Cosmosteel Holdings Limited Case Study

Executive Summary

This report provides a thorough evaluation of the financial position of the company Cosmosteel Holdings Limited. In this report we will discuss about the proceedings of the business and the key factors on how its financial stability is affected. For this we will evaluate, summarize and analyze the past three year's annual report of the company with the help of the five main ratios- Profitability Ratio, Efficiency Ratio, Liquidity Ratio, Gearing Ratio and Investment Ratio.

As cosmosteel is leading service provider to the energy and industrial sector in different parts of the world and depends largely on the export market, a SWOT analysis is also prepared in this report to critically evaluate the future proceedings of the company. This will help us to check on the external factors that have affected the company in the past and can be a future possible threat.

This report will also provide some recommendations for the company so that it can review its operations and get a hold on it.

INTRODUCTION

CosmoSteel Holdings Limited is a Singapore-based investment holding company. The Company is engaged in the supply and distribution of piping system components to the energy, marine, water infrastructure and other industries. It is also involved in fabrication and machining services to customize the products. The Company deals in approximately 10000 line items. The main three of its product categories consist of pipes, fittings and flanges, comprising of carbon steel and stainless steel. Its product line items are differentiated on various attributes, such as design, size, thread, dimensions and strength. The Company's subsidiaries include Kim Seng Huat Hardware Pvt. Ltd, KVA Energy Pvt. Ltd and CosmoSteel (Australia) Pty Ltd. The company was incorporated in 1984 and was listed in Singapore Stock Exchange on 22 June 2007.

Aim and Objective

The purpose of this report is to critically evaluate the financial ratios and review the annual report of the company for the past three years. A SWOT analysis is also prepared to have a look at the future prospects of the company. This is going to help the investors take a firm decision about their investment proceedings in the business. This report will also be useful for the company itself to have a look on its proceedings from the past and to check where the company is heading towards.

Company background

Cosmosteel Holdings Limited, an investment holding company, supplies and distributes piping system components and also offers value-added services by providing fabrication and machining services to customize its products to meet specific engineering and fabrication designs. The company was founded in 1984 and started its operations from a small shop house and now the company has more than 11000 sq m warehousing capacity and its product line includes more than 10000 items. Its products are sourced mainly from Europe, US and Japan and serves mostly in the Southeast Asia.

Vision

The company's mission is to become a leading and foremost provider of industrial hardware and related services that is above the expectations of its customers via maintaining high quality, competitive price, on time delivery and feedback services.

Mission and Objective

* To achieve an adequate level of profitability in line with market conditions and in that process enhance shareholder value

* To continually strive for improvements in quality of products and timely services to be provided to customers

* To focus on productivity improvements in order to achieve a leading position in price competitiveness

* To aim to be a people developer by promoting a work culture of continuous improvement in our performance through incessant learning and training

SWOT Analysis of the Company

Financial Ratio Analysis

Assessment of the effectiveness with which funds(investment and debt) are employed in a firm, efficiency and profitability of its operations, and value and safety of debtors' claims against the firm's assets. It employs techniques such as 'funds flow analysis' and financial ratios to understand the problems and opportunities inherent in an investment or financing decision.

Profitability Ratios

In the above chart we can see that the company performed well in fy2008 and fy2009 but its profits have surged in fy2010. There was growth in revenue in fy2009 ($136.9m) with an increase of 28.2% from fy2008 ($106.7m), but the sales soared in fy2010 ($89.1m) by 38.3% resulting in huge downfall of its profit. This downfall is mainly due to the completion of projects of the customers and they were unable to tap the market orders due to the global financial crisis.

The Gross Profit Margin shows very slight changes every year which is a good sign of the company relating to that the company has maintained its profit margins very well when compared to the cost of the goods they have supplied. This also shows that the company is very efficient in its purchase segment.

Here we can also see that there is a high fluctuation in the net profits of the company which clearly shows that the company has not managed its expenses very efficiently. The administrative and its marketing expenses alone have risen from $11.8m in fy2008 to &14m in fy2009 and it too increased in fy2010 to $15m in spite of heavy downfall in the revenues of the company.

The Return on equity of the company shows that there is a slight change from fy2008 to fy2009 though the company has increased mainly its no. of shares by 35mn but the increase in its revenue has helped it to be controlled but in fy2010 there is a steep fall and the reason for it was the increase in the no. of shares by almost 53mn and the company also embarked on increasing its retained earnings due to the soaring revenues.

The return on asset has shown an increase in fy2009 though there is an increase of $32mn in the assets of the company which was backed by the company's record profits, but in fy2010 there is a decline of $4mn in its total assets the company has shown a very poor performance in terms of revenue which eventually has affected it.

The return on capital employed was at an all time high in fy2008 because of the low