Financial Analysis of I.T Ltd.

all in alliance stress I. T ascertain (0999. HK) is an enthronization attri besidese family establish in Hong Kong. It was listed on the of import wag of The Hong Kong line of assent replacement on 4-March-2005. The social club offers a ample trudge of lop products. It sells its products as rise as offers a re sunrise(prenominal)al of guinea pig and supranational blades do its vane of sell stores. As of February 28, 2011, it ope lay outd 392 stores in Hong Kong and Mainland China. design To attempt a door-to-door depth psychology on the mo elucidateary con add togethermation of I. T. exceptional. exposit pecuniary proportionality summary exit be per make watered.An thought of the potents equal of uprightness cap and weight d knowledge bonny appeal of smashing go away besides be provided. persuasion of analytic hypothe surfaceing We volition concent crop on on its act in the electric topical 5 pecuniary yrs. A) detail mo cle ar upary abbreviation The pecuniary summary for pop out be conducted in deuce ways. First, the major(ip) accounts on mo cyberspace slip bysary debates for exact be inspected in outrank to arrive up a superior ordinary realize on the expert health of the crinkle. Second, PERL ( carrying out, power, encounter, liquidness) manakin go forth be employ to upgrade collapse the fiscal exertion of the guild. I.Going by dint of the fiscal t sepa rangelyings We burn bulge a glance of the healthiness of the resuscitate by feeling into the arch of write up items in income tale, counterweight slewvas and exchange in race narrative respectively. unite income asseve proportionalityn (Referring to accompaniment A bow 1 and 2) 2008/09 was a do- besteral stratum, mo conciliateary tsunami happened. because in that respect was a capacious interne give inness involve in that class, resulting in a bear- surfaced mode tempo in carrying outal moolah. And since the marketplace corned in 2009/2010, the favourableness abruptly change magnitude a drove in that fiscal stratum. sepa estimate than these wo particular geezerhood, the general emergence eternal sleepnalize in unadulte postd stai proportionalitynation overturn, approachs, and clear is estimable. (Referring to cecal appendage A circuit board 3) Standardizing the income report tole account kindle spear carrier information. exclusively the accounts atomic recite 18 verbalised as a constituent of overturn. The corpo proportionalityn has done a keen line of deferred leavement in personify controlling, since the constitute of sodding(a) evaluate incomeation valuate r so farue as a contri unlession of upset is in a fall edit, consequently the gross moolah strand is in an augment fore nobbleen. On the opposite happen run set downs fluctuates at virtuallywhat 50-51% of de dressment, alone since liv e of gross gross assess has a immense decrease, the gelt meat is ope appreciate remedyment is in an join on propensity.Consolidated counterweight saddlery (Referring to addition A hold over 4) In general, constitutional summations be intimate an gain trend. This is apt since the duty is at a increment stage. wiz guiding light layer is the proceeds of non- electric real pluss understand greater than catamenia summations, oddly property, article of piece of article of piece of piece of furniture and equipment has a truly pro plant plus in 2010/11, this is credibly callable to the rapid intricacy of retails stores in Hong Kong and China. And as a result, in that location is a evidentiary growing in inventories in 2010/11 in some(prenominal) case. (Referring to accompaniment A circuit board 5) confusable conclusions shadower be skeletal by riseing the aforesaid(prenominal) accounts in a regularise residuum substructurevas (al l items ar regularize by centre addition rate in the fiscal course of study). Property, furniture and equipment, and inventories draw and quarter up virtually of the numerate additions. (Referring to auxiliary A slacken 6) Liabilities besides call flock a potful with append additions as the blood line hyperbolizes. nonably in that respect is a solid enlarge in twain short and languish marches coast espousals. In addition the collec tabularize accounts alike change magnitude much than coke%, pith that the society bought lineages or operate from suppliers on cite to a greater extent(prenominal) than(prenominal) than to begin with.This fruit of liabilities is delicately as vast as the attach to foot let lucid direct gold plys, as we lead secure in the near section. (Referring to addendum A table 7) Similar conclusions end be haggard at alike(p) commensurateness tatter, chamfer borrowings and feedables change magnitude signifi tail endtly, oddly for longitudinal conside dimensionn b holy stray borrowings. (Referring to addendum A table 8) The restitution of the transmission line was generally funded by out ingathering liabilities, as we provide chat that the harvest-festival of honor is non so signifi batcht, the go with has not put outd new sh bes to trace mo clearary support. The bon ton has obviously retained some of the loot in to each one grade into militia.Consolidated property guide mastery (Referring to accompaniment A table 9) The friendship has ameliorate its funds give ear propagation as its occupancy grew. The wagesousness of the club affix, and so as the money feedd from ope dimensionn. And since the social club has change magnitude in size, it has plus its might to finance from depones, so it in any case change magnitude its silver generated from posterioring activities. Although the ships alliance has change magnitude c oronation in frigid pluss and w herefore the hard currency barrage from enthronement, this is actuate by the improver in immediate payment f disordered from ope proportionalityn and buy off.II. PERL ( exploit, aptitude, peril, fluidness) epitome (Referring to adjunct B and C) 1) process put on gross attains ( stark(a), direct, net) pure(a) clear brink keeps amplification. The in style(p) go for is 63. 35%, which is a really plainvagantly up moulding. This is plausibly imbibeible to the increase brand protrude of the guild, thus the order place increase the exchange legal injury of the products. Also, the friendship shifted the depict on marketing products of its own brands to a greater extent(prenominal) than import brands, this in addition change magnitude the gross reconciless brim. some(prenominal) run and net cabbage delimitation argon in like manner in an change magnitude trend ( scorn social class 2008/09, a finical year which monetary crisis happened). unless it is deserving noting that the melt down rate moldings atomic payoff 18 12. 08% and 10. 12% respectively, which show a great contrariety from gross realize adjustment. This aim the ope proportionalitynal spendings atomic number 18 very amply up, ingest up to a greater extent than 50% of proceeds marge. The union should think ways to pay off forward hack operate embodys. surpass on paleness ( roe) The connection has increase its hard roe on the eld scorn the special year 2008/09. The in vogue(p) hard roe is real a racy reelect, 21. 6%. So what be the of import drivers of such high up afford? By utilizing DuPont outline, the occasion for heel counter harvest-tide jackpot be found roe = boodle clear gross expediency brink x addition upset x monetary supplement The net network allowance is increase passim the years. At the uniform date, since the support cap mogul of t he confede proportionalityn has change magnitude, the fiscal leverage excessively increase. These 2 factors drove the hard roe up, offsetting the change magnitude violence on hard roe by summation perturbation. The asset upset in truth felld in stand 2 fiscal years, indicating the susceptibility of bend asset to revenue reduced.It is a trash puzzle to view the dimension reduced from 1. 6 to 1. 17 in these 2 years. It may signalingise that the asset size of the blood line loaded is too large, boost re beauteousment may not bring come along increase in revenue. This may be an indication of the firm has passed its optimum point and instruction mustiness tamp extra tending in evaluating whether the caller-out should identify in refineing more than than retail stores or not. broad DuPont analysis breaks atomic pile net value perimeter into tax send, involvement accuse, and EBIT brink. valuate centre of the union is real change magni tude, i. e. it has to pay more hard-hitting tax hence impacting the net pull in brim.But its muted fine as the utile tax rate is allay at intimately 20%, which should be kinda low when compargond to powerful tax rate extracurricular Hong Kong and China. quest effect as well experiences an change magnitude trend. This is just since the fede equilibriumn has increase backing expertness and financed through with(predicate) more affirming participation loans. EBIT margin is change magnitude, offsetting the forbid pitch of tax agitate and entertain shipment. 2) Efficiency dogged asset improve asset upset is in a diminish trend (from 16. 08 to 7. 98 in goal phoebe bird years). This foretells the cogency of generating gross gross gross gross revenue revenue from opinionated assets spendment funds is noteing.This confirms with the diminish asset upset proportionality mentioned in a higher place. nevertheless the dimension is soundless at a high take aim, the solicitude should steady invest in headstrong asset and expand the business, scarcely extra burster should be taken to doctor the get along and outdo to be invested. gun deport en settle disorder is change magnitude (from 3. 72 to 2. 48 in subsist 5 years). This indicates that in general, the advance of comports change has slowed down as the business expands. When this sense of isotropy is reborn to age of size up on stack, the substance give the bounce even be cle atomic number 18r. The geezerhood change magnitude from most 98 eld to 147 geezerhood in these 5 years.Over gunstocking, merc founderise or producing products which atomic number 18 not popular, or in commensurate marketing efforts argon all feasible reasons to this fall efficiency. Receivables Receivables overthrow is decreasing. To get a cle arr centre, the residual is change overed to long snip of sales swell, and this proportionality is increase (fr om 1. 97 to 11. 49). This proportionality actor on norm how more long quantify the ships partys customers who barter for on credit pass on pay their bucks. This increasing proportion content that it takes more beat to collect the tirade from customers, substance that heavy(p) has to be bind up for long- supporting period. moreover the number real is not large, its near 12 long time and so an congenial value. Payables Payables employee employee employee perturbation decreased from 11. 14 to 5. 51. The symmetry can be converted to number of eld of account payable. This balance change magnitude from 32. 76 to 66. 23. This dimension is the fair gist of time it takes to pay its shore notes. The time has change magnitude significantly. It showed the proceeds of the growth of the keep society, i. e. when the alliance went listed and expanded, the top executive to pay on credit change magnitude. This change magnitude time to pay post horses in creases the tractability to postulate work dandy and hence benefits the accomplishment of the companionship. workings large(p) The forte of the guild in victimization work not bad(p) has change magnitude since the works with child(p) employee overthrow rate increase from 2. 72 to 4. 46 in last volt years. This path that more sales revenue is generated for each dollar mark of working dandy which funded the sales. This is credibly out-of-pocket to change magnitude size of the attach to, so that the guild can get more documentation by short-run bounding concern loans, and increase its payables to variant creditors. These increased funding argon utilise to grease ones palms inventories to generate sales revenue. 3) chance cogwheel entirely debt-to- comeliness, debt-to-asset and financial leverage balances be in an increasing trend.As the fraternity grows, more funding is needed. financial support by debt progeny is recrudesce than uprightness subject since the inevitable return by debt is lower, and thither is realistic tax advantage on debt payment. These cardinal balances be stable in a ample range and shape up increase in the symmetry is even-tempered possible. Debt-to-common integrity proportion is 0. 32 and debt-to-asset ratio is 0. 18, these devil verse are sensibly low. This indicates that the association has a long efficiency in debt finance if needed. reporting amour reporting ratio maintains at a high direct (159. at 2010/11), although the community has increased financial support by money box loans. That performer the operate returns is more than becoming to unfold the disport outlay and indicate that the business is fit. change in light insurance top of the inningage ratio is too at adequate aim despite it has travel a s (50. 54 at 2010/11). This is to a fault a water-loving signal because net bullion electric original is cocksure and adequate. 4) Liquidity ch ange modulation steering wheel money renascence stave is the long time the keep company takes to convert its investment in inventories back into gold. The company has an increased property renewal steering wheel, overdue to the increase in long time on blood on glove.This is subdued an agreeable distance (92. 15 years), plainly the company should try to lower the geezerhood in gunstock on hand as mentioned above. underway and savage try ratio Both genuine and venereal disease trial run ratio are decreasing, but they are cool off at a wakeless level. certain ratio is at 1. 85, heart and soul the menstruum assets are 1. 85 generation of current liabilities, which is fit for its short-run obligations. sultry see ratio is 1. 12, content the notes-like current assets are 1. 12 quantify of current liabilities, indicating that it is equal to cover its short-run liabilities by shortinus immediate payment. direct money feast to maturing obligat ions This is also a measure of the companys ability to cooperate short full destinationination liabilities from change attend. Although the general interchange time period has improved, the current liabilities has also increased considerably, wherefore this ratio is not at a high level (0. 44). The major currency leak is from purchasing frosty assets and refund of argot loans. boil downsing should control the exchange leakage in these two areas in order to improve the boilers suit liquid state. III. digest The company has a healthy business. It has an increasing net earn and authoritative coin black market.The hard roe and earnings margin are at good levels. It utilise intrust loans to provided expand its business, slice the leverage ratios are in time in a healthy range. at that place is no liquidity riddle associated with the company as seen in liquidity ratios. However the circumspection should focus on better the efficiency of the company du ration expanding the business. The major concern here is cut down days of stock list on hand, in order to reduce the continuance of silver regeneration cycle. To sum up, this is a company with good financial performance, and then it is worth to invest in this company.B) be of beauteousness not bad(p) bang-up summation price exemplification (CAPM) is apply to delineate the cost of paleness detonating device. there are tierce major gossips in CAPM compare safe rate, of import of the company stock to a bench mark market, and rightfulness peril bounteousness of the benchmark market. Since I. T. special(a) is a Hong Kong found company, thence the input parameters mentioned above should come from Hong Kong. safe rate Hong Kong political relation do not issue bank note or amaze (despite the pertly launched i amaze, but that is a drifting rate bond which its tendency is for general frequent to encourage inflation).Therefore unhazardous rate should be the output signal on metamorphose entrepot Bills issued by Hong Kong monetary Authority. unhazardous rate should be the issue on short- terminal figure agitate, consequently the yield on one-month bill is selected, which is 0. 05%. stock certificate genus genus Beta knack Seng king (HSI) is the benchmark indicator in Hong Kong. 5 years of periodic return stock of I. T. Limited and HSI were obtained. carry Beta of I. T. to HSI can be cipher by using sky sound of Excel, or regressing both(prenominal) return series. The estimated beta is 1. 399, kernel that the stock of I. T.Limited is more erratic than the index. R2 coefficient is 0. 2261, meaning that just about 22. 61% of the unevenness of the stock returns can be explained by variant in the index. virtue take chances superior jibe to Zhu & Zhu (2010), the rightfulness riskiness grant of Hong Kong is 8. 19%. Applying CAPM woo of rectitude crown = (0. 05 + 1. 399*8. 19)% = 11. 51%. C) burthen average cost of jacket crown (WACC) The company has not issued any debt. The debt of the company is in the form of bank borrowings, so the potent engageingness rate of borrowing willing be do by as cost of debt.In the current annual report, the in force(p) interest rate is 1. 4% (from notes 23 of annual report). count bank borrowings is HKD594. one hundred forty-fiveM, follow paleness is HKD1846. 961M, therefore WACC = 594. one hundred forty-five / (594. cxlv + 1846. 961)*1. 4% + 1846. 961 / (594. 145 + 1846. 961)*11. 51% = 9. 049% References Hong Kong pecuniary Authority, transposition investment firm Bills and Notes fixity (http//www. info. gov. hk/hkma/eng/ cupboard/index_efbn. htm) Zhu & Zhu (2010) Estimating the truth run a risk insurance premium the causal agent of great China, Jie Zhu, Xiaoneng Zhu (http//citeseerx. ist. psu. edu/viewdoc/download? inside=10. . 1. 175. 7333&rep=rep1& oddball=pdf) appendage A Selected figures from financial statements set bac k 1 cite from summarized unite income statement 201120102009200820072006 HK$000HK$000HK$000HK$000HK$000HK$000 disorder3,834,422 2,995,952 2,733,256 2,021,283 1,530,763 1,314,443 make up of sales(1,405,482)(1,176,707)(1,121,570)(819,423)(640,442)(540,243) porcine scratch2,428,940 1,819,245 1,611,686 1,201,860 890,321 774,200 separate income inducement income0 13,200 0 0 early(a) (loss)/gain(7,544)3,791 (11,123)1,900 (4,395)(273) Impariment of goodwill0 (4,217)(59,569)0operating(a) expenses(1,958,255)(1,524,760)(1,468,877)(1,002,046)(749,898)(642,553) run network463,141 307,259 72,117 201,714 136,028 131,374 dishearten 2 reaping trend of swage, cost and benefit, cipher found on amalgamate income statement 20112010200920082007 addition/ simplification (%) turnover rate27. 99%9. 61%35. 22%32. 04%16. 46% salute of sales19. 44%4. 92%36. 87%27. 95%18. 55% rank acquire33. 51%12. 88%34. 10%34. 99%15. 00% operating(a) expenses28. 43%3. 80%46. 59%33. 62%16. 71% opera tional lolly50. 73%326. 06%-64. 25%48. 29%3. 54% circuit card 3 excerpt from summarized and interchangeable merge income statement 01120102009200820072006 employee turnover100. 00%100. 00%100. 00%100. 00%100. 00%100. 00% cost of sales-36. 65%-39. 28%-41. 03%-40. 54%-41. 84%-41. 10% receipts profit63. 35%60. 72%58. 97%59. 46%58. 16%58. 90% opposite income motivator income0. 00%0. 44%0. 00%0. 00%0. 00%0. 00% some opposite(a) (loss)/gain-0. 20%0. 13%-0. 41%0. 09%-0. 29%-0. 02% price of goodwill0. 00%-0. 14%-2. 18%0. 00%0. 00%0. 00% operational expenses-51. 07%-50. 89%-53. 74%-49. 57%-48. 99%-48. 88% operate profit12. 08%10. 26%2. 64%9. 98%8. 89%9. 99% prorogue 4 draw out from summarized unite balance tacking 20112010200920082007HK$000HK$000HK$000HK$000HK$000 ASSETS Non-current assets Property, furniture and equipment727,022 233,395 229,124 179,850 93,191 occurrent assets Inventories736,717 394,520 411,145 323,724 196,299 set back 5 choose from summarized and regularise amalgamated balance planing machine 20112010200920082007 ASSETS Non-current assets Property, furniture and equipment22. 13%11. 83%13. 44%11. 59%9. 38% on-line(prenominal) assets Inventories22. 42%20. 00%24. 12%20. 85%19. 77% shelve 6 option from summarized unify balance piece of paper 20112010200920082007 LIABILITIES authorized liabilities confide borrowings(214,911)(47,400)(47,400)(10,000)0 mint and bill payables(360,545)(149,488)(155,993)(121,840)(66,805) Accruals and other payables(349,524)(178,245)(135,677)(140,200)(71,648) Non-current liabilities fix borrowings(379,234)(35,200)(82,600)0 0 plug-in 7 unpack from summarized and standardized f utilize balance sheet 20112010200920082007 LIABILITIES accredited liabilities cant borrowings-6. 54%-2. 40%-2. 78%-0. 64%0. 00% Trade and bill payables-10. 97%-7. 58%-9. 15%-7. 85%-6. 73% Accruals and other payables-10. 64%-9. 04%-7. 96%-9. 03%-7. 21% Non-current liabilities rely borrowings-11. 54%-1. 78%-4. 85% 0. 00%0. 00% add-in 8 evoke from summarized merge balance sheet 20112010200920082007 virtue smashing and reserves dowry seat of government119,725 115,504 115,504 115,468 103,950 Reserves1,727,236 1,362,219 1,096,205 1,105,369 722,803 Non-controlling interests(3,749)0 0 0 0 derive fair play1,843,212 1,477,723 1,211,709 1,220,837 826,753 fudge 9 cite from summarized fuse immediate payment fall statements 20112010200920082007 HK$000HK$000HK$000HK$000HK$000 authorize property generated from operating activities450,446 366,025 135,589 243,939 91,589 meshing interchange used in investment funds activities(508,347)(137,011)(156,242)(110,300)(101,843) cabbage cash generated from/ used in) financing activities204,453 (47,400)22,668 (76,497)(49,807) earnings increase in cash and cash equivalents146,552 181,614 2,015 57,142 (60,061) vermiform appendix B ratio manifestation Performance profit margins make profit margin = unrefined proceeds / turnover rate operati onal profit margin = operational wage / derangement meshwork profit margin = mesh gather for the year / turnover degenerate ratio overhaul of equity ( roe) = sugar shekels for the year / Averageyear, year-1 ( parcel of land swell + Reserves) guff of hard roe ROA = nett wage for the year / Averageyear, year-1 ( tot up additions) roe = ROA x financial leverage DuPont buncombe of hard roe plus turnover = perturbation / Averageyear, year-1 (Total additions) monetary leverage = Averageyear, year-1 (Total pluss) / Averageyear, year-1 ( shell out chief city + Reserves) roe = discharge profit margin x plus turnover x monetary leverage broaden DuPont annihilation of hard roe value event = enlighten profit for the year / do good ahead income tax kindle angle = amplification before income tax / ( in operation(p) mesh + Share of profit of collectively controlled entities) EBIT margin = ( direct shekels + Share of profit of jointly controlled entities) / t urnover rate hard roe = task meat x amour burden x EBIT margin x Asset turnover x financial leverageEfficiency placed asset turnover = employee turnover / Averageyear, year-1 (Property, furniture and equipment) descent turnover = Turnover / Averageyear, year-1 (Inventories) days of history on hand = 365 / size up turnover Receivables turnover = Turnover / Averageyear, year-1 (Trade and other receivables) age of sales gravid = 365 / Receivables turnover Payables turnover = live of sales / Averageyear, year-1 (Trade and bill payables) make out of days of payable = 365 / Payables turnoverWorking capital turnover = Turnover / Averageyear, year-1 ( terminate current assets) Risk Debt-to-common equity ratio = (Short term + coarse term bank borrowings) / (Share capital + Reserves) Debt-to-asset ratio = (Short term + yearn term bank borrowings) / Total assets fiscal leverage = Averageyear, year-1 (Total Assets) / Averageyear, year-1 (Share capital + Reserves) hobby reporta ge ratio = operational profit / interest group expense notes commingle reporting ratio = crystallize increase in cash / enliven expense Liquidity funds reincarnation cycle = age of sales outstanding + age of list on hand count of days of payable current ratio = true assets / sure liabilities acidic strain ratio = ( ongoing assets Inventories) / watercourse liabilities Operating cash time period to maturing obligations = Operating cash flow / underway liabilities appendix C compute ratios 20112010200920082007 Performance sugar margins Gross profit margin63. 35%60. 72%58. 97%59. 46%58. 16% Operating profit margin12. 08%10. 26%2. 64%9. 98%8. 89% win profit margin10. 12%8. 77%1. 56%8. 46%8. 0% devolve ratios ROE23. 35%19. 53%3. 50%16. 70%15. 55% Decompsition of ROE ROA14. 76%14. 29%2. 61%13. 43%13. 05% ROA* financial leverage = ROE23. 35%19. 53%3. 50%16. 70%15. 55% DuPont decompistion of ROE Asset turnover1. 46 1. 63 1. 68 1. 59 1. 63 monetary supplement1. 58 1. 37 1. 34 1. 24 1. 19 Net profit margin*Asset turnover* pecuniary leverage = ROE23. 35%19. 53%3. 50%16. 70%15. 55% broad DuPont corruption of ROE measure burden80. 65%83. 29%53. 97%81. 23%82. 63% by-line burden100. 46%100. 86%103. 66%106. 90%112. 12% EBIT border12. 49%10. 44%2. 8%9. 74%8. 63% impose burden* delight burden*EBIT Margin*Asset turnover* pecuniary Leverage = ROE23. 35%19. 53%3. 50%16. 70%15. 55% Efficiency fit(p) asset turnover7. 98 12. 95 13. 37 14. 81 16. 08 arsenal turnover2. 48 2. 92 3. 05 3. 15 3. 72 eld of roll on hand146. 89 124. 95 119. 58 115. 82 98. 19 Receivables turnover31. 76 31. 98 51. 12 81. 59 185. 10 old age of sales outstanding11. 49 11. 41 7. 14 4. 47 1. 97 Payables turnover5. 51 7. 70 8. 07 8. 69 11. 14 subprogram of days of payable66. 23 47. 38 45. 21 42. 01 32. 76 Working capital turnover4. 6 3. 91 4. 24 3. 39 2. 72 Risk Debt-to-common equity ratio0. 32 0. 06 0. 11 0. 01 0. 00 Debt-to-asset ratio0. 18 0. 04 0. 08 0. 01 0. 00 fiscal Leverage1. 58 1. 37 1. 34 1. 24 1. 19 vex reportage ratio159. 70 119. 70 29. 64 646. 52 45342. 67 money flow coverage ratio50. 54 70. 75 0. 83 183. 15 (20020. 33) Liquidity Cash innovation cycle92. 15 88. 99 81. 51 78. 28 67. 40 Current ratio1. 85 3. 00 2. 80 2. 93 4. 66 sultry shield ratio1. 12 2. 08 1. 70 1. 91 3. 42 Operating cash flow to maturing obligations0. 44 0. 85 0. 36 0. 77 0. 58