Table SEQ Table * ARABIC 1: financial Ratio for MR Price Group Ltd for 2013 – 2017
2017 2016 2015 2014 2013
Book Value / Share (c) 2606.84 2221.43 2091.81 1671.99 1427.29
Current Ratio 3.42 2.65 2.47 2.24 2.89
Debt / Assets 0.22 0.29 0.35 0.38 0.29
Dividend / Share (c) 545.01 566.95 493.00 409.70 338.30
Dividend Cover 1.67 1.87 1.87 1.87 1.88
Dividend Yield % 3.82 3.56 2.17 3.08 3.26
Earnings / Share (c) 911.40 1057.80 919.70 765.10 635.50
Earnings Yield % 5.34 6.06 3.58 5.052 5.42
Interest Cover 1.52 3.08 Net Profit Margin % 11.50 13.28 12.73 11.80 11.59
Price / Earnings 18.73 16.49 27.92 19.80 18.43
Return On Average Assets % 37.52 47.32 44.30 45.55 46.13
Return On Average Equity % 36.58 49.62 51.22 51.61 50.43
Total Assets Turnover 2.30 2.59 2.39 2.49 2.77
Table SEQ Table * ARABIC 2: Financial Ratio for other Companies for 2013- 2017
2017 2016 2015 2014 2013
Book value /are 2950.37 2719.24 2424.71 2119.75 1964.63
Current ratio 3.04 2.57 2.55 3.05 3.18
Debt /assets 0.48 0.56 0.45 0.27 0.35
Dividend / share 1482.61 1575.90 1418.65 1192.55 1157.60
Dividend Cover 1.82 1.80 1.75 1.81 1.69
Dividend yield % 1.21 1.17 0.94 1.35 1.25
Earnings / Share (c) 2693.30 2837.80 2486.10 2156.80 1957.90
Earnings Yield % 6.35 6.85 4.83 6.66 6.05
Interest Cover 8.66 11.81 28.26 38.82 17.13
Net Profit Margin % 11.94 12.97 14.32 14.76 15.51
Price / Earnings 15.74 14.60 20.71 15.01 16.52
Return On Average Assets % 21.01 25.15 21.21 21.14 21.60
Return On Average Equity % 28.82 33.40 33.88 34.81 35.24
Total Assets Turnover 1.64 1.61 1.50 1.30 1.33
1. Book value per share (c)
The book value calculates what statement of financial position value each share should have if all debt capital is repaid (Revised edition, 2017), this basically means that each shareholder owns a portion of assets in the books of the Account. When the market value is lower than the book value the investors see this as a red flag because and this shows that the company’s potential lacks but when the market value is more than the book value investors see the company’s potential enough to be worth more than the book numbers. The book value / share increased from 1427.29c per share in 2013 to 1671.99c per share in 2014-this was an increase of 244.70c per share. The company’s share buyback to place in 2014, this might have caused an increases in the book value / share, the increase continued from 2014 to 2017, indicating the growth and potential of the company. The overall book value / share’s trend kept on increasing, this means that the net asset value kept increasing also.
The book value / share has increased through out in the period of five years, meaning that the companies have growth and potential. In 2013 the book value increased from 1964.63c to 2119.75c in 2014 this means that the buy- back of shares to place in the year 2014. The overall book value / share’s trend kept on increasing from 2014 to 2017 and when it increased the net asset value increased also. Investors can choose to invest to either Mr Price group Ltd or other companies because all the companies have growth and potential.
2. Current ratio
My Accounting Course defines current ratio as a liquidity ratio that indicates the effectiveness of how a company can cover its current liabilities with its current assets, and that the current ratio helps the investors and creditors to have a better understanding about the liquidity of a company and how easy the company will be able to pay off its current liabilities. The value of the current ratio should be two is to one (2:1), Looking at the company’s current ratio from 2013 to 2017 the company kept on the norm of 2:1 meaning that the company is not at risk, it will be able to pay off it its current liabilities and the lenders which is the bank will be able to approve loan when the company lends the loan. Comparing the current ratio of 2013 which is 2.89:1 and the current ratio of 2017 which is 3.42:1, it is clear that the company has been doing better and there is no risk of not paying off its current liabilities.
The current ratio for other companies kept on the norm of 2:1 and were above even the norm, comparing year 2013 and 2017 the ratio had decreased from 3.18:1 to 3.04:1 this shows a slightly decrease of 0, 14 and if investors want to invest they can invest in both Mr Price group Ltd and other companies since they can all be able to pay the current liabilities.
3. Debt-to-Asset Ratio (Debt/Asset)
MyAccountingCourse.com (2018) explains that debt ratio is a solvency ratio that measures a firm’s total liabilities as a percentage of its total assets. It indicates the ability of a company to pay off its liabilities with its assets; and this shows how many assets the company must sell in order to pay off all its liabilities. Looking at the above table 1, the debt / Asset had a period of consistent increase from 2013 with 0.29 to 2014 with 0.38. After 2014, the debt /asset began to decrease dropping to 0.35 in 2015 and continued to drop in 2016 and 2017 to 0.29 and 0.22. For MRP this indicates that a smaller proportion of their assets are being financed by the means of debt capital and that MRP will be able to generate enough cash to settle its commitments or obligations. The value of the ratio is less than 0.5 this shows that the company has sufficient assets to cover its debt capital obligations, and that investors interests will remain protected.
The Debt / asset ratio shows a decrease and an increase in the period of five years. Looking at 2013 and 2017 the ratio increased from 0.35 to 0.48, Mr Price Ltd is better than the other companies it has the ability to pay off all its liabilities, therefore investors should invest to the company.
4. Dividend / Share
Investopedia defines dividend per share (DPS) as the sum of declared dividends issued by a company for every ordinary share outstanding. Dividend per share is significant to investors because the amount the firm pays out in dividend directly generate to income for the shareholders. The MRP Company’s dividend / share increased from 2014 to 2016 by 338.30 cents, 409.70 cents, 493.00 cents and 566.95 cents, after which it then decreased to 545.01 cents in 2017. Comparing 2013 and 2017 there has been an increase of 206.71 cents and this increase is a good signal strong performance for the company to its shareholders. Other Companies dividend’s / share for other companies’ shows a larger dividend than Mr Price Ltd, meaning that other companies will be able to generate income for the shareholders.
5. Dividend Cover
Accounting tools (2018) explains that dividend coverage ratio measures the number of times that the company could pay dividends to its shareholders, and it is used by investors to estimate the risk of not receiving dividends. The MRP dividend coverage ratio decreased to 1.87 in 2014 when compared to 2013 when it was 1.88, the difference of 0.01 will not affect the company that much it will still be able to pay out the dividends to shareholders. The dividend coverage remained constant for a period of three years 2014, 2015 and 2016 respectively, which then it decreased in 2017 by 1.67 even though it is still above one, the company could be in risk of struggling to be able to continue making dividends payments of the same amount (Accounting tools ,2018). The dividend cover for Other Companies is above one meaning that they will be able to pay out dividend to shareholders, when comparing years for both Mr Price group Ltd and other companies, the dividends for other companies did not decrease in 2017 when compared to 2016 and that is the only difference to MRP.
6. Dividends yield %
My Accounting Course (2018) defines dividends yield as the measured amount of cash dividends distributed that ordinary shareholders will earn relatively close to the market value per share. This ratio is important to investors who want to make purchase of shares in order to earn divided income (Accounting for Management, 2012). The company shows a trend of variable pattern of decreasing and increasing ratio in the five-year period, in 2014 the ratio increased to 3.08 percent when compared to 3.26 percent in 2013 and it kept on decreasing to 2.17 percent in 2015. The year 2016 and 2017 showed an improvement of the ratio from account but shareholders are getting a high return on their investment. Other Companies dividend yield is less than the dividend for MRP but investors can also invest in the other companies when they want dividend income, however the shareholders are getting a higher return same as MRP.
7. Earnings per share (EPS) (c)
Earnings per share (EPS) is an investment ratio, it indicates the attributable earnings earned per share during the year. (Revised edition, 2017). The company shows an increasing EPS from 2013 to 2016. (635.50c, 765.10c, 919.70c and 1057.80c), at this time the company was more profitable and it had more profits to distribute to its shareholders, even though many investors do not pay much attention to the earnings per share (My Accounting Course, 2018). In 2017 the earnings / share decreased to 911.40 cents, the company may now struggle to distribute the profit among its shareholders.
Other Companies: the earnings / share increased from 2014 to 2016, this means that the other companies were more profitable and were able to distribute profit to their shareholders. The earnings / share in 2017 decreased when compared to 2016, they might struggle also to distribute profit among their shareholders.
8. Earnings Yield %
Earnings yield provides an indication if the earnings earned by the shareholders on the market price of the share (Revised Addition, 2017). Looking at the MRP company earnings yield ratio has increasing and decreasing ratios during the past five-year period, 2014 to 2015 shows a decrease 5.05 percent to 3.58 percent. In 2016 the earnings yield increased to 6.60 percent, this was a good indication because there was a growth of 3.02 percent from the previous year. The company’s aim is to have a higher earnings yield, 2017 shows a decrease of 5.34 percent, this may have occurred because of the overvalued investment that can lower earning yield.
Other Companies: the earnings yield shows a decrease and an increase in the period of five years, looking 2013 and 2017 the yield increased from 6.05 percent to 6.35 percent this means that the other companies showed a good indication since there was a growth of 0.3 percent from previous year.
9. Interest Cover
The MRP Company are not using the ratio because for 2013, 2014 and 2016 the finance cost coverage had been zero, it was only used for a two-year period of 2015 and 2017. When comparing the two years where it was used by the company there was a decrease of the ratio but looking at 2016 to 2017 an improvement has occurred, this shows that MRP are not having hard time to pay their interest on the outstanding debt every year. This somehow indicates a good sign for lenders of debt capital because the company will not struggle that much to pay them back in the future.
Other Companies: the interest cover increased from 17. 23 to 38.82 in 2013 and 2014, but decreased from 2015 to 2017 by 28.26, 11.81 and 8.66 respectively. This means that if other companies’ interest cover keeps on decreasing they will struggle to pay their interest on the outstanding debt every year.
10. Net Profit Margin %
According to (A.D Vries & D.J Smith, 2017), the net profit margin indicates which part of the revenue is available to the shareholders of the company. Table 1 is showing a varying pattern an increasing and decreasing for the recent five years, there was an increase in the previous three years starting from 2014, 2015 and 2016 with 11.80%, 12.73% and 13.28%. The ratio in 2017 began to decrease to 11.50%, however the net profit margin of MRP shows investors that the company is properly pricing its good and services.
Other Companies: the net profit margin decreased from year to year 2014 to 2017 by 11.76, 14.32, 12.97 and 11.94 percent. This decrease shows that they are not pricing their products, good and services properly.
11. Price Earnings ratio
The purpose of using the ratio is that it helps in knowing whether the market price of share is reasonable or not. The MRP Company’s price earnings ratio indicates an increase and a decrease in the past five years, in 2014 it increased from 18.43 to 19.80 when compared to 2013. The ratio increased by 8.12 from 2014 to 2015 when it was 27,92 times in 2015, this means that the earnings per share of the company is covered eight times by the market price of its share, 2016 price earnings ratio decreased to 16.49 times and then increased to 18.73 times. Comparing 2013 and 2017 the price earnings showed an increase 0.3, this indicates strong position of the company in the market and investors might decides if they are willing to invest in the company to earn one rand. (Accounting for management, 2018).
Other Companies: the price earnings ratio kept on decreasing and increasing in 2014 to 2015 it increased from 15.01 to 20.71 but decreased to 14.60 in 2016 and increased again to 15.74 in 2017. The companies show a reasonable market price and that they have a strong position in the market and this will make investors to choose to invest to the companies to each earn one rand,
12. Return on Average Asset %
MRP return on average assets indicates a decreasing ratio for the period three years (2013, 2014 and 2015) and thereafter was only an increase of 47,32% in 2016. After 2016 the ratio kept on decreasing again to 37,52% in 2017, this decreasing of the ratio shows shareholders or investors that the company is not utilising its assets or making efficient use of its assets to generate higher net income. The recent current return on average assets is 37.52%, which indicates unfavourable because it is lower when compare to the 2013 percentage of 46.13%. The cause of this decreasing ratio could be due to the increase in business expenses and some assets, therefore the general trend is decreasing as it was stated above.
Other Companies: the return on average assets shows a consistent decrease and increase, comparing 2016 and 2017 there was a decrease of 4.14 percent meaning that the companies the cause of the decrease could be due to the expenses of the being increased. The companies’ general trend is decreasing.
13. Return on Average Equity %
The return on average equity indicates a varying pattern, and overall the return on average equity is a decreasing ratio despite the increase in2014 and 2015of 51.61% and 51.22% respectively. The ratio has fallen by 13.85% when comparing the 2013 and 2016 values of 36.58% and 50.43%, the increase in 2014 from 50.43% in 2013 to 51.61% can be accounted to the buyback of shares that took place in the year that increased shareholder’s equity. When looking at the overall the return on average equity is low and it indicates that the company had not been using the funds of shareholders effectively and efficiently.
Other Companies: the return on average equity shows a decrease in the five year period from 2014 to 2017 by 34.81, 33.88, 33.40, and 28. 82 percent. The companies have not been using their funds of shareholders effectively and efficiently and there was no buy back of shares.
14. Total Asset turnover
MyAccountingCourse.com explains that the Asset turnover ratio indicates how efficient the company can use its assets to generate sales, so a higher ratio is more favourable and that the company is using its assets more efficiently. According to MRP Group Ltd, the total asset turnover shows a trend of an increasing and decreasing ratio alternately, the ratio decreased in 2014 and 2015 by 2.49% and 2.39% when compared to 2.77% in 2013. The year 2016 showed an increase of 2.59% but eventually decreased again in 2017 to 2.30%, this means that MRP has not been using or utilising its assets to generate sales and mostly it has management problems (My Accounting Course, 2018).
Other Companies: the total assets turnover increased from 2014 to 2017 by 1.31, 1.50, 1.61 and 1.63, this means that they are utilising and using their assets to generate sales.
The Fundamental analysis concluded that it is better to hold on to the shares that exists or even buy more shares. Mr Price group Ltd is struggling to use its assets effectively because the ratios that contain assets are decreasing or are below the ideal or the norm value for that particular ratio. The ratios showed a positive and negative relationship meaning that the positive ratios indicate that the company is growing and it stays capable and even profitable financially, while negative ratios mean that the company ratios decrease but they are able to increase from time to time if decisions are made wisely and that they are accurate. The liquidity ratio which is the current ratio showed the ratios that were above the norm 2:1 throughout the whole five-year period 2013 to 2017, this means that the company will be able to pay off and meet its short-term obligations. The company indicated effective control and management of shareholders money and the return on investments was lower meaning that investments are worth now, and all other ratios show the growth and the potential of the company. When asset ratios of the company were compared to other companies, other companies were using their assets effectively and utilising them to generate revenue. Therefore is good for investors to invest in the company.
The south African Economy is currently in a bull market, this means that South Africa is in a period of an upward price movement. South African’s economy is recovering and it has just turned positive at the end of January 2018 (D.V Vuuren, 2018).
The ALSE is the FTSE/JSE TOP 40 Index which include the 40 largest different companies in South Africa. The all share graph shows a five-year period of Mr Price Group Ltd(MRP), starting on 2014 to 2016 the company experiences constant prices compared to the year 2013 when it increased and the reason for this is that there was a big announcement that was made.
Figure SEQ Figure * ARABIC 1: The FTSE/JSE All Share Graph
Figure SEQ Figure * ARABIC 2: Relative Strength index (14-day)
In figure 2 the company’s RSI value reached a level 70 and it went above the level 70 on approximately 17 July 2017. De Vries, Smith ; Erasmus (2017) explained that when the RSI value reaches a level of 70 the share is considered to be overbought and signals a possible reverse in the share price. The analysts may have to sell the share before the price starts to decrease. In between 17 October 2017 and 17 November 2017 the company’s RSI reached a level 30 and at that period the share is considered to be oversold, and a reverse in the share price is possible and it indicates a buying of shares signal before the price start to increase. After 12 November 2017 the company’s RSI was above the level 30 up to 17 June 2018, this was seven months before the decrease and an indication to technical Analysts to sell the share before the prices decreased in 12 June 2018. The Mr Price group Ltd showed a buying signal because price decreased and the investors will have to buy the share on that day, since this is a good time to make a purchase of more shares.
According to technical analysts the moving averages: figure 3 below can indicate whether a trend has reversed, it is useful where share prices are very volatile, as the moving average price will smooth the price fluctuations and therefore provide a much clear picture of the long-term price trend. De Vries et al. (2017). The orange line indicates the moving average, and it is clear that it is much smoother than the share price indicated by the blue line, it has a smoother curve because it has long period of moving average. The movement of a 10- week average is utilised by indicating buy, wait and sell signals, between 12 and 18 the share price is below the 200-day line and this indicates that the prices start to increase towards the average line and the lines then crossed. This is an indication of a purchase signal as the trend changed from negative to positive trend, the 10-week line was below up until it crossed the 200-day line from 40, and this indicates a selling signal. From 20 to 40 there is an indication of a bull phase and the 10-week line moved above the 200-day line the share is said to be overbought. The analysts should sell the shares.
The share price went below the 200-day line from 10 to 12 and it started to drop toward the average line, this is an indication for analysts to buy shares. Based on the information that has been analysed it is a good idea that the analysts should purchase more shares in the company according to the times mentioned above.
Figure SEQ Figure * ARABIC 3: 10- week Moving Average
The MP Price group Ltd has a strong fundamental analysis- ratios which is the current ratio because it has shown that it is effective and able to cover its current liabilities, there is no risk of struggling to pay of its short-term obligations. When looking back at this ratio, the company kept the norm of 2:1 throughout the five-year period, another ratio that the company is doing well on it the debt ratio, the company has enough assets to cover its capital debt obligation and it also will be able to generate enough cash to settle its obligations. The values in the five-year period were all less than 50 percent, meaning that the company’s investors will remain protected if they decide to stay in the company and those who want to invest. The company is properly pricing its goods and services in a proper way and prices do not cause elastic reaction of customers this means that the keep on consistence of prices. The moving average graph has shown that analysts should buy more shares in the company.