Analyse the financial statement, what are your expectations about the industry’s
ID: 2431539 • Letter: A
Question
Analyse the financial statement, what are your expectations about the industry’s profitability in the short run (1 or 2 years) and the long run (5 to 10 years)?
If you have RM 1 Millions to invest, would you invest in this company. Perform a further analysis analysis in a structured way to help you make better investment decision.
EASTMAN KODAK COMPANY CONSOLIDATED STATEMENT OF OPERATIONS (in milions, except per share data) Yoar Ended December 31 1,251 1,379 1,686 Total net revenues Cost of revenues 1,105 1,328 186 1,160 Total cost of revenues Gross proft. Seling, genera Research and development costs Restructuring costs and other Oher operating expense, net Eamings from continuing operations before interest expense, loss on early al and administrative expenses extinguishment of debt, net, ather charges, net, reorganization tems, net and income taxes Interest expense Loss on early extinguishment of debt Oher charges, net Reorganization tems, net Eamings (loss) fram condinuing operations before income taxes Provision for income taxes Eamings (loss) fram condnuing operations L088 from decontrued operations, net of ncome taxes NET EARNINGS (LOSS) Less: Net income atibutable to non-controling interests NET EARNINGS (LOSS) ATTRIBUTABLE TO EASTMAN KODAK COMPANY (49) (59) (118) (28) (80) S Basic earnings (loss) per share atributable to Eastman Kodak Company common shareholders 0.99 $ 1.54 1.41 Continuing operations (0.79) $ Total Diluted eamings (loss) per share attr butable to Eastman Kodak Company common shareholders: 0.99 $ 154) 1.41 Continuing operations (0.79) S Total Number of common shares used in basic and diuted eamings (loss) per share 1.9 1.9 1.7 The accompanying notes are an integral part of these consolidated financial statements.Explanation / Answer
Ratios can be used to analyse the financial statements of a company. Ratios express the numerical relationship between two figures. It helps in judging the financial performance of an enterprise over a specific period of time. Under the current situation, profitability ratios can be used to analyse the financial position of Eastman Kodak Company.
Profitability ratios help in measuring the ability of a company to earn an adequate return on sales, assets and invested capital. Gross profit ratio, Net profit ratio, operating profit ratio and return on equity can be used to measure the profitability of Eastman Kodak Company.
Gross profit ratio establishes the relationship between gross profit and net revenues by indicating the margin of profit on the sale. Higher the gross profit ratio, better is the company's efficiency in trading operations. Under the current situation, Eastman Kodak Company has improved its efficiency in trading operations during 2016 compared to 2015 and 2014.
Net profit ratio establishes the relationship between net profit and net sales indicating management's efficiency in manufacturing, administering and selling the products. High net profit ratio is an indication of the higher overall efficiency of the business. Under the current situation, Eastman Kodak Company has started to improve its profitability position in 2016 with low-level profits compared to losses in 2015 and 2014.
Operating profit ratio indicates the relationship between operating profits and net sales which shows the efficiency of a company in controlling the costs related to business. Higher the operating profit ratio, better is the company's capacity to meet the operating expenses. Under the current circumstance, Eastman Kodak Company has improved its capacity to meet the operating expenses in 2016 compared to 2015 and 2014.
In spite of high gross and operating profits, Eastman Kodak Company made net losses in 2014 and 2015 and a low profit in 2016. This indicates that the company incurred more indirect expenses like interests, provision for income tax etc.
Profitability of a firm from equity shareholders point of view can be assessed using return on equity. Higher the ratio, better the earnings to the equity holders of a company. Under the current circumstance, in 2015, the equity holders could not earn as the company faced a net loss situation. In 2016, the company faced an equity deficit so that no returns were available to equity holders.
From the above analysis of profitability ratios, it can be observed that Eastman Kodak Company is trying to revive its profitability situation in 2016 after facing losses in 2014 and 2015. The company would be able to make low-level profits in the short-run although, it would be difficult for the company to grow, prosper and earn higher profitability in the long-run. Net profit ratio is an indicator of a firm's capacity to withstand the adverse economic conditions and better utilisation of limited resources. Low net profit ratio and net losses show that the company would be susceptible to adverse economic conditions which would make them difficult to earn sufficient amount of profits. Equity holders would also not stay for so long in the company as they would not be properly rewarded. Thus, although the company can make short-run profits, long-term profitability for Eastman Kodak could not be assured.
Ratios 2016 2015 2014 Net profit/loss ratio (Net profit or loss/sales) 1.27% -5.44% -7% Operating profit/loss ratio (Operating profit or loss/sales) 11.19% 6.60% 2.79% Return/loss on equity (Net profit or loss after tax/equity shareholders fund) -21.92% -72.82% Gross profit/loss ratio (Gross profit or loss/sales) 30.62% 27.41% 27.28%Related Questions
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