Table of Contents Page 1. Project Objectives and Overall Research Approach 2. 1. Reasons for choosing Project Topic Area and Organisation 2. 2. Organisation’s Profile 2. 3. Project Objectives 2. 4. Research Approach 2. Information Gathering, Accounting and Business Techniques 1. 2. 3. 1. 3. 5. 1. Sources of Information 3. 5. 2. Methods of Collection 3. 5. 3. Limitations of Information collected 3. 5. 4. Ethical Issues 3. 5. 3. 6. 5. Accounting Ratios 3. 6. 6. Limitations of Ratio Analysis 3. 6. 7. Business Models 3. 6. . Limitations of Business Models 3. Results and Analysis, Conclusions and Recommendations 4. 1. Porter’s 5 Forces 3. 1. 1. Threat of New Entrants 3. 1. 2. Threat of Substitutes 3. 1. 3. Bargaining Power of Suppliers 3. 1. 4. Bargaining Power of Customers 3. 1. 5. Competitive Rivalry amongst current Competitors Reference List Extracts from Organisation’s Financial Statements Appendix 1: Calculation of Key Ratios Appendix 2: Spreadsheet Formulas Appendix 3: Abbreviation List 1. Project Objectives and Overall Research Approach . 1. Reasons for choosing Project Topic Area and Organisation The reason why I have decided on this Project Topic 8 about the business and financial analysis of organisation is because it is regarded as a popular agenda topic in many different investment forums, meetings and even verbal conversations. Such area of knowledge on “Analysing the business and financial health of organisation” is deemed important as it is evidently seen widely incorporated into many teaching syllabus and conventional business finance textbooks.
For myself whose ambition is to become an audit partner of an accounting firm, such topic area will be extremely common in my field, and grasping such expertise is definitely a must given that becoming a master of it makes me competitive advantageous over others. Then again, I am especially fascinated concerning the success of Singapore’s duopoly public transportation system which is perceived as one of the key sector in the success of Singapore’s infrastructure.
This duopoly transportation system is dominated by 2 major players, one of which is my choice of organisation, Singapore Mass Rapid Transport Corporation Limited. (Also known as SMRT Corporation Ltd). In fact, total number of passengers utilising public transport has been growing constantly since Year 2000. For the year ended 31 December 2010, a highest record of 726,034,000 passengers was achieved (Yearbook of Statistics Singapore, 2011). And contributing to this significant figure is I myself, as a daily commuter, utilising SMRT trains and buses daily to travel to and fro school and workplace.
Despite such high volume of riders and revenues, SMRT Corporation applied to government for increasing fares, discontentment arises among commuters and painted a negative image on the company. I felt spellbound to analyse this issue objectively and independently and to distinguish if any underlying relationship exists between these elements. Investment in SMRT Corporation has always been a hot agenda topic in local investment forums and newspaper columns, shares of SMRT Corporation have always been on the Top Counters list on Singapore Exchange.
As a potential investor, these repetitively attracted me to select SMRT as my choice of organisation so that I can scrutinise the worth of this company meticulously and make sensible investment decisions afterwards. The other major competitor is SBS Transit Ltd. Likewise, this project will look forward to compare and identify key differences in these duo organisations which have been well-perceived as “alliance” instead of competitors in many Singaporean’s mind. 2. 2. Organisation’s Profile SMRT Corporation was established in 1987 and has been listed on the Singapore Exchange since 26 July 2000.
SMRT is a holding corporation with fare transportation as core business. Through its wholly-owned subsidiaries, SMRT Corporation operates 83 Mass Rapid Transport (MRT) stations, amongst which includes 53 stations positioned along major high density travel corridors, the Bukit Panjang Light Rail (LRT) System, as well as a fleet of over 3000 taxis and 800 buses plying 74 routes. Complementing its core interests is their non-fare business comprising retail space leasing, commercial, advertising and engineering consultancy as well as project management services.
As such, SMRT position itself as a premier multi-modal transport service operator, offering integrated island-wide transport services in Singapore. Competing against SMRT Corporation in Singapore’s duopoly transportation system is another major player, SBS Transit Ltd. In November 1997, Singapore Bus Services Limited became a subsidiary of ComfortDelGro Corporation Limited, thereafter changed its name to SBS Transit Ltd to reflect its multi-modal status as a bus and rail operator in November 2001.
Today, SBS Transit operates the fully underground North East Line (NEL) MRT System of 16 stations, world’s first fully automated, driverless MRT system, in addition the Sengkang LRT System, the Punggol LRT System, 250 bus services, 16 bus interchanges and over 3500 bus stops, as well as a fleet of near 3000 buses. On 29 August 2011, SBS Transit Ltd won the contract to operate Downtown East Line (DTL) MRT System, a line of 34 stations where strong ridership will be expected.
Adding to its core fare business is their non-fare business comprising retail space leasing and outdoor advertising services. SBS Transit Ltd has similarly position themselves as a multi-modal transport service operator in Singapore, and becomes a direct competitor against SMRT Corporation Ltd. 2. 3. Project Objectives The objective of project is to evaluate the financial performance of SMRT Corporation from its financial year 2008 to 2010 as well as to analyse different factors in the macro and competitive environment SMRT Corporation is in which can affect the future of company.
The ultimate aim of this project is such that, by the end of project, user of this material should have gained adequate understanding on corporate performance of SMRT Corporation and is able to conclude independently and reasonably whether the subject company is worth investing. The Research Questions discussed and analysed in this research project are: 1. What were the Profitability ratios, Liquidity ratios, Gearing ratios, Investor ratios for each of the three years, 2008, 2009 and 2010? 2.
What were the ratios for its competitor, SBS Transit Ltd? 3. What were the key differences between the two organisations? 4. Current issues: Increase in fuel prices and impact it has on financial health of SMRT as well as measures taken by SMRT to overcome or minimise the impact of rising fuel prices. How is SMRT Corporation performing in its Macro-environment? 5. With the awarding of a major government contract to its emerging competitor, to what extent is SMRT Corporation being affected in its Competitive environment? 6.
Considering the above-mentioned analysis of business and financial performance plus comparison made, taking into account potential growth of the company, is SMRT Corporation a company worth investing? 2. 4. Research Approach In relation to analysing business and financial performance of SMRT Corporation, the project aims to analyse business’s strategic position using SWOT analysis in addition of financial analysis. External environmental analysis will take into consideration current issues faced by SMRT and identify opportunities and threats faced by SMRT.
The applicable models used here will be P. E. S. T. E. L analysis which identify environmental influences in the macro-environment, as well as Michael Porter’s 5 Forces which analyse the competitive environment the company is in. Internal appraisal will identify strengths and weaknesses of SMRT by resource analysis and competitor benchmarking in terms of financial and non-financial comparison. The first step of position audit being applicable here will be Resource analysis which will allow understanding of SMRT’s internal strategic capabilities.
This will follow by competitor benchmarking to assess relative strengths and weaknesses of SMRT Corporation through financial and non-financial comparison against its competitor. Evaluating financial performance of SMRT Corporation involves an analysis of company’s financial statements and the flow of funds. Focus will be on profitability, liquidity, gearing and returns for each of the three years, 2008, 2009 and 2010 as these factors play a key determinant role in company’s share price.
Furthermore, it will compare company’s financial performance against that of its major competitor, SBS Transit Ltd, subsequently identifying any key differences between the 2 organisations. Upon completing the abovementioned, the project will thereafter conclude with the SWOT model and in overall, establish an independent and reasonable point of view with regards to whether SMRT Corporation Ltd is worth investing. 2. Information Gathering, Accounting and Business Techniques 3. 5. 1. Sources of Information Different resources were used to generate the business and financial analysis in this project.
Primary source of both companies’ financial data is from their corporate annual reports, which is available to public for downloading and printing from their corporate websites. Secondary information and theories gathered from accounting books, online journals and newspaper articles serve as a support to the abovementioned information. Corporate website The corporate website of both companies improved my understanding towards company’s background as well as keeps me updated of key highlights and events happening in the company. Apart from that, both corporate website publishes operational developments and improvements to their services.
All financial data used and presented in this project were resourced from the company’s annual report, which has been downloaded from their corporate website. Then again, because SBS Transit Ltd is a subsidiary of ComfortDelGro Corporation Limited, its website was also used in support to SBS Transit’s corporate website. The holding corporation’s website provides useful central information concerning new developments and activities undertaken by the Group, with addition of financial summary reports, which as a whole, is important for analysing the financial performance of SBS Transit Ltd.