Showing posts with label net interest-bearing debt. Show all posts
Showing posts with label net interest-bearing debt. Show all posts

Saturday 1 May 2010

A quick look at Nam Fatt - PN17 (1.5.2010)

Nam Fatt Corporation Berhad Company

Business Description:
Nam Fatt Corporation Berhad. The Group's principal activities are constructing bridges, heavy concrete foundations, roads, factory complexes and other similar construction activities. Other activities include building, maintaining and operating the Jiangjin Bridge on a built-operate-transfer basis, constructing projects in the oil, gas and petrochemical related industry, steel fabrication, structural steel engineering, manufacturing and trading steel doors and industrial boilers, researching, developing, producing, selling, installing and maintaining metal roofing and wall cladding, manufacturing galvanised iron roofing sheets, property development; owning and developing golf resort and its recreational amenities, property developer and property manager, resort and development, managing a golf resort and recreational clubs and investment holding. The Group operates in Malaysia, Africa and Asia.

Currency: Malaysian Ringgits
Market Cap: 28,763,370
Fiscal Yr Ends: December
Shares Outstanding: 319,593,000
Share Type: Ordinary
Closely Held Shares: 35,229,890 (11%)

16/03/2010
NAMFATT - New admission into PN17

Wright Quality Rating: LCNN Rating Explanations
Stock Performance Chart for Nam Fatt Corporation Berhad







A quick look at Nam Fatt - PN 17 (1.5.2010)
http://spreadsheets.google.com/pub?key=tAskkNgs3uU8eyk_WrTFcSw&output=html

Some RED FLAGS (hindsight) in the accounts of Nam Fatt at end of 2008 to note are:

Share price 
RM 0.19  or market capitalisation of 34.16 m. (The price rose to RM 0.30 from March 2009 and dropped precipitously to RM 0.09 when the news of the company's financial problem was known.)

Income statement
Negative earnings -14.09 m
Interest expense -18.73 m

Cash flow statement
Negative CFO  -41.27 m
Neglible CFI
Negative FCF  -44.10 m
CFF  -34.11 m (Borrowings increased significantly)

Balance sheet
Total Debt 499.69 m
Account Payables' Days 206.58 days  (This then increased to 714.24 days in end of 2009)
Interest cover 0.66
Total Debt/Equity 0.82
Net Debt to EBITDA 26.64  (Ideally, this should be less than 5.  Bankers do not lend if this ratio exceed this figure.)

Of interest, these commonly used parameters DID NOT raise any red flags at end of 2008:

Equity 607.44 m (What is the actual value?!)
NAV 1.59
Current ratio 1.54
Quick ratio 1.51
Account Payables' Days 82.22 days (Though this subsequently ballooned to 307.08 days in end of 2009)
LTD/Equity 0.34
Dividend 2.08 m


Related article:

Measure long-term solvency and stability

Assessing indebtedness. How much debt is too much?

Acceptable debt

Liquidation value is the net realizable amount that could be generated by selling a company’s assets and discharging all its liabilities.

When valuing a business for liquidationmost assets are marked down and the liabilities treated at face value. 
  • Cash and securities are taken at face value.
  • Receivables require a small discount (perhaps 15 percent to 25 percent off).
  • Inventory a larger discount (perhaps 50 percent to 75 percent off).
  • Fixed assets at least as much as inventory.
  • Any goodwill should probably be ignored.
  • Most intangible assets and prepaid expenses should beignored.
The residual is the shareholders’ take.

This valuation method is useful for companies being dissolved.

Friday 5 December 2008

Enterprise Value

Enterprise Value

Enterprise value (EV) is a company’s market capitalization plus net interest-bearing debt.


In other words, it is the amount of cash required to buy the company at its current price and retire all interest-bearing debt less the cash assets of the business.

EV = Market Capitalization + Net interest-bearing Debt

or

EV = Market Capitalization + Borrowings - Cash


Although used for various reasons by stock analysts, the only useful purpose for calculating EV is as a tool to determine the maximum price a company is prepared to pay to acquire another business.


For instance, one company had a policy of limiting the EV it was prepared to pay to an EBIT multiple of 5. So if EBIT was $20 million, EV should be no more than $100 million. If interest-bearing debt happened to be $50 million, then $50 million would be the maximum price it would pay for the equity of the business.


EV = Market Capitalization + Borrowings - Cash
$100m = Market Capitalization + $50m - $0
Market Capitalization = $100 m - $50 m + $0 = $50 m



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Let’s see the ROE on the acquisition cost of $50 million.


Acquisition cost = $50 million. Calculate ROE


EBIT = $20 m
Interest-bearing debt = $50 m
Interest cost of 8 percent on the debt
Corporate tax rate = 30 percent


Interest cost = $50 m x 8 percent = $4 m


Post-tax profit = EBIT x (100 percent – Corporate tax rate) = [($20 m - $4 m) x (70 percent)] = $11.2 m


ROE = ($11.2 m/ $50 m) = 22.4 percent on an equity cost of $50 million.

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If the company to be acquired had no debt and
acqusition cost was $50 million:



Interest-bearing debt = $ 0
Post-tax profit = EBIT x 70 percent = $20 million x 70 percent = $14 million
Return on cost of $100 million would be 14 percent.


The acquired company would then be geared up by borrowing $50 million.
Interest cost = $50 m x 8 percent = $4 m


Post-tax profit = EBIT x (100 percent – Corporate tax rate) = (20m – 4m) x (70 percent) = $11.2 m


ROE = $11.2m / $50m = 22.4 percent return on the net $50 million acquisition cost.

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EBIT multiple and ROE


From the examples above:

EV = EBIT x EBIT multiple
EBIT multiple = EV/EBIT

EBIT multiple of 5 produces a ROE of 22.4 percent.


Determine the EBIT multiple beyond which debt of 8 percent would produce a return (ROE) of less than 8 percent.
Answer: 1 / (8 percent) = 12.5


Therefore,

Paying an EBIT multiple MORE THAN 12.5, produces Return on Equity (ROE) LESS THAN the interest cost of debt of 8 percent.

Paying an EBIT multiple LESS THAN 12.5, produces Return on Equity (ROE) MORE THAN the interest cost of debt of 8 percent.

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Also read:

http://www.horizon.my/2008/12/malaysian-airlines-is-mas-cheaper-than-air-asia/
Malaysian Airlines – Is MAS Cheaper than Air Asia?