Bradken Limited (BKN) manufactures and supplies consumable and capital products for the mining, construction, rail transit, energy and general industrial markets on a global basis. This report aims to provide a general analysis of BKN’s current and past financial performance through the use of ratio analysis, including DuPont analysis, on its liquidity, solvency, operational activity, profitability, and cash flows. Specific attention will be focused on the analysis of BKN’s fixed assets, leases and pension and its impact on the performance. The report will conclude by identifying current expectations on future performance based upon on the aforementioned analysis of its ...view middle of the document...
In addition the 59.54% increase in current payables, is primarily accounted for by the 84.29% increase in Trade Payables. It is also noted that inventory had increased by $130,566 (73.54%) between 2011 and 2012 as a result of net increase in construction work in progress.
BKN’s ability to meet long term obligations such as interest and principal debt repayments and similar obligations can be analysed using debt to asset, debt to equity, financial leverage and interest coverage ratios. Debt ratios are used to measure the amount of liabilities in a firm’s capital structure. Both debt to equity and debt to assets ratios decreased between 2010 to 2011, indicating an improvement in BKN’s capital structure and lowering its long-term risk of insolvency. However, both of the ratios subsequently increased between 2011 and 2012 as a result of an unfavourable 43.17% increase in total debt, increasing the risk of insolvency.
The interest coverage ratio fell by 7.42% in 2011 and increased by 20.56% in 2012. This indicates the company’s ability to meet its interest obligations had notably improved from 2010 to 2012. The 20.56% change in interest coverage ratio is primarily due to a 26.47% increase in sales of good from mining products (21.76%), rail (54.62%) and engineered products (20.09%) as disclosed in Note 4 Segment information.
While financial leverage can potentially benefit BKNs shareholders in generating a higher shareholder return on investment through leveraging debt in financing its operations, the 15.05% decrease in financial leverage ratio in 2011 and subsequent marginal increase of 4.29% in 2012 indicates a possible overall process of deleveraging over the past two financial years by the company. Further analysis however notes that debt levels had increased over the three years and that the total assets and equity levels had increased at a higher rate due to new acquisitions and projects, thus proving otherwise that the company is still expanding through the use of debt.
Operational effectiveness and productivity is key to the profitability of BKN, as it maintains an efficient and effective management of its capital investments, evident through the operation activity ratios over the past three financial years. Specifically, from 2010 to 2011, inventory turnover increased from 4.55 to 5.17 (13.63% improvement) and the number of days inventory on hand also decreased by 9 days, indicating an improvement in the amount of time BKN needed to produce, hold and sell its inventories. However, the inventory turnover fell by 8.14% in 2012, along with an increase of 5.84 days in the number of days of inventory on hand. Despite the fall in efficiency in 2012, BKN has improved overall during the 2010 to 2012 period.
Receivable turnover deteriorated by 13.54% from 2010 to 2011, which led to a marginal increase of 8.59 days of sales outstanding. The receivable turnover ratio recovered by 5.44% in...