BASF Financial Analysis: ROSF
I. BASF – Vertical Analysis
To begin with, at the income statement the Cost of sales had a stable percentage among 2012-2015, but in 2016 had a slight decrease and as a result the percentage of gross profit was higher (31.77). However, the increasing percentage of net profit is not proportionate as high as the gross profit because it fluctuates from 6,68 % to 7,05% in 2012 to 2016 respectively. We could accept that it is due to a relevant increase of operating expenses such us selling and administrative expenses.
Regarding the analysis of the balance sheet, stands out a significant rise of Property, Plant, Equipment account as it moves from 26,48 to 34,53 and that indicates an increasing production capacity. An additional …show more content…
BASF - Ratio Analysis
i. Profitability Ratios
To begin with, we analyzed the most fundamental category of ratios, which are the profitability ratios.
The first two profitability ratios, “Return on ordinary shareholders funds/ (ROSF)”, and “Return on capital employed/ (ROCE)” are almost stable for BASF from 2012 till 2014, while in 2015 they both drastically fall for an average of 4 points, till 2016. These two ratios indicate a gradual decrease in net profits, because of a decrease in sales and an increase of operational expenses.
Respectively, the ratios for Sika retain a similar stability for the years 2015 and 2016, whereas in Sto the profitability between these two years shows a noteworthy decrease.
Additionally, while the indicator “Net Profit Margin” does not have significant variance for BASF, the “Gross Margin”, ratio increases over the five-year period. This increase does not happen due to a raise in gross profit, but because of a reduction in sales. On the contrary, the rise of these two indicators for Sika between 2015 and 2016, along with the previous stable ratios show a much more constant presence of the company in the market according to …show more content…
Although, last years plummeting in sales cast the company in a negative light and created insecurity to the shareholders. Also, though the ROSF and ROCE ratios, it is observable a continuous trend of decreasing profit, through the increase of the company’s expenses.
Moreover, the reduced efficiency ratios pinpoint to areas where BASF should aim to improve, like the stock turnover period and the days it takes to settle the trades receivable accounts, because they can potentially influence negatively the company’s cash and revenue.
On the other hand, the gearing ratios show a disconcerting image, whre the company relies heavily on lending. The good part is that it’s capable of fully covering the interest payments, thus giving it the opportunity to move forward with acquisitions that are part of its strategy.
Based on the above mentioned data, it is our strong belief that BASF SE is a company worth noting, but requires cautiousness when investing because even though the investment ratios remain at a positive level, there are multiple area that the company should aim to