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Maersk Corp, often known as the A.P. Moller-Maersk Group, is a global maritime business. It is a Danish company with interests in transportation, logistics, and the energy business. It has been in business since 1904 and has branches in almost every country on the planet. The company employs about 88,000 people worldwide. In 2006, the corporation was divided into two parts: one for energy and one for transportation and logistics. As of 2017, its market capitalization was approximately $ 35 billion. The firm has been performing well financially as evident from their transaction like the purchase of new ships in 2010 that had a total cost of 857,000 TEU.
This paper will measure important financial ratios for the past two years such as the liquidity ratios, leverage ratios, operating efficiency ratios and profitability ratios to help the analyst for a better projection for Maersk group operations in the future.
Liquidity and Leverage ratios
Liquidity ratio measures the firm’s ability to pay its debt obligations. Some of the most common liquidity ratios are the current ratio and quick ratio(Easton et al.2015). Looking at the financial performance of Maersk Corp in the last two years, 2015 and 2016, the liquidity ratios can be calculated and analyzed as follows;
Current ratio or the working capital ratio
It is calculated by dividing the current assets by current liability.
Years 2015 2016 Positive/negative
Current assets 17.67% 18.23%
Current liabilities 15.21% 17.56%
Working capital/ current ratio 1.16% 1.038% Positive
In 2015 and 2016, the firm had a working capital ratio of 1.16 and 1.038%( “shareholdes interim report” 2017). This is an indication that Maersk Corp, in these two years, had more current assets than current liabilities. In case of any emergency, Maersk Corp will be able to pay the short terms debts that would come with it.
One of its major competitors, Mediterranean Shipping Company’s current ratios for the same period were; 2016, 47.53/23.18 = 2.05% 2015, 49.12/20.10 = 2.44
The performance of Maersk Corp is below that of Mediterranean Shipping Company. However, the two firms are doing well as far as the short-term debt financing is concerned. The analysts can use this financial ratio, current ratio, to establish why there is a little difference between the two firms as far as the financial ratio is concerned. Further, it will be used in the projection of the future financial plans as well as operation plan of the firm. Observation of the current ratio of the firm from 2014 to 2016 has been declining to show a move from 1.69 to 1.04. Even though the positive current ratio shows that the firm would be able to meet its short-term debts, there is fear of not doing so in the next five years if the trend continues.
Leverage ratio can be used to establish how the firm’s output will affect its operating income. The most common leverage ratio is the debt-to-equity ratio(Robinson, Henry, Pirie and Broihahn, 2015).
This is found by taking total debt and dividing it by total equity
In the case of Maersk Corp, this ratio for the 2015 and 2016 financial year were 0.33 and 0.43 respectively(“yahoo finance Maersk Corp” 2017). The debt-equity ratio has been increasing since 2014 from 0.26 to 0.43 in 2016.
On the other hand, when compared to the Mediterranean Shipping Company whose debt/equity ratio has been on the decline for the same period from 0.17 in 2014 to 0.31 in 2016.
This ratio, debt-to-equity ratio, helps in establishing the part of the shareholder's equity that is used by the firm to fund company’s assets. The decline in debt-to-equity ratio shows that there is a reduction in the amount of shareholders equity that is used to fund assets and thus the firm would be able to generate lots of cash that will be able to satisfy its debt obligations. The reduction of debt-to-equity, therefore, is good for the firm as it shows it will not rely on shareholders’ equity in financing its assets by the business will generate enough money for this. As the declining trend stands, for now, the Maersk Corp, in the next few years will fully rely on other sources of funds apart from its shareholder’s equity to fund its assets, and thus it shows that the firm will be generating more cash as it does now. The business is likely to be better in the future.
Operating efficiency and profitability ratios
Operating efficiency shows how the company is being managed financially by comparing its expenses to its net sales. An example of operating efficiency ratio is the asset turnover ratio, which measures the ability of the firm to generate cash from its assets(Wahlen, Baginski and Bradshaw, 2014). It is calculated by dividing the net sales by average total assets.
Asset turnover ratio for Maersk Corp in the years 2015 and 2016 were 0.61 and 0.57 respectively. However, a close look at the financial statement of the firm shows that there has been a decline in this ratio from 0.66 in 2014 to 0.57 in 2016. This means that Maersk Corp’s ability to generate cash from its assets is reducing every financial year from 2014 to date. This is not good news for the firm, and the management should come up with a way of helping it solve the situation. When compared to Mediterranean Shipping Company, this ratio was 1.4 in 2015 and 1. 37 in 2016 and also 1.39 in 2014%( “shareholdes interim report” 2017). In general, therefore, it can be said that the decline is all over the industry an indication that the shipping business at times does not do well as expected it can be due to several factors. It is not like Maersk Corp is not performing well, but the situation in the market is not favorable given that other firms also have a declining asset turnover ratio. To Maersk Corp, this means that it would most probably go back and use its shareholders’ equity to finance some of its operation and assets if the trend continues for the next ten years.
It measures the firm’s ability to generate earnings when compared to its earnings. Some of the ratios amazed here are the operating margin ratio. It is the ratio of operating income to the net sales of a company. For Maersk Corp, this was 4.64 in 2015 and – 0.64 in 2016. Also in 2014, this ratio was 11.16 showing that there is a decline in the operating income ratio since 2014. This shows that the expenses of the firm are becoming more expensive to the extent of interfering with its profitability. If the trend continues in the next ten years, the firm will have a problem generating profit from its operations. When compared to the Mediterranean shipping company, operating margin ratio was 13.75 in 2014, 13.04 in 2015 and 13.13 in 2016%( “shareholdes interim report” 2017). There is a little fluctuation in this ratio. Maersk Corp firm might just not doing well in the in the industry due to stiff competition from the firms like Mediterranean Shipping firm. There is a need to reevaluate its operations to find a possible solution that will help the firm from getting into financial crisis. Negative operating margin ratio shows that the expenses have become more than the earnings. The firm should reevaluate its sales and assess how to generate more revenue to that will help in taking care of all its expenses.
Financial analysis helps in assessing the performance of a firm and as well as determine what affects its finances. Also, it can be used in planning and management of the company’s future performance. As seen from the financial statement of Maersk Corp, there are lots of indictors that the firms is not performing well as expected, but also its financial position is redeemable in for a better future. Some ratios like operating margin ratio show a decline in performance whereas equity-to-debt ratio shows otherwise. Analysts can use this rations for the projection of the plans of the firm and determine the areas that need more concentration for the firm to improve its performance.
Easton, P. D., McAnally, M. L., Sommers, G. A., & Zhang, X. J. (2015). Financial statement analysis & valuation. Cambridge Business Publishers.
Robinson, T. R., Henry, E., Pirie, W. L., & Broihahn, M. A. (2015). International financial statement analysis. John Wiley & Sons.
Wahlen, J., Baginski, S., & Bradshaw, M. (2014). Financial reporting, financial statement analysis and valuation. Nelson Education.
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