Financial Analysis of Two Qatari Companies

Liquidity Analysis

Industries Qatar

The analysis shows the following findings in terms of IQ’s liquidity:

• The horizontal analysis shows that IQ’s total current assets increased by 25% and its total current liabilities increased by 40% during 2005. This is largely explained by the increase in trade receivables, the increase in inventory, the increase in trades payable, and the increase in term loans (notes 5, 6, 12, and 13 of the 2005 financial statement). The higher increase in total current liabilities than in total current assets explains why the current and acid-test ratios decreased from 4.66 to 4.17 and from 4.02 to 3.5, respectively. However, IQ seems to remain highly liquid considering the values of the mentioned liquidity ratios.

• The current cash debt coverage ratio dropped from 3.38 to 2.69. This is because the increase in cash from operating activities (26%) is lower than the increase in the average total current liabilities (58%). Again, IQ seems to remain highly liquid nevertheless.

• The receivables turnover is based on the assumption that all sales are credit sales. The values of receivables turnover for 2004 and 2005 are 10.21 times and 8.83 times, respectively. This means that IQ’s efficiency is considerably declining in terms of cash collection. The decrease in receivables turnover is explained by the higher increase in average net receivables (71%) than the increase in net credit sales (25%).

• The inventory turnover decreased from 3.8 to 3.59. This is explained by the higher increase in the average inventory (37%) than the increase in cost of sales (29%) during 2005. This means that the rate at which inventory is sold is dropping

• The vertical analysis shows that the percentage of total current assets to total assets increased from 50% to 52%. This means that IQ has not made major investments in the business during 2005.

Woqod

The analysis shows the following findings in terms of Woqod’s liquidity:

• The horizontal analysis shows that Woqod’s total current assets increased by 69% and its total current liabilities increased by 102% during 2005. This is largely explained by the increase in receivables, the increase in inventory, the increase in loans, and the increase in payables. The higher increase in total current liabilities than in total current assets explains why the current and acid-test ratios decreased from 1.82 to 1.53 and from 1.74 to 1.48, respectively. The values of the mentioned ratios indicate that Woqod is not highly liquid and that its liquidity is dropping.

• The current cash debt coverage ratio rose from -0.37 to 0.68. This is because the increase in cash from operating activities (334%) is higher than the increase in the average of total current liabilities (50%). Again, Woqod seems to remain not highly liquid nevertheless

• The receivables turnover is based on the assumption that all sales are credit sales. The values of receivables turnover for 2004 and 2005 are 7.06 times and 5.89 times, respectively. This means that Woqod’s efficiency is considerably declining in terms of cash collection. The decrease in receivables turnover is explained by the higher increase in average net receivables (88%) than the increase in net credit sales (57%).

• The inventory turnover increased from 46.41 to 64.46. This is explained by the lower increase in inventory (20%) than the increase in cost of sales (54%) during 2005. This means that the inventory liquidity rate is high and is rising.

• The vertical analysis shows that the percentage of total current assets to total assets decreased from 74% to 65%. On the other hand, non-current assets increased from 26% to 35%. This is largely explained by the increase in the fair values of Woqod’s available for sale investments (note 8 of the 2005 financial statement). In addition, Woqod has made major investments in their properties, plants, and equipment during 2005 (88%). These major investments also explain the low liquidity of Woqod.

Profitability Analysis

Industries Qatar

The analysis shows the following findings in terms of IQ profitability:

• The horizontal analysis shows that net profit increased by 29%. In addition, the profit margins for 2004 and 2005 are 47% and 49%, respectively. This means that IQ has high profit and its profit is growing. It should be noted that the high and increasing value of the inventory partially explains the high profit