FINANCIAL ANALYSIS

Case study - DRYS SA

Table of Contents

Question # 13

Question # 24

Question # 36

Question # 46

Question # 57

Question # 68

Question # 79

Question # 89

Question # 910

Question # 1011

Case study - DRYS SA

Question # 1

The following below, the table shows the DRYS SA Company's earnings per share, price to earnings ratio and price to book value per share.

Annual Growth Rate

Year

Earnings per Share

Growth rate

Price to Earnings ratio

Growth rate

Price to Book value per share

Growth rate

1986

90

1.333

1.463

1991

102

13%

1.324

-1%

1.154

-21%

1996

112

10%

1.429

8%

0.889

-23%

2001

140

25%

1.429

0.00%

0.784

-12%

The earnings per share tell you that how much profit or income a firm is earning on its single share. It helps a shareholder in making his investment decision. The above table shows the company's earnings per share, which shows an increasing trend as the time passes. The growth rate of the earnings per share of the company states in double digit. The earnings per share grow by 13% from year 1986 to 1991, 10% from the year 1991 to 1996 and by 25% from year 1996 to 2001.

The price earnings ratio tells you that how much an investor pays an amount in order to get a particular earning of any company. This ratio also helps an investor in making his or her investment decision. The higher the P/E ratio, the more the company is expecting to earn more profits. In year 1991, the growth of price to earnings ratio decreases by 1%. From year 1996 to 2001, the price to earnings ratio of the company shows the sustain results.

The book value per share tells you how much an individual is willing to pay according to the book value of the company. Although, the book value growth rate of the company shows a declining trend from year 1991 to year 2001. This means that the company stock price of the company is under stated according to the book value of the company.

Industry Benchmark Growth Rates

Year

Avg. Growth rate of EPS

Year

Avg. Growth rate of p/e ratio

Avg. Growth rate of price to book value per share

1986-1991

5.90%

1986

17

2.3

1991-1996

7%

1991

17.5

2.4

1996-2001

8.10%

1996

18.9

2.9

2001

16.8

2.3

The above given table shows the industry benchmark growth rate. If we compare these rates with the DRYS SA Company with the industry benchmark, the performance of the company is worst as compare with the industry benchmark. The DRYS SA Company needs to change its policies and come up with a new cost structure plan, which will increase their financial performance and will satisfy the shareholders of the company.

Question # 2

The top management of the DRYS SA Company introduced their following dividend policy.

Do not pay a dividend, no dividend in the form of stock dividend or non-stock split. The CFO was pretty sure that founder would support this entry, both for the reasons outlined above, and because, as shown by the balance sheet, the company was not able to pay dividends in cash.

Direct payment of a dividend, but no dividend in the form of shares or split shares. If adopted such a policy, the amount of the dividend is a subject of debate.

Direct payment of a dividend, and a large stock ...