Financial analysis refers to an assessment of the viability, stability and profitability of a business. It is performed by preparing reports using ratios that make use of information taken from the financial statements and other reports. These reports are usually presented to management as one of their bases in making business decisions. Based on these reports, management may continue or discontinue its main operation or part of its business as they may see fit.
During the process of financial analysis, financial analysts often assess the firm profitability solvency, capital structure, liquidity and stability .all these assessments are done by the use of financial ratios where he compares the past, future and comparative performance across historical periods for similar firms
The CMC Motors Group is committed to satisfying the needs of our customers by supplying the most suitable automotive products and services, with superior levels of after sales care to the East African Market
Though the company is not affected by the ongoing issues affecting the motor vehicle industry in the United States, it is currently faced with a major issue of exchange loses when major currencies gain against the Kenyan shilling.
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Appreciation of major importing currencies — the Japanese Yen, US dollar and Euro — saw the company like most of its competitors, revise their pricing.
According to Mr. Shah, the group’s financial director, the company hdges on these major currencies, as well as forward buying; however, over the past year the company made some losses. This was attributed to the unforeseen loss of the Japanese Yen.
Financial Statements (2005-2009) Analysis
In this section we are financially dissecting CMC holdings for the last five years. We will analyze the sales, profits, earning per share and dividend per share in order to establish the financial health of the company as well as the growth. In addition we will calculate the capital structure and the value of the company as for the fiscal year ended September 2009 to establish whether the company is undervalued or overvalued.
From the financial data below, the strong results in 2008 could not be matched in 2009 mainly due to the down run in vehicle sales in general in Kenya and particularly sales of heavy commercial trucks. Sales revenue produced by the group of companies last year totaled Ksh.11.7 billion compared to 11.5 billion in 2008, 9.0 billion in 2007, and just over Ksh.7 billion in 2006.
Gross profit at Kshs.2.4 billion was some Kshs.272 million below 2008 and some ksh.200 million in excess of the Kshs.2.2 billion posted in 2007 but a major improvement from 2005/06 when the company reported a Gross profit of 1.4 billion and 1.5 billion respectively.
Profit before tax in 2009 amounted to kshs.807.3 million against 1.3 million for 2008 and below 1 million level in the previous years as shown in the financial data. We note that the downturn in the profit before tax diluted the earnings per share which in 2009 was Ksh0.93 compared to Ksh.1.59 in 2008 and Ksh.1.06 in 20007.In previous years the EPS was generally good.
Looking at the balance sheet the net assets of CMC have been increasing over years they now stand at Kshs.5.7 billion compared to almost Kshs.5 billion in 2008, 4.3 billion in 2007 and 3 billion levels in the previous years. The increase is mainly due to the revaluation surplus of kshs.168.5 million and retained earnings of kshs.290 million.
The Motor Industry is slowly emerging from a very severe slump. A combination of several negative factors including American and European travel advisories and the importation of used vehicles mainly from Japan, have severely dampened new car sales in Kenya. Also, slow economic growth has been occasioned by the Government’s apparent inability to curb corruption and reduce the huge amounts of bureaucratic red-tape in its operations.
CMC motors should not assume a permanent market hence it has to be aggressive in deferent areas of it business to achieve competitive advantage. The company should employee modern technology and be innovative enough. It should start innovating fuel efficient engines because the contemporary world is very sensitive about that and no one would like to be using something that cost him so much.
The vehicles the company imports lack spear parts market in Kenya. The company should set-up an industry to be manufacturing spear parts so that they can be readily available to customers. This would entice other customers like private firms hence they would be building up a market for their own.