FINANCIAL ANALYSIS AND CORPORATE MANAGEMENT APO 014-6

Introduction

In the current assessment, there will be discussion and analysis over the financial performance of Jordan Telecom which is a Jordanian Telecommunication company listed on the Amman Stock Exchange market. The financial performance of the firm will be compared with another which is a competitor of the firm in the market. This will comparatively show whether the firm is an evident option for investment or not for the investors in the Amman Stock market.

Jordan Telecom Background

The section will highlight the detailed company evaluation of the Jordan Telecom Group that has been operating in the Kingdom of Jordan over the years. The section will adequately identify and evaluate all the financial and company perspectives over the years so that the research can be done efficiently and effectively through the research. The Jordan Telecom Group has been operating in the market since the year 1997 and also it is headquartered in Amman, Jordan. The Jordan Telecom Group has been performing efficiently in the market over the years and its latest revenue was identified as JOD 411.790 million. The Jordan Telecom Group is the prime telecommunication service in the Kingdom of Jordan over the years. In the year 2000 on 23rd January, the Jordan Telecom Group was 60% owned by the Jordan Government. JITCO Investment group has owned the rest of the 40%. The JITCO Investment Group mainly consists of Orange (88%) and the Arab Bank (12%).

Over the years of operations the Jordan Telecom Group has owned the following telecommunication group:

  1. Jordan Telecom
  2. Orange Jordan
  3. eDimension

The Jordan Telecom Group is mainly listed on the stock exchange of Amman as ASE: JTEL. And thus the shareholders of the Jordan Telecom Group have been investing intensively over the years in order to make the company the prime in the domestic market and also in the international market (Jordan Telecom, 2020).  The company has many stakeholders and has been maintaining it quite efficiently over the periods. In this context, it is also to be added that the external shareholding of the firm is divided into many segments and all the segments need to be identified simultaneously so that the detailed information regarding the firm's stakeholding can be understood and evaluated effectively. Their prime external stakeholding is as follows:

Orange S.A.

Subsidiaries

  • Belgium
  • Botswana
  • Cameroon
  • The central African Republic
  • The Democratic Republic of the Congo
  • Egypt
  • France
  • Guinea
  • Guinea-Bissau
  • Ivory Coast
  • Luxembourg
  • Madagascar
  • Mali
  • Moldova
  • Morocco
  • Niger
  • Poland
  • Réunion
  • Romania
  • Slovakia
  • Spain
  • Tunisia
  • Uganda
  • GlobeCast
  • Orange Business Services
    • India
  • Orange Marine

Shareholdings

Products and services

Libon

Corporate directors

Stéphane Richard (Chairman and CEO)

Table 1: Company description

(Source: self-generated)

Evaluate the financial statements and other information

Interest Coverage

Ratio

Formula

 

2019

2018

Interest Coverage

(EBIT / Interest)

 

22.86

32.71

Table 2: Interest Coverage

(Source: self-generated)

Interest coverage is a ratio that shows the capability of Jordan Telecom to cover the interest expenses that it incurred from the short and long term debt that the firm has incurred.  In the table above it can be said that the interest coverage of the firm has decreased in recent times, this means that the interest expenses of the firm have increased and the capability of the firm has diminished in the year 2019 from 32.71 to 22.86 (Jordan Telecom, 2020).

Dividend yield

Ratio

Formula

 

2019

2018

Dividend Yield

Dividend per share/share price

 

2.63

1.24

Table 3: Dividend yield

(Source: self-generated)

The dividend yield is a ratio that indicates the yield of dividend that the firm will pay the investor of the firm per share that the following has invested in. In the current table, it is seen that the dividend yield of the firm has increased from 1.24 to 2.63 which is a positive sign for the investors of the firm.

Return on Capital employed

Ratio

Formula

 

2019

2018

Return on Capital Employed (ROCE)

(operating profit/ Average Total Capital employed)

 

51%

45%

Table 4: Return on Capital Employed

(Source: self-generated)

Return on capital employed is a ratio that shows the percentage of return that Jordan Telecom has incurred through the Capital that it has employed in the operations of the firm. It is important to understand that return of capital employed for the firm has increased by 6% in the year 2019 which is a positive sign for the investors.

Current ratio

Ratio

Formula

 

2019

2018

Current Ratio

(Current Assets / Current Liabilities)

 

0.499561755

0.610445468

Table 5: Current ratio

(Source: self-generated)

The current ratio is a ratio which shows the financial stability of Jordan Telecom as it shows the ratio of current asset and liabilities present within the firm. In the current table, it is seen that the ratio has decreased which means that the asset has decreased and liabilities have increased which is a concerning factor of the financial stability of the firm (Jordan Telecom, 2020).

Price-earnings Ratio

Ratio

Formula

 

2019

2018

Price-Earnings

Share price / EPS

 

0.43

0.20

Table 5: Price earning ratio

(Source: self-generated)

Price-earnings ratio shows the demand of the shares by the investors in the market The increase in price earning shows that the firm’s shares demand has increased this is because the ratio has increased from 0.20 to 0.43.

Dividend Payout ratio

Ratio

Formula

 

2019

2018

Dividend Payout

Dividend per share / EPS

 

1.14

0.25

Table 6: Dividend Payout ratio

(Source: self-generated)

The dividend payout ratio is a ratio that shows the amount of dividend that is paid by the firm to the investor on per share of their investment. In the current analysis, it is seen that in the financial year 2019 the firm has a ratio of 1.14 which is higher than the year 2018 which was recorded at0.25. This shows that the dividend has increased which is a positive sign for the company (Wong & Venkatraman, 2015).

Discuss how your chosen company’s performance over the past two years compares with ONE of its key competitors.

Zain Group is a Competitor of Jordan Telecom and it also operates in the telecommunication industry of the country. In this section, there will be a comparative financial analysis of both the companies through the use of the ratio that has been calculated. 

Ratio

Formulas

 

Jordan Telecom

Zain Group

 

Year

 

Year

 

 

 

 

2019

2018

2019

2018

Liquidity Ratios

 

 

 

 

 

 

Current Ratio

(Current Assets / Current Liabilities)

 

0.499561755

0.610445468

0.797542704

0.653262116

Quick Ratio

(Current Assets - Inventories)/ Current Liabilities

 

0.481598491

0.592280497

0.75861546

0.622268307

Cash Ratio

Cash and Cash equivalent / Current Liabilities

 

0.155375612

0.26926062

0.238303291

0.21035892

 

 

 

 

 

 

 

Efficiency

Days

 

 

 

 

 

Days of Sales Outstanding (DSO)

(Average Receivables /Net Revenue)x365

 

71

71

15

18

Days of Inventory on Hand (DOI)

(Average Inventory /Cost of Sales)x365

 

12

11

39

45

Days of Payables (DOP)

(Average Payables /Cost of Sales)x365

 

342

357

682

926

Cash Conversion Cycle (CCC)

DSO + DOI - DOP

 

-259

-275

-628

-863

 

 

 

 

 

 

 

Profitability Ratios

%

 

 

 

 

 

Gross Profit Margin (GPM)

(Gross Profit / Revenue)

 

53%

53%

17%

19%

Operating Profit Margin (OPM)

(Operating Profit / Revenue)

 

53%

53%

17%

19%

Net Profit Margin (NPM)

(Net Income / Revenue)

 

7%

7%

15%

17%

Return on Capital Employed (ROCE)

(operating profit/ Average Total Capital employed)

 

51%

45%

8%

8%

Return on Equity (ROE)

(Net Income / Average Equity)

 

11%

13%

57%

52%

Net Profit Margin (NPM)

(Net income / Average total assets)

 

54%

60%

74%

67%

 

 

 

 

 

 

 

Leverage Ratios

 

 

 

 

 

 

Debt-to-Equity Ratio (D/E)

(Total Debt / Total Equity)

 

0.15

0.16

2.82

2.39

Debt-to-Assets Ratio

(Total Debt / Total Assets)

 

0.05

0.05

0.26

0.23

Gearing

(Total debt / (Total debt+Total Equity)

 

0.13

0.14

0.74

0.70

Interest Coverage

(EBIT / Interest)

 

22.86

32.71

2.56

51.25

 

 

 

 

 

 

 

Investor Ratios

 

 

 

 

 

 

EPS

Net profit attributable to ordinary shareholders / WANS

 

3.21

10.54

9.94

8.51

Dividend Yield

Dividend per share/share price

 

2.63

1.24

1.95

6.66

Dividend Payout

Dividend per share / EPS

 

1.14

0.25

0.32

0.25

Price-Earnings

Share price / EPS

 

0.43

0.20

0.17

0.04

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Notes

Current Assets

 

 JOD                         14,20,61,679.00

 JOD  16,01,45,656.00

 JOD            9,93,936.00

 JOD            9,68,644.00

 

Current Liabilities

 

 JOD                         28,43,72,608.00

 JOD  26,23,42,280.00

 JOD  12,46,248.00

 JOD  14,82,780.00

 

Inventories

 

 JOD                               51,08,260.00

 JOD                47,65,440.00

 JOD               48,513.00

 JOD               45,957.00

 

Cash

 

 JOD                           4,41,84,568.00

 JOD            7,06,38,445.00

 JOD            2,96,985.00

 JOD            3,11,916.00

 

Accounts Receivables

 

 JOD                           6,29,19,390.00

 JOD            6,47,92,892.00

 JOD               66,889.00

 JOD               66,062.00

 

Net Revenue

 

 JOD                         32,43,51,983.00

 JOD  33,31,91,730.00

 JOD  16,60,890.00

 JOD  13,17,613.00

 

Cost of Sales

 

 JOD                         15,21,59,217.00

 JOD  15,82,41,868.00

 JOD            4,59,135.00

 JOD            3,75,517.00

 

Accounts Payables

 

 JOD                         14,24,39,627.00

 JOD  15,45,69,486.00

 JOD            8,57,512.00

 JOD            9,52,638.00

 

Gross Profit

 

 JOD                         17,21,92,766.00

 JOD  17,49,49,862.00

 JOD            2,83,594.00

 JOD            2,51,771.00

 

Net Profit

 

 JOD                           2,13,07,063.00

 JOD            2,40,30,280.00

 JOD            2,48,549.00

 JOD            2,25,456.00

 

Capital Employed(Total Assets - Current Liabilities)

 

 JOD                         33,99,27,153.00

 JOD  39,06,04,166.00

 JOD  34,89,845.00

 JOD  30,33,890.00

 

Equity

 

 JOD                         18,75,00,000.00

 JOD  18,75,00,000.00

 JOD            4,32,706.00

 JOD            4,32,706.00

 

Debt

 

 JOD                           2,83,98,026.00

 JOD            2,96,69,195.00

 JOD  12,18,450.00

 JOD  10,33,565.00

 

Total Assets

 

 JOD                         62,42,99,761.00

 JOD  65,29,46,446.00

 JOD  47,36,093.00

 JOD  45,16,670.00

 

Interest

 

 JOD                               75,34,016.00

 JOD                53,47,729.00

 JOD            1,10,723.00

 JOD                  4,913.00

 

Distributable Profit

 

 JOD                           2,13,07,063.00

 JOD            2,40,30,280.00

 JOD            2,48,549.00

 JOD            2,25,456.00

 

Shares

 

 JOD                               66,41,335.00

 JOD                22,79,071.00

 JOD               25,000.00

 JOD               26,500.00

 

DPS

 

 JOD                                              3.66

 JOD                               2.65

 JOD                         3.21

 JOD                         2.13

 

Share Price

 

 JOD                                              1.39

 JOD                               2.14

 JOD                         1.65

 JOD                         0.32

Table 7: Comparing the financial ratio of Jordan Telecom and Zain Group

(Source: self-generated)

Now looking at the liquidity ratio it can be said that the financial stability of Jordan Telecommunication has slightly been decreasing whereas in the case of Zain group the financial stability has increased from the year 2018 to 2019. 

The profitability ratio that can be seen above shows that Jordan Telecom company is a more profitable organization and the return of capital and equity of the firm are growing at an effective rate whereas in case of Zain the profitability of the firm is also decently growing and is in good health (Pokale, 2020).

Looking at the leverage ratio which shows the health of the company’s capital structure it can be said that the debt to equity ratio of Zain Group is better when compared to Jordan Telecom whereas the interest coverage of Jordan Telecom is better than Zain Group (AREAS, 2018).

Looking at the investor's ratio it can be said that EPS of Jordan Telecom has decreased substantially which has given Zain group an edge whereas the dividend yield, dividend payout and price earning ratio of Jordan Telecom is better that Zain group which gives this company an edge over Zain group when looking it's from the investors perspective (Zain Group, 2020).

Limitations of ratio analysis

Now there are some limitation of ratio analysis that is to be indicated before coming to a conclusion over the financial performance of Jordan Telecom and they are as follows;

  1. Ratio analysis is quantitative in nature and thus the qualitative characteristics of the firm's financial performance are completely ignored in such kind of financial analysis. In this way sometimes there can be a misinterpretation of the company's financial performance (Arkan, 2016).
  2. Ratio analysis is based on historical financial data of the firm that is present in the annual reports of the firm and the financial performance of the firm may change in the future drastically due to different financial and nonfinancial factors hence using this analysis to financially predict the future of the firm is not ideal (Wadhwa, 2019).

Conclusion

Concluding in the light of the above context it can be said that Jordan Telecom is a very big telecommunication company in Jordan that is listed on the Amman Stock Exchange. The firm is stably growing its financial size and the investors can seek to invest in shares of the firm. The firm in comparison to the Zain group is doing better in terms of profitability and investors ratio although the financial stability of the firm is not ideal.

 

 

References

AREAS, B. (2018). Financial analysis. growth, 30, 10.

Arkan, T. (2016). The importance of financial ratios in predicting stock price trends: A case study in emerging markets. Finance, Rynki Finansowe, Ubezpieczenia, (79), 13-26.

Jordan Telecom. (2020). Amman Stock Exchange. Retrieved 15 August 2020, from https://www.ase.com.jo/en/company_guide/financial/425

Pokale, V. (2020). ANALYSIS OF FINANCIAL STATEMENTS.

Wadhwa, B. (2019). Financial ratios: The precarious core of the fundamental analysis. Frontiers Journal of Accounting and Business Research, 1(1), 33-35.

Wong, S., & Venkatraman, S. (2015). Financial accounting fraud detection using business intelligence. Asian Economic and Financial Review, 5(11), 1187.

Zain Group. (2020). Zain Group Financial Statement. Retrieved 15 August 2020, from

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