Description
Complete financial analysis of ABB along with its portfolio and all the financial ratios.
Asea Brown Boveri Limited, India (ABB)
Asea Brown Boveri Limited (ABB), India
• • • • The ABB Group is one of the worlds leading engineering companies; operates in over 100 countries and employs over 108,000 people worldwide The Company was incorporated in India on 24th December 1949 as Hindustan Electric Company Limited After several name changes and amalgamations with other companies, the company got the name ABB India in 1989 The company is a partly owned subsidiary of (ABB) Asea Brown Boveri Limited, Zurich, Switzerland (ABBZH). ABBZH and Fläkt AB, Sweden, a 100 percent subsidiary of ABBZH, hold 50.99% of Equity Shares in the Company. As part of ABB’s new regional approach, India has been designated as the hub for the South Asia region. In order to leverage India's intrinsic technology strengths and the vast pool of highly qualified software professionals, ABB has set up a global R&D Center in Bangalore, which focuses on Industrial IT development and deployment. ABB has been rated as the STAR MNC 2005 by Business Standard, one of India's leading financial dailies
• •
•
ABB Network Across India
ABB Sector/Products
• • ABB can be characterized mainly as a engineering/capital goods manufacturing company Some of the sectors ABB is involved in are:
– – – Power Products
• Transformers, Switchgears, Circuit Breakers, Power cables and associated equipment
Power Systems
• Turnkey Systems, Services for Power Transmission and Distribution Grids
Automation Products
• Motors & Generators, Low Voltage Products, Power Electronics
–
Process Automation
• • Integrated solutions for control, plant optimization, and industry-specific application knowledge Key benefits include improved asset productivity and energy savings
–
Robotics
• • Leading supplier of industrial robots Also providing robot software, peripheral equipment, modular manufacturing cells and service for tasks such as welding, handling, assembly, painting and finishing, picking, packing, palletizing and machine tending
ABB Metals
• Industrial IT Solutions for Metals
– Hot metals – Cold metals – Primary metals
Cement Minerals & Mining
• • • • • Underground Mining Cement Manufacturing Open-Pit Mining Mineral Processing Primary Aluminium
Total Market Breakup Metals & Mining
• • • • • • • • ABB 25% Honeywell 18% Yokogawa 16% Invensys 12% Emerson 6% Fuji 4% Alstom 4% Hitachi 3%
Power Transmission & Distribution
• • • • •
AC System HVDC Power System Consulting Substation Automation and Protection Utility Communications Solutions
Total Market Breakup Power Industry
• • • • • • • • ABB 27% Siemens 23% Invensys 14% Emerson 13% Alstom 9% Honeywell 3% Yokogawa 3% Metso 3%
ABB Oil & Gas Industry
• • • • • • • • • Gas Distribution Liquefied Natural Gas Onshore Production Refining Terminal Operations Gas Processing Offshore Production Pipelines Service
Total Market Breakup Oil & Gas
• • • • • • • • ABB 37% Honeywell 16% Emerson 14% Invensys 13% Yokogawa 8% Siemens 5% Hitachi 1% Alstom 1%
Pulp & Paper Industry
• ABB in Pulp & Paper provides energy efficient product technology, integrated solutions and life cycle management to its customers in forest industry. ABB is a leading power and automation company and stands for industrial productivity, grid reliability and energy effciency.
• • • • • • • • • • Chemical Delivery Composite Plant Solutions Energy Management Optimization Paper Machine Drive Solutions Web Imaging System Collaborative Production Management Electrification Open Control System Quality Control System Service
Total Market Breakup Pulp & Paper
• • • • • • • • ABB 38% Honeywell 26% Metso 13% Invensys 7% Yokogawa 5% Siemens 3% Emerson 2% Alstom 1%
Financial Analysis
Liquidity Ratios
CURRENT RATIO=CURRENT ASSETS/ CURRENT LIABILITY
Dec-04 Dec-05 Dec-06
1.45
1.4
1.39
Current Ratio:-The ratio is mainly used to give an idea of the company's ability to pay back its short-term liabilities (debt and payables) with its short-term assets (cash, inventory, receivables). The higher the current ratio, the more capable the company is of paying its obligations. A ratio under 1 suggests that the company would be unable to pay off its obligations if they came due at that point. While this shows the company is not in good financial health, it does not necessarily mean that it will go bankrupt - as there are many ways to access financing - but it is definitely not a good sign.
Liquidity Ratio
ACID TEST RATIO=(CURRENT ASSETS- INVENTORIES)/CURRENT LIABILITIES
Dec-04 1.33 Dec-05 1.25 Dec-06 1.22
ACID test ratio:-A stringent test that indicates whether a firm has enough short-term assets to cover its immediate liabilities without selling inventory. The acid-test ratio is far more strenuous than the working capital ratio, primarily because the working capital ratio allows for the inclusion of inventory assets.
Liquidity Ratio
CASH POSITION RATIO=(CASH ON HAND +BANK )/CURRENT LIABILITIES
Dec-04 0.44
Dec-05 0.29
Dec-06 0.28
CASH POSITION RATIO:- The ability of the company to meet current liabilities With the cash available in hand and bank.
Leverage Ratios
Debt/ Equity Ratio = Long Term Debt / Net Worth
Dec 04 Dec 05 Dec 06
0.002
0.003
0.001
This ratio shows a company’s total debt in relation to the total amount owners have invested in the firm. The lower debt-equity ratio, the higher is the degree of protection enjoyed by the creditors. A low debt-to-equity ratio also indicates conservative financing and low risk, results in fewer possibilities of large losses .The decrease in the ratio from Dec 05 to Dec 06 is due to decrease in the debt and accompanied with an increase in the net worth of the company.
Borrowing/Asset Ratio = 1 – Net Worth / Total Assets
Dec 04 0.002
Dec 05 0.003
Dec 06 0.001
The ratio being close to 0 indicates that most of the net worth (i.e. equity and reserves are used to finance the assets). There is not much reliance on debt. All though the ratio has increased in Dec 05 and then decreased in Dec 06,overall this ratio has been substantially low. This summed up with the fixed asset coverage ratio, where the long term secured liabilities is 0 supports the fact that the reliance on debt has been very low.
Leverage Ratios
Fixed asset/ Net worth Ratio = Fixed Assets / Net Worth
Dec 04 Dec 05 Dec 06
0.2622
0.2506
0.2568
This ratio is a measure of the extent of an enterprise's investment in non-liquid and often over valued fixed assets. A higher is usually undesirable as it indicates possible over-investment and causes a large annual depreciation charge that will be deducted from the income statement. A lower ratio for ABB is indicative of a proportionately smaller investment in fixed assets in relation to net worth, and a better "cushion" for creditors in case of liquidation.
Interest Coverage Ratio= (PBDIT – Tax) / Interest
Dec 04 25.9528
Dec 05 19.0462
Dec 06 37.3130
The interest coverage measures the ability of the firm to service all debts. It indicates the extent to which the operating income or PBDIT level could decline before the ability to pay interest obligations would be impeded. An interest coverage ratio of 37 indicates that if the operating income o the firm dropped to 1/37 of the current level, the interest payments could still be met
Leverage Ratios
Fixed asset Coverage Ratio = (Gross Fixed Assets – Acc Depreciation) / Long Term Secured Liabilities
This ratio is a measure of the extent to which a company uses its long term secured liabilities for investment in non-liquid assets. However the secured loans being 0 over the years indicates that the fixed assets are not being financed by the long term liabilities, there is a possibility that it uses equity for finance of fixed assets.
Activity Ratios
Fixed asset turnover = Net Sales Fixed Asset Dec 04 12.92 Dec 05 14.29 Dec 06 16.08
The fixed asset turnover ratio is a rough measure of the productivity of the company’s fixed assets with respect to generating sale. Since the company is in a high capital intensive industry it will have a higher ratio. The ratio over the years has increased. This indicates that the management is using the assets efficiently i.e. sales per rupee of investment . Also their Fixed Assets are not mortgaged. They are owned by the company and it can help them in times of trouble.
Inventory turnover ratio = Net Sales Average inventory
Dec 04 14.14
Dec 05 14.31
Dec 06 13.81
A low turnover implies poor sales and, therefore, excess inventory. A high ratio implies either strong sales or ineffective buying. Inventory turnover ratio is more or less stable in 2005 compared to 2004 but in 2006 the ratio has decreased. This indicates that inventory is moving slowly i.e. sales are slowing down as compared to inventory levels. This could be due to competition or the company has started storing more inventory in stock.
Activity Ratios
Debtor Turnover Ratio = Credit Sales Average Debtors
Dec 04
3.86
Dec 05
3.59
Dec 06
3.30
Average Collection = Avg Debtor * 365 Period (Days) Credit Sales
Dec 04
Dec 05
Dec 06
94.46
101.51
110.55
Debtor Turnover Ratio measures the number of times receivables turn over during the year. The higher the turnover of receivables, the shorter the time between sales and cash collection. The greater this ratio the better. The quicker debts are recovered the more cash you will have at hand. As the sales are increasing and debtors turnover is more or less constant this indicates that the company has an efficient credit management even when collection period has increased
Profitability / Valuation Ratios
Gross Profit Ratio= PBDIT / Sales
Dec 04 Dec 05 Dec 06
0.1184
0.1263
0.1304
The gross profit ratio shows the margin left after meeting the manufacturing costs. It measures the efficiency of production as well as pricing. A high gross profit margin indicates that a business can make a reasonable profit on sales, as long as it keeps overhead costs in control. Thus an increasing gross profit ratio is a good sign.
Return on Net worth (%)= PAT / Net Worth
Dec 04 21.29
Dec 05 24.18
Dec 06 28.45
The Return on Networth has been increasing every year since 2004.
Profitability / Valuation Ratios
Return on Shareholder Equity (%)= PAT – Pref Dividend / Net worth
Dec 04 Dec 05 Dec 06
21.29
24.18
28.45
The Return on Shareholder Equity has been increasing every year since 2004.
Return on Capital Employed(%)= PBIT / Total Lia- CreditorsProvisions
Dec 04 36.09
Dec 05 41.24
Dec 06 46.70
ROCE is the post-tax version of earning power. It considers the effect of taxation but not of capital structure. It is internally consistent. Its merit is that it is defined in such a way that it can be compared directly with the post-tax weighted average cost of capital of the firm.
Profitability / Valuation Ratios
Return on Investment = PBIT/ Investments
Dec 04 Dec 05 Dec 06
21.29
24.18
28.45
A measure of the net income a firm's management is able to earn with the its total assets. The ROI has been increasing every year since 2004.
Book Value per Share = Net worth /No. of Equity Shares
Dec 04 171
Dec 05 213.33
Dec 06 282.17
It relates the stockholder's equity to the number of shares outstanding, giving the shares a raw value Comparing the market value to the book value can indicate whether or not the stock in overvalued or undervalued. During bull markets the stock price is more likely to trade significantly higher than book value, and in a bear market the two value's may be close to equal. .
Profitability / Valuation Ratios
Earning per Share = PAT – Pref Dividend / No. of Equity Shares
Dec 04 Dec 05 Dec 06
36.413
51.6
80.3
The portion of a company's profit allocated to each outstanding share of common stock. EPS serves as an indicator of a company's profitability. Earnings per share is generally considered to be the single most important variable in determining a share's price. It is also a major component of the price-to-earnings valuation ratio.
Pay-out ratio (%)= Dividend Paid/ Profit After Tax
Dec 04 19.22
Dec 05 15.5
Dec 06 12.45
The payout ratio provides an idea of how well earnings support the dividend payments. More mature companies tend to have a higher payout ratio.
Thank You
doc_424949342.ppt
Complete financial analysis of ABB along with its portfolio and all the financial ratios.
Asea Brown Boveri Limited, India (ABB)
Asea Brown Boveri Limited (ABB), India
• • • • The ABB Group is one of the worlds leading engineering companies; operates in over 100 countries and employs over 108,000 people worldwide The Company was incorporated in India on 24th December 1949 as Hindustan Electric Company Limited After several name changes and amalgamations with other companies, the company got the name ABB India in 1989 The company is a partly owned subsidiary of (ABB) Asea Brown Boveri Limited, Zurich, Switzerland (ABBZH). ABBZH and Fläkt AB, Sweden, a 100 percent subsidiary of ABBZH, hold 50.99% of Equity Shares in the Company. As part of ABB’s new regional approach, India has been designated as the hub for the South Asia region. In order to leverage India's intrinsic technology strengths and the vast pool of highly qualified software professionals, ABB has set up a global R&D Center in Bangalore, which focuses on Industrial IT development and deployment. ABB has been rated as the STAR MNC 2005 by Business Standard, one of India's leading financial dailies
• •
•
ABB Network Across India
ABB Sector/Products
• • ABB can be characterized mainly as a engineering/capital goods manufacturing company Some of the sectors ABB is involved in are:
– – – Power Products
• Transformers, Switchgears, Circuit Breakers, Power cables and associated equipment
Power Systems
• Turnkey Systems, Services for Power Transmission and Distribution Grids
Automation Products
• Motors & Generators, Low Voltage Products, Power Electronics
–
Process Automation
• • Integrated solutions for control, plant optimization, and industry-specific application knowledge Key benefits include improved asset productivity and energy savings
–
Robotics
• • Leading supplier of industrial robots Also providing robot software, peripheral equipment, modular manufacturing cells and service for tasks such as welding, handling, assembly, painting and finishing, picking, packing, palletizing and machine tending
ABB Metals
• Industrial IT Solutions for Metals
– Hot metals – Cold metals – Primary metals
Cement Minerals & Mining
• • • • • Underground Mining Cement Manufacturing Open-Pit Mining Mineral Processing Primary Aluminium
Total Market Breakup Metals & Mining
• • • • • • • • ABB 25% Honeywell 18% Yokogawa 16% Invensys 12% Emerson 6% Fuji 4% Alstom 4% Hitachi 3%
Power Transmission & Distribution
• • • • •
AC System HVDC Power System Consulting Substation Automation and Protection Utility Communications Solutions
Total Market Breakup Power Industry
• • • • • • • • ABB 27% Siemens 23% Invensys 14% Emerson 13% Alstom 9% Honeywell 3% Yokogawa 3% Metso 3%
ABB Oil & Gas Industry
• • • • • • • • • Gas Distribution Liquefied Natural Gas Onshore Production Refining Terminal Operations Gas Processing Offshore Production Pipelines Service
Total Market Breakup Oil & Gas
• • • • • • • • ABB 37% Honeywell 16% Emerson 14% Invensys 13% Yokogawa 8% Siemens 5% Hitachi 1% Alstom 1%
Pulp & Paper Industry
• ABB in Pulp & Paper provides energy efficient product technology, integrated solutions and life cycle management to its customers in forest industry. ABB is a leading power and automation company and stands for industrial productivity, grid reliability and energy effciency.
• • • • • • • • • • Chemical Delivery Composite Plant Solutions Energy Management Optimization Paper Machine Drive Solutions Web Imaging System Collaborative Production Management Electrification Open Control System Quality Control System Service
Total Market Breakup Pulp & Paper
• • • • • • • • ABB 38% Honeywell 26% Metso 13% Invensys 7% Yokogawa 5% Siemens 3% Emerson 2% Alstom 1%
Financial Analysis
Liquidity Ratios
CURRENT RATIO=CURRENT ASSETS/ CURRENT LIABILITY
Dec-04 Dec-05 Dec-06
1.45
1.4
1.39
Current Ratio:-The ratio is mainly used to give an idea of the company's ability to pay back its short-term liabilities (debt and payables) with its short-term assets (cash, inventory, receivables). The higher the current ratio, the more capable the company is of paying its obligations. A ratio under 1 suggests that the company would be unable to pay off its obligations if they came due at that point. While this shows the company is not in good financial health, it does not necessarily mean that it will go bankrupt - as there are many ways to access financing - but it is definitely not a good sign.
Liquidity Ratio
ACID TEST RATIO=(CURRENT ASSETS- INVENTORIES)/CURRENT LIABILITIES
Dec-04 1.33 Dec-05 1.25 Dec-06 1.22
ACID test ratio:-A stringent test that indicates whether a firm has enough short-term assets to cover its immediate liabilities without selling inventory. The acid-test ratio is far more strenuous than the working capital ratio, primarily because the working capital ratio allows for the inclusion of inventory assets.
Liquidity Ratio
CASH POSITION RATIO=(CASH ON HAND +BANK )/CURRENT LIABILITIES
Dec-04 0.44
Dec-05 0.29
Dec-06 0.28
CASH POSITION RATIO:- The ability of the company to meet current liabilities With the cash available in hand and bank.
Leverage Ratios
Debt/ Equity Ratio = Long Term Debt / Net Worth
Dec 04 Dec 05 Dec 06
0.002
0.003
0.001
This ratio shows a company’s total debt in relation to the total amount owners have invested in the firm. The lower debt-equity ratio, the higher is the degree of protection enjoyed by the creditors. A low debt-to-equity ratio also indicates conservative financing and low risk, results in fewer possibilities of large losses .The decrease in the ratio from Dec 05 to Dec 06 is due to decrease in the debt and accompanied with an increase in the net worth of the company.
Borrowing/Asset Ratio = 1 – Net Worth / Total Assets
Dec 04 0.002
Dec 05 0.003
Dec 06 0.001
The ratio being close to 0 indicates that most of the net worth (i.e. equity and reserves are used to finance the assets). There is not much reliance on debt. All though the ratio has increased in Dec 05 and then decreased in Dec 06,overall this ratio has been substantially low. This summed up with the fixed asset coverage ratio, where the long term secured liabilities is 0 supports the fact that the reliance on debt has been very low.
Leverage Ratios
Fixed asset/ Net worth Ratio = Fixed Assets / Net Worth
Dec 04 Dec 05 Dec 06
0.2622
0.2506
0.2568
This ratio is a measure of the extent of an enterprise's investment in non-liquid and often over valued fixed assets. A higher is usually undesirable as it indicates possible over-investment and causes a large annual depreciation charge that will be deducted from the income statement. A lower ratio for ABB is indicative of a proportionately smaller investment in fixed assets in relation to net worth, and a better "cushion" for creditors in case of liquidation.
Interest Coverage Ratio= (PBDIT – Tax) / Interest
Dec 04 25.9528
Dec 05 19.0462
Dec 06 37.3130
The interest coverage measures the ability of the firm to service all debts. It indicates the extent to which the operating income or PBDIT level could decline before the ability to pay interest obligations would be impeded. An interest coverage ratio of 37 indicates that if the operating income o the firm dropped to 1/37 of the current level, the interest payments could still be met
Leverage Ratios
Fixed asset Coverage Ratio = (Gross Fixed Assets – Acc Depreciation) / Long Term Secured Liabilities
This ratio is a measure of the extent to which a company uses its long term secured liabilities for investment in non-liquid assets. However the secured loans being 0 over the years indicates that the fixed assets are not being financed by the long term liabilities, there is a possibility that it uses equity for finance of fixed assets.
Activity Ratios
Fixed asset turnover = Net Sales Fixed Asset Dec 04 12.92 Dec 05 14.29 Dec 06 16.08
The fixed asset turnover ratio is a rough measure of the productivity of the company’s fixed assets with respect to generating sale. Since the company is in a high capital intensive industry it will have a higher ratio. The ratio over the years has increased. This indicates that the management is using the assets efficiently i.e. sales per rupee of investment . Also their Fixed Assets are not mortgaged. They are owned by the company and it can help them in times of trouble.
Inventory turnover ratio = Net Sales Average inventory
Dec 04 14.14
Dec 05 14.31
Dec 06 13.81
A low turnover implies poor sales and, therefore, excess inventory. A high ratio implies either strong sales or ineffective buying. Inventory turnover ratio is more or less stable in 2005 compared to 2004 but in 2006 the ratio has decreased. This indicates that inventory is moving slowly i.e. sales are slowing down as compared to inventory levels. This could be due to competition or the company has started storing more inventory in stock.
Activity Ratios
Debtor Turnover Ratio = Credit Sales Average Debtors
Dec 04
3.86
Dec 05
3.59
Dec 06
3.30
Average Collection = Avg Debtor * 365 Period (Days) Credit Sales
Dec 04
Dec 05
Dec 06
94.46
101.51
110.55
Debtor Turnover Ratio measures the number of times receivables turn over during the year. The higher the turnover of receivables, the shorter the time between sales and cash collection. The greater this ratio the better. The quicker debts are recovered the more cash you will have at hand. As the sales are increasing and debtors turnover is more or less constant this indicates that the company has an efficient credit management even when collection period has increased
Profitability / Valuation Ratios
Gross Profit Ratio= PBDIT / Sales
Dec 04 Dec 05 Dec 06
0.1184
0.1263
0.1304
The gross profit ratio shows the margin left after meeting the manufacturing costs. It measures the efficiency of production as well as pricing. A high gross profit margin indicates that a business can make a reasonable profit on sales, as long as it keeps overhead costs in control. Thus an increasing gross profit ratio is a good sign.
Return on Net worth (%)= PAT / Net Worth
Dec 04 21.29
Dec 05 24.18
Dec 06 28.45
The Return on Networth has been increasing every year since 2004.
Profitability / Valuation Ratios
Return on Shareholder Equity (%)= PAT – Pref Dividend / Net worth
Dec 04 Dec 05 Dec 06
21.29
24.18
28.45
The Return on Shareholder Equity has been increasing every year since 2004.
Return on Capital Employed(%)= PBIT / Total Lia- CreditorsProvisions
Dec 04 36.09
Dec 05 41.24
Dec 06 46.70
ROCE is the post-tax version of earning power. It considers the effect of taxation but not of capital structure. It is internally consistent. Its merit is that it is defined in such a way that it can be compared directly with the post-tax weighted average cost of capital of the firm.
Profitability / Valuation Ratios
Return on Investment = PBIT/ Investments
Dec 04 Dec 05 Dec 06
21.29
24.18
28.45
A measure of the net income a firm's management is able to earn with the its total assets. The ROI has been increasing every year since 2004.
Book Value per Share = Net worth /No. of Equity Shares
Dec 04 171
Dec 05 213.33
Dec 06 282.17
It relates the stockholder's equity to the number of shares outstanding, giving the shares a raw value Comparing the market value to the book value can indicate whether or not the stock in overvalued or undervalued. During bull markets the stock price is more likely to trade significantly higher than book value, and in a bear market the two value's may be close to equal. .
Profitability / Valuation Ratios
Earning per Share = PAT – Pref Dividend / No. of Equity Shares
Dec 04 Dec 05 Dec 06
36.413
51.6
80.3
The portion of a company's profit allocated to each outstanding share of common stock. EPS serves as an indicator of a company's profitability. Earnings per share is generally considered to be the single most important variable in determining a share's price. It is also a major component of the price-to-earnings valuation ratio.
Pay-out ratio (%)= Dividend Paid/ Profit After Tax
Dec 04 19.22
Dec 05 15.5
Dec 06 12.45
The payout ratio provides an idea of how well earnings support the dividend payments. More mature companies tend to have a higher payout ratio.
Thank You
doc_424949342.ppt