Company Analysis and Valuation Essay Example | Topics and Well Written Essays - 750 words

Company Analysis and Valuation - Essay Example This will be done by comparing the financial ratios to other companies within the same industry so as to get a feel for the true or normal performance of the company. Finally, the report will use the valuation models in trying to compute the intrinsic value of the company and then compares it with the current value of the company to decide if this stock is overvalued or undervalued. Ratio analysis refers to the systematic use of ratios to interpret a company’s financial statements in order to determine its weaknesses and strengths, financial health as well as its current performance and historical performance. The profitability ratios of Masraf Al-Rayan have been fluctuating, however, they shows an upward trend from 2012 implying that the profitability of the company has been increasing over the period. The net profit margin and ROA are relatively equal to the industry average value indicating that the company has the same profitability as other firms in the industry. However, other firms gives their shareholders more returns that Masraf Al-Rayan because their average ROE is higher than that of the firm. Management efficiency ratios indicates how well a firm is managing its liabilities and how effectively it is utilizing its assets. Efficiency ratios indicates the efficiency with which the assets of the company are working to generate sales revenue or income (Kapil, 2011). The company’s management efficiency ratios have been fluctuating throughout the period implying that Masraf-Al-Rayan’s efficiency has been changing over the period. In comparison to the industry average, the Company’s efficiency ratios are lower; this indicates that the company is relatively less efficient than other firms in the industry. The company’s leverage ratios have been fluctuating throughout the period implying that Masraf-Al-Rayan’s solvency has been changing over the period. From the ratios, the company is highly leveraged