Assignment Question:

Located company information on the ASX and the company websites. Using this information, complete an analysis of the company. Financial ratios must be calculated and the performance of the company analysed.  Given that the company has not yet paid a dividend to shareholders. Explain why investment in this company might be attractive to would be investors.

Assignment Solution:

Introduction

Dyesol is the global leader in the Solar Cell Technology and they supply Dye Solar Cell materials. The company has partnered with some of the major multi national companies and thus establishes its global presence.  The company has a basket of products that includes electrolyte filling machine, test cell machine, light soaking chambers, manufacturing as well as testing equipment, batch furnaces, laser cutting and lot more. (Businessweek, 2012). The company has been recently awarded with the most innovative Company Award and Global integration of the year Award.

Executive Summary

Dyesol Ltd is a public limited company that is listed on the Australian Securities Exchange on 31 st of august 2005. The company has its headquarters in Australia and its ASX code is DYE. The following report analyses the performance of the company for the current financial year by taking into account the interim report released by the Company as on 31.12.11. The report also analyses the company by taken into account the financial ratios and thereby comparing it with generally set standards. The last section of the report details the investment perspective for the investors by considering the various options and business activities as well as the performance analysis done in the initial segment of the report.

Recommendation:

Dyesol is the cheapest and the most consistent source of power that is made available to public. The company can boast of the technology and the science behind it to capture and transform the solar rays into efficiently usable energy power.

Technology:

The technological advancement of the Dyesol Ltd can never be over emphasised as the company has brought out innovative scientific methods of utilising the solar energy.  The company terms this latest technology as artificial photosynthesis. (Dyesol Ltd, 2012)The technology of Dyesol has led to 11% efficiency for converting the solar energy into electricity. The major advantages of using the Dyesol technology come in the form of:

• Low priced raw materials
• No Toxic Emission during manufacturing
• Quick and effective efficiency enhancements

The technology that lies behind Dyesol Ltd is truly amazing as it provides the cleanest form of power with no harm to the environment. With growing concern of green environment people will surely like the manufacturing process conducted by Dyesol that has zero toxic emissions.  The pollution levels are drastically reduced which makes the technology stand out from the conventional energy generation.( Philips,2012 ) The concept is attractive and is also commercially viable but to what extent these can be converted in terms of investor returns is a matter of concern.

Performance Analysis: Financial Ratios

The financial ratios indicate the overall performance of the company and have been widely used to conduct the performance analysis of companies in different industries. Investors rely on this method as they are easy to calculate and the information for calculation is readily available in the form of financial statements and company releases.

There are certain set of financial ratios that are commonly used and each of these depicts the operating activities and the growth of the company. The investors can calculate these ratios and then interpret their decision by making logical comparisons to the ratios of the specific industry. (McLeay, 2000)

The ratio analysis is done to find about the profitability, financial efficiency, shareholders returns and liquidity of the company.

Current Ratio:

This represents the ratios of current assets that are available to cover the current liabilities. This indicates the liquidity position of the company as to whether it has liquid assets in order to pay off the liabilities that are immediate. The higher the ratio better is the liquidity but lower ratio may also depict that the company is using the assets to expand the business.

The current ratio for Dyesol Ltd for the interim period ended 31.12.11 is  1.26.The generally accepted current ratios is 2 and despite the lower current ratio the investors may find this attractive as they will get a feeling that the assets are ploughed back for business expansion.

Quick Ratio:

Its measured as the Current assets minus Inventories divided by the current liabilities.

The ability of the company to cover the short term obligations by taking into account the most liquid form of assets and thereby excluding the inventories.

For Dyesol the quick assets = 7939246-1452455 = 6486791

Current liabilities = 6291437

So Quick ratio = 6486791/6291437=1.03

The quick ratio which is also popularly known as the acid test has revealed that Dyesol does not have sufficient liquid assets to cover its current liabilities.

Debt to Equity:

This ratio helps in analysing if the company is relying too much on debt as if the debt exceed the equity of a company then the shareholders will not be benefitted. The creditors on the other hand will be much more benefitted. The current debt equity of Dyesol Ltd for the interim year ended 31.12.11 is 0.09. This indicates that the company is not getting loans and other advances aggressively. (http://www.dyesol.com/page/Investors

,2011)

Return on Equity:

This helps the shareholders in knowing the way the money invested by them is being put to use by the management of the company. This indicates the management as well as the profitability levels f the company. In the case of Dyesol Ltd the latest ROE is -97.65%. The company has been incurring heavy loss and so there is significant change in the ROE which seems to be totally unattractive for investors. The usually acceptable range of ROE is between 10 and 30 percentage.

Net working Capital

Its gives an idea about the operational efficiency of the company to the investors. The current assets of a company must be more than the current liabilities and thus it can evade the bankruptcy situation at all times.

Dyesol Current assets =7939246

Current Liabilities=6291437

Net Working Capital = 7939246-6291437 = 1647809

The company has sufficient funds to meet the short term obligations and its liquidity position is favourable.

Inventory turnover

It’s calculated as the Cost of goods sold divided by Average Inventory.  This measure is used to find out how well the inventory is managed by the company. If the ratio is higher than it depicts good performance and if the ratio is low then it means that the goods are stocked for a longer period and there is risk of obsolescence. Dyesol Inventory Turnover is calculated as:

Average inventory = 1452455+1616814/2=1534635

Cost of goods sold =1095674

So Inventory turnover ratio = 1095674/1534635 = 0.71

Dyesol seems to have a very low inventory turnover which may not be a favourable factor for investors.

Total Assets turnover:

The ratios are calculated as Net Sales divided by Average Total Assets.

Dyesol Net Sales for 31.12.11 =335824

Average Total Assets = 19448785+20691372/2=20070079

Total asset turnover ratio is 0.017 which his very low.

Capitalisation Ratio   :

Its measures the financial leverage of a company. The ratio is calculated as total debt/ Debt plus shareholders equity. Dyesol has the following:

Total Debt =7299080

Shareholders Equity=12149705

Capitalisation Ratio= 7299080/12149705 = 0.60

The company has a low capitalisation ratio which means that the company is depending more on the equity financing rather than the debt financing. This is a good status since the company can be termed as having financial strength as it does not burn out its profits for debt costs.

Times interest earned ratio:

This ratio clearly indicates if the company has enough financial capability in order to meet its interest obligation. Generally, such a ratio will help the investors in finding out the liquidity position of the company.

It’s calculated as EBIT/Total interest payable

Dyesol has a net loss of (5397281) which is so huge that it can never cover the interest payable for the current year. The company is said to be in the verge of Bankruptcy as per the studies of financial ratio theories.

Net profit margin:

The ratio is calculated as Net profit after tax and dividing it by the Net sales.

Dyesol Net Profit after tax = (5397281)

Net Sales = 335824

Net Profit Margin = (5397281)/335824=-16.07

Earnings per share   :

It’s calculated as Net income minus Dividends/Average outstanding shares. It gives insight on the profitability of the company for the current year.

Dyesol has a net loss of (5397281) and so the earning per share is going to be a negative figure implying that the shareholders cannot expect a good return on their investment.

Dividend yield:

It’s the ratios of dividend to the current share price of a company’s stock. However, in the given company of Dyesol the company has never declared a dividend and so it’s not possible to calculate the dividend for the year.

Return on asset:

The assets must be utilised to the full potential and that is checked by this ratio. It indicates the management’s efficiency in incurring income by utilising the available assets in the most efficient manner. It’s calculated by dividing net income by the total assets and expressed in percentage form. The current ROA is -48.36% which his very low as compared to industry standards and clearly depicts that the company is incurring heavy loss and is not capable of generating income by employing the assets to proper use.

Price to Earning:

This is the most commonly followed ratio by the investor and it’s usually valued on daily basis for the preferred stock by investors. The PE ratio of Dyesol Ltd is 7.5 which are very low compared to other companies in the same industry. However, low PE ratio also depicts that even if there is a fall in the profitability of the company there would not be a drastic fall in the earning for the investors. This states that such stocks with low PE are less risky too.

The ratios computed clearly depicts that the investment in Dyesol Ltd is not going to bear fruits in the near future. However, since the technology of the company is by far the best in the industry and is also commercially profit bearing concept, the investors who would love to speculate can still try their luck by investing in the company. The company does not have sufficient profit and has large amount of money as accumulated losses, the investors cannot expect a dividend pay. If speculation is the reason for investment then Dyesol Ltd can be a good choice but for the investors who would not like to take up heavy risks can rely on the financial ratios which clearly states the financial position of the company and is totally unfavourable for investors.( http://www.dyesol.com/index.php?page=Half+Year+Reports

,2011)

Investment Decision:

Cash per share is a major calculation basis that helps the investors in taking a better investment decision. It’s the current cash on hand as well bank balance of the company as related to the number of shares outstanding. This indicates the liquidity of the company and the financial status of the company as well. The investors make use of this as a base and compare to the present quote and the cash per share is more than the share price then they would prefer investing in it.  The higher the cash per share better is the company’s performance and more attractive for investors too. (Macroaxis,2012)

As per the current interim report basis the cash per share ratio is 0.02 which is almost 99.73% leser than the consumer goods industry and 99.48% lower than most other stocks. So, this does not favour the investment decision for investors in Dyesol Ltd.

The share price of the company has seen drastic low figures and the company as such has been accumulating losses over a period of years showing no signs of commercialising on its effective and viable technology promises. The company which was listed in the year 2005 saw a low price figure of $0.20 in the year 2006 and went to a high in 2007 to a $2.35. After this the price saw only a dip with the current being as low as $0.17 which accounted for nearly 93% loss. ( Philips, 2012). The analysis of the financial statements of Dyesol Ltd clearly depicts that the company’s accumulated loss of $3.6 m in the year 2007 to around $17.3m in the year 2011. The recent share purchase plan of Dyesol Ltd seems to be a little absurd with the company performing at such huge losses.

Investing in Dyesol can be done by only speculative investors who wish to see sea change advancement in the performance of the company in the coming months. Also, the other investors may be least interested as the performance of the company is totally unpredictable despite holding a great technological advancement in the solar energy.

References:

Stuart McLeay,International Financial Analysis, Part VI,2000

Tom Welch,101 Financial Ratios 5.0, April,2012

Businessweek,2012 retrieved from http://investing.businessweek.com/research/stocks/snapshot/snapshot.asp?ticker=DYE:AU

Investors,Dyesol Ltd,2012 retrieved from http://www.dyesol.com/page/Investors

Scot Philips,2012 retrieved from http://www.fool.com.au/2012/03/investing/dyesol-impressive-technology-but-racking-up-the-losses/

Technology,Dyesol Ltd,2012 retrieved from http://www.dyesol.com/page/Technology

Reports,2011 retrieved from http://www.dyesol.com/index.php?page=Half+Year+Reports

Macroaxis,2012 retrieved from http://www.macroaxis.com/invest/ratio/DYE.AX–Cash_per_Share

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