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IFA Proj Analysis

Worldcall Telecom Limited has experienced a 9% revenue increase but continues to face operating losses due to high costs and worsening ROCE. The company's liquidity ratios are concerning, with current liabilities exceeding current assets, indicating difficulty in meeting obligations. Despite improved cash flows, reliance on debt is increasing, raising concerns about equity dilution and the company's overall financial stability.

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Sharjeel Ahmed
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10 views

IFA Proj Analysis

Worldcall Telecom Limited has experienced a 9% revenue increase but continues to face operating losses due to high costs and worsening ROCE. The company's liquidity ratios are concerning, with current liabilities exceeding current assets, indicating difficulty in meeting obligations. Despite improved cash flows, reliance on debt is increasing, raising concerns about equity dilution and the company's overall financial stability.

Uploaded by

Sharjeel Ahmed
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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NUST Business School

ACC-221 Intermediate Financial Accounting


Assignment 2

Submitted to;
Rafaqat Hasnat
Submitted by;
Hamna Irfan (481899)
Sharjeel Ahmed (469680)
BSACF(A) 2k23

Date: 23 December,2024
Worldcall Telecom Limited – Company Analysis
1. Performance
Although the company’s revenue has increased by about 9% from the previous and this can
be attributed to an increasing asset turnover making it a sales volume dependant company; the
company’s operating profit margin has been suffering throughout the years and has reported
losses this year too. The reason is high operational and direct costs that the company is
incurring and significant rise in finance costs (from director’s report). The company’s ROCE
is also worsening; one of the reasons being successively increasing losses that the company is
incurring and secondly, the company also revalued its assets, thereby leading to a worsened
ROCE.

2. Liquidity
Company’s liquidity ratios, although being relatively stable, depict a really bad situation
(being too low from a good average of 1.5 to 2). The reason is that the current liabilities
exceed current assets by Rs. 7,319.975 million. Another attributed reason can be a worsening
receivables collection period (might be due to a levied credit policy to increase sales) and
although steadily improving but a bad payables payment period, taking a hit on the
company’s working capital cycle. This indicates that the company is unable to pay off its
current liabilities. Trade payables have also ever so been increasing.

3. Cash Management
The company’s cash flows have bettered from the previous year; going from Rs. 9,439,000 to
Rs. 158,262,000 in 2023. The operating, investing and financing activities have all generated
free cash flows, although some of it came from the disposal of non-current assets. Most of the
cash has also been used in paying off its non-current liabilities and finance costs have also
been paid.

4. Reliance on debt and its impact on equity holders


It is to be noted that the company is not very heavily geared; there is room to acquire more
loans so that they can be reinvested in technology projects that the company is planning (from
director’s report). But for this, stable profits are needed so that finance costs are paid. But as
the company’s overall liabilities are ever so increasing, it puts a question of material
uncertainty on going concern. Its disputes with PTA and penalties over unpaid debt, term
certificates getting pulled off and others pose a serious threat. It is to be noted that ever
increasing debt is diluting company’s equity as more is to be paid in finance costs and lesser
is kept in retained earnings.

5. Interest Cover
As PBIT is slightly showing a better trend, so is interest cover. But its alarming position is
still there, as it is evident in no dividends being paid in last three years because of the interest
cover being too low. Majority of the cash and financing sources are being used up in paying
of liabilities as evident in notes to financial statements (disputes with PTA etc.). The company
needs to invest long term in its non-current assets and additional capital needs to be raised.

6. Investor and Market Prospects


From an investor’s perspective, WTL’s position is not good as the company has planned any
dividends in the last three years and has not shown any further plans. The declining dividend
yield (for pref. shares) and worsening P/E ratio indicate that market does not prospect WTL’s
future as a bright one and isn’t confident in company’s performance. As the company is
incurring successive losses, it is unable to pay off any dividends and thus is marked by a
declining dividend cover. It is still paying preferred dividends without any profits, thereby
risking insolvency.

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