit after taxesTotal Assets Return on Total Assets (Group) = $149 939$1 437 601 = 0. 104 = 10. 4%Return on Total Assets (Company) = $149 939$647 454 = 0. 232 = 23. % 4.

Return on Equity = Net Profit after taxesOwners’EquityReturn on Equity (Group) = $149 939$677 141 = 0. 221 = 22. 1%Return on Equity (Group) = $149 939$293 968 = 0. 51 = 51. 0% 5. Earnings Per Share = Net Profit after taxes and Prefence SharesNumber of Ordinary SharesEarnings per Share = $149 9391 515 158 = $0.

098 6.P/E Ratio = Market Price per Ordinary ShareEarnings per ShareP/E Ratio = $1. 77$0. 098 = 18. 1SMRT Ratios (2009)Liquidity Ratio 1.

Net Working Capital = Total Current Assets – Total Current LiabilitiesNet Working Capital (Group) = $392 317 – $416 265 = -$23 948Net Working Capital (Company) = $408 824 – $264 584 = $144 240 2. Current Ratio =Total Current AssetsTotal Current LiabilitiesCurrent Ratio (Group) = $392 317$416 265 =0. 4Current Ratio (Company) =$408 824$264 584 = 1. 55 3. Quick Ratio =Quick AssetsTotal Current LiabilitiesQuick Assets (Group) = $392 317 – $30 917 = $361 400Quick Ratio (Group) = $361 400$416 265 = 0.

87Quick Assets (Company) = $408 824 -$0 = $408 824Quick Ratio (Company) = $408 824$264 584 = 1. 55Activity Ratio 1. Inventory Turnover = COGSInventory = (N. A)(NO COGS) 2.Account Receivable Turnover = Credit SalesAccounts ReceivablesAccount Receivable Turnover (Group) = $878 951($71 548+$60717)? 2 = 13.

29 Account Receivable Turnover (Company) = $878 951($362 446+$261 003)? 2 = 2. 82 3. Average Collection Period = Accounts ReceivablesAverage Sales per Day Average Collection Period (Group) = ($71 548+$60 717)? 2$878 951 ? 360 = 27. 9 Average Collection Period (Company) = ($362 446+$261 003)? 2$878 951 ? 360 = 127. 68 4.

Average Payment Period = Accounts PayableAverage Purchases per Day = N. A (NO COGS) 5. Total Asset Turnover = Sales Total AssetsTotal Asset Turnover (Group) = $878 951($1 501 457+$1 437 601)? 2 = 0. 60Total Asset Turnover (Company) = $878 951($744 833+$647 454)? 2 = 1. 6Debt Ratio 1.

Debt Ratio = Total LiabilitiesTotal AssetsDebt Ratio (Group) = $779 379$1 501 457 = 0. 519 = 51. 9%Debt Ratio (Company) = $362 492$744 833 = 0. 491 = 49. 1% 2. Times Interest Earned Ratio = Net Profit before tax and interest expenseInterest ExpenseTimes Interest Earned Ratio = $185 779+$2894$2894 = 65.

19Profitability Ratio 1. Gross Profit Margin = N. A (NO COGS) 2.Net Profit Margin = Net Profit after taxesNet SalesNet Profit Margin = $162 731$878 951 = 0. 185 = 18.

5% 3. Return on Total Assets = Net Profit after taxesTotal Assets Return on Total Assets (Group) = $162 731$1 501 457 = 0. 108 = 10. 8%Return on Total Assets (Company) = $162 731$744 833 = 0. 218 = 21.

% 4. Return on Equity = Net Profit after taxesOwners’EquityReturn on Equity (Group) = $162 731$722 078 = 0. 225 = 22. 5%Return on Equity (Group) = $162 731$379 341 = 0. 429 = 42. 9% 5.

Earnings Per Share = Net Profit after taxes and Prefence SharesNumber of Ordinary SharesEarnings per Share = $162 7311 516 195 = $0. 107 6.P/E Ratio = Market Price per Ordinary ShareEarnings per ShareP/E Ratio = $1. 56$0. 107 = 14. 6SMRT Ratios (2010)Liquidity Ratio 1.

Net Working Capital = Total Current Assets – Total Current LiabilitiesNet Working Capital (Group) = $431 688 – $317 713 = $113 975Net Working Capital (Company) = $198 731 – $18 653 = $180 078 2. Current Ratio =Total Current AssetsTotal Current LiabilitiesCurrent Ratio (Group) = $431 688$317 713 =1. 6Current Ratio (Company) =$198 731$18 653 = 10. 7 3. Quick Ratio =Quick AssetsTotal Current LiabilitiesQuick Assets (Group) = $431 688 – $49 680 = $382 008Quick Ratio (Group) = $382 008$317 713 = 1.

20Quick Assets (Company) = $198 731 -$0 = $198 731Quick Ratio (Company) = $198 731$18 653 = 10. 7Activity Ratio 1. Inventory Turnover = COGSInventory = (N.A)(NO COGS) 2. Account Receivable Turnover = Credit SalesAccounts ReceivablesAccount Receivable Turnover (Group) = $895 053($54 248+$71 548)? 2 = 14.

23 Account Receivable Turnover (Company) = $895 053($196 565+$362 446)? 2 = 3. 20 3. Average Collection Period = Accounts ReceivablesAverage Sales per Day Average Collection Period (Group) = ($54 248+$71 548)? 2$895 053 ? 360 = 25. 0 Average Collection Period (Company) = ($196 565+$362 446)? 2$895 053 ? 360 = 112. 42 4.

Average Payment Period = Accounts PayableAverage Purchases per Day = N. A (NO COGS) 5. Total Asset Turnover = Sales Total AssetsTotal Asset Turnover (Group) = $895 053($1 583 168+$1 01457)? 2 = 0. 58Total Asset Turnover (Company) = $895 053($527 564+$744 833)? = 1. 41Debt Ratio 1. Debt Ratio = Total LiabilitiesTotal AssetsDebt Ratio (Group) = $813 152$1 583 168 = 0.

514 = 51. 4%Debt Ratio (Company) = $119 658$527 564 = 0. 227 = 22. 7% 2. Times Interest Earned Ratio = Net Profit before tax and interest expenseInterest ExpenseTimes Interest Earned Ratio = $191 727+$7899$7899 = 25. Profitability Ratio 1.

Gross Profit Margin = N. A (NO COGS) 2. Net Profit Margin = Net Profit after taxesNet SalesNet Profit Margin = $191 727$895 053 = 0. 214 = 21. 4% 3.

Return on Total Assets = Net Profit after taxesTotal Assets Return on Total Assets (Group) = $191 727$1 583 168 = 0. 121 = 12. %Return on Total Assets (Company) = $191 727$527 564 = 0. 363 = 36. 3% 4. Return on Equity = Net Profit after taxesOwners’EquityReturn on Equity (Group) = $191 727$770 016 = 0.

249 = 24. 9%Return on Equity (Group) = $191 727$407 906 = 0. 470 = 47. 0% 5.Earnings Per Share = Net Profit after taxes and Prefence SharesNumber of Ordinary SharesEarnings per Share = $191 7271 517 354 = $0.

126 6. P/E Ratio = Market Price per Ordinary ShareEarnings per ShareP/E Ratio = $2. 06$0. 126 = 15. 8| Appendix C – Factors – Profitability ; SustainabilityReferences Websites:http://www.

sgx. com/wps/portal/marketplace/mp-en/homehttp://www. smrt. com. sg/main/index. asphttp://www.

factiva. comTextbooks: Accounting Application ; Analysis lecture notes