WULIANGYE YIBIN CO.,LTD
Corporate Finance Assignment
——Analysis report of
WULIANGYE
YIBIN CO.,LTD
Group members
：
杨旭祥 0920010304 张 菁 0904020085 杜泽薇 0917010020 林绳业 0920010156 汪雪霁 0920010235 刘 欢 0911030045
December 5, 2010
Total words :1999(without appendix)
ANALYSIS REPORT OFWULIANGYIBIN CO.,LTD
Contents
1. Abstract····································page 3
2. Introduction to the company···················page 3
3. Financial ratios······························page 3
4. Calculations and analysis······················page 5
5. Conclusion·································page 12
6. Appendix ·································page 13
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ANALYSIS REPORT OFWULIANGYIBIN CO.,LTD 1. Abstract
Our group analyse the major ratios of Wuliangye by using techniques of
time-trend analysis and peer group analysis.We choose the year 2006,2008 and 2009 to do the time-trend analysis.As for the peer group analysis, we choose Luzhoulaojiao, Guizhoumaotai, Shanxifenjiu and Tuopaiqujiu to get the industry average level and make a comparison.
2. Introduction to the company
Wuliangye
Yibin Company Limited is located in Yibin Sichuan
province.Wuliangye is one of the most famous white spirit and it is a well-known trademark in China. The company distributes its products all over the domestic market and exports to overseas markets.It also produces other products.As a whole,Wuliangye is a company with deep enterprise culture.
3. Financial ratios
(1)Short-term solvency
Current ratio: (current assets)/ (current liabilities). The higher of the ratio,the richer
of a firm’s capital turnover and the stronger of the firm’s solvency.Current ratio is a firm’s representative indicator to evaluate the solvency.The world’s universally acknowleged criterion is 2:1.
Quick ratio: (current assets-inventory)/(current liabilities). It is a measure of a
company’s liquidity and ability to meet its obligations.The general criterion is 1:1
(2) Long-term solvency
Total debt ratio: (total assets-total equity)/(total assets). For the creditors，The higher
of the firm’s total debt ratio, the more liabilities it has and it may have a high potential profit margin,but at the same time, they have a high loan risk to take on.
(3)Asset Management, or Turnover ,Measures
Inventory turnover : (cost of goods sold)/inventory. The faster this turnover is, the
stronger the liquidity will be, so high inventory turnover ratio shows that the firm is able to change directions quickly.
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ANALYSIS REPORT OFWULIANGYIBIN CO.,LTD Receivable turnover: Sales/(accounts receivable). It represents the ability that
the company receiving their payment. The management efficiency is good when the ratio is high.
Total assets turnover: Sales/(total assets). It measures how efficient a company
use its assets.
(4) Profitability Measures
Profit margin: (net income)/sales. It measures how much the company can earn per
dollar.
ROA: (Net income)/(total assets).It gives the idea that how efficient the management is
at using its assets to generate earnings.
ROE: (Net income)/(total equity).It measures a company’s profitability by revealing
how much profit a company generates with the money of shareholders have invested.
(5) Market Value Measures
Price-earnings ratio: (Price per share)/(earnings per share).It measures how much
investors are willing to pay per dollar of current earnings,high PEs are often taken to mean that the firm has significant prospects for future growth.Of course,if a firm has no or almost no earnings,its PE would probably be quite large.
Market-to-book ratio:( Market value per share)/(book value per share). It compares
the market value of a firm’s investments to their cost.
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ANALYSIS REPORT OFWULIANGYIBIN CO.,LTD 4. Calculations and analysis
(1) Solvency
Solvency is an important index to reflect a firm’s financial condition and
operating ability.A low solvency not only reflects that the firm doesn’t have
enough money to meet the need but also reflects the firm may not have the ability to pay the debt,even with the risk to face bankruptcy.
Short-term solvency Current ratio and Quick ratio
Wuliangye’s current ratio from 2006 to 2009 increases at first and then decreases.The ratio in 2006 and 2009 is about 2,which reflects that the firm has a healthy operating behavior; but the ratio in 2008 is 4.28. For the firm, a high current ratio indicates liquidty,but it also may indicate an inefficient use of cash and other short-term assets,which should draw the firm’s attention.As for the quick ratio,the trend is the same with current ratio.In the year 2006 and 2009,the firm’s ratios are about 1.5.Although it is higher than the general criterion,which equals to 1,it maintains stable in a relative way.
The value is 3.27 in 2008 and this greatly exceeding the general level.It is probably that the firm occupys more cash in quick assets and this will lead to a increase of the opportunity cost to invest.
We should notice: Although the quick ratio exceeds 1, if the most part of
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