Financial Analysis

1499 words - 6 pages

The ROA% calculates how profits are generated through the effective use of assets. As with the ROE%, this ratio for PPGL is very inconsistent. It drops from 3% in 2009 to -44.14% in 2013, which is an incredible percentage decrease. On the other hand, the ROA% for HGHL increases from 16.86% in 2009 to 22.52% by 2013. Neither company is using its assets effectively which could suggest the business is accumulating assets that aren’t helping the business to generate profits. HGHL appears to be the preferable company to invest in, because it excels in all three of the profitability ratios.
Growth Ratios
The EPS ratio shows the amount of earnings for each issued ordinary share. It allows shareholders to evaluate what their shares of profits are. The EPS ratio for PPGL shows a decreasing trend, as it drops from $2.76 in 2009 to -$31.96 in 2013 with its peak in 2011 at $3.19. This reflects the decreasing profitability ratios. HGHL on the other hand shows an overall percentage increase of 45.61% as over the five year period, the ratio rises from $21.97 to $31.99 in 2013. HGHL is the safer company to invest in because the ratio shows there are more earnings per share available to investors.

The DPS ratio allows shareholders to examine the proportion of earning that will be paid out as dividends. PPGL has a very unfavourable ratio over the five year period as it is 0 in 2009, rises to 1 in 2011, but drops back to 0 in 2013. This is unappealing to investors, as they will not be receiving an adequate return on the shares held in the company. Fortunately, HGHL has a much higher ratio. It steadily increases from 21 in 2009 to 33.50 in 2013. Because dividends are a form of profit distribution, an increasing dividend per share ratio can be a sign that the company expects growth in the future. CONCLUSION
Market Test Ratios
The ASP ratio shows how shareholders and investors perceive the company. PPGL decreases from 33.00 in 2009 to 15.50 in 2013, showing an overall decrease of 53%. HGHL has a much higher ASP ratio. Conversely it increases from 280.00 in 2009 to 475.00 in 2013, generating a massive 69.64% increase. Because HGHL has a high ROA%, the ASP ratio exceeds their book values. This indicates that shareholders have a better perception of the company. HGHL has a much higher APS ratio than PPGL, reinforcing that it would be the preferable option for the parents to invest in.
The PE ratio portrays the association between how much shareholders are willing to pay per share, and how much they earning per share. PPGL has a PE ratio of 11.95 in 2009, which drops to -0.49 in 2013. The company has very poor growth prospects, which reinforces the low PE ratio because shareholders perceive the company to be risky. Due to the decreasing trend in the ratio, PPGL should investigate why shareholders perceptions of the company have become adverse. Contrariwise, HGHL has a PE ratio that increases from 12.74 in 2009 to 14.85 in 2013. This reflects the company’s...

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