1. Summary of the Annual Report
Etisalat is a multinational organization with presence in 17 countries across Asia, Middle East, and Africa. The company has approximately 53,000 employees working across these countries. The company’s profitability for the 2011 financial year was adversely affected by the Supreme Court of India’s decision to cancel 122 licenses. The main information lacking in the Etisalat books is the company’s average market price per share for 2011 and other years. The market price per share is important in computing price-earnings ratio. The P/E is very important ratio for the investors to establish the future prospects of a company at a glance.
2. Ratio analysis
- Profit margin
- Return on equity (ROE)
- Earnings per share AED
The EPS is a crucial determinant of company’s share prices and the price-earning-ratio. The EPS may be used to determine the profitability of a company. Etisalat has a positive EPS indicating that the company made a profit of AED 0.74 for every share in 2011. The decreasing trend of the EPS from 2009 to 2011 is however worrying because this clearly indicates decreasing profitability of the company.
Etisalat’s profit margin is 0.14 or 14%. This implies that for every AED 1 of sale, the company generates AED 0.14 as net income. 14% of the total revenue represents the net profit. This figure is relatively lower compared to the previous year and this indicates reducing profitability.
Etisalat's 2011 ROE is 12% which imply a low efficiency. Generally, a company whose ROE is below 15% is perceived to have a low efficiency. ROE measures the company’s efficient relative to the counterparts in the industry.
3. Decision on whether to invest in the company
Etisalat is a profitable company but it is clear that its going concern is threatened. A more complex analysis should be done to diagnose the problem and if necessary, restructure or seek a merger to boost its market share and image before it gets insolvent. The constant declining trends in EPS from 2009 to 2011 insinuate decreasing profitability that may result to losses and ultimately bankruptcy. The decreasing ROE is an indicator of decreasing efficiency of the company operations. It is not advisable to invest in Etisalat because of these undesirable trends. There are more promising companies within the UAE that are more desirable to invest based on the discussed factors.
Fridson, M. S., & Alvarez, F. (2011). Financial statement analysis: a practitioner's guide (4th Ed.). Hoboken, N.J.: Wiley.