Shengmu Valuation

1. Ratio Analysis  

1. Liquidity  

A.  [pic 1]

B.  [pic 2]

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Figure 1

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Figure 2

From the quick ratio and current ratio figures, we can see SM’s liquidity is lower than MN’s, which indicates that SM, compared with MN, does not have enough resources to pay its debts over 12 months. Moreover, SM’s current ratio is below to 1.5 and quick ratio is below to 1, showing considerably high risk in liquidity.

1. Solvency

A.  [pic 5]

B.  Debt-equity Ratio = Total Liabilities / Total Equity

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Figure 3

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Figure 4

Solvency ratios are measures to assess a company’s ability to meet its long-term obligations and thereby remain solvent and avoid bankruptcy.

The solvency ratio indicates whether a company’s cash flow is sufficient to meet its short-term and long-term liabilities. The lower a company's solvency ratio, the greater the probability that it will default on its debt obligations. SM’s solvency ratio is higher than MN’s, indicating that SM’s default risk on its debt obligations is much higher.

The debt to equity ratio is a measure of a company’s leverage – how much financing it has in the form of debt as compared with how much it has invested in the business. From 2011 to 2014 SM’s Debt-equity ratio is slightly lower than MN and its tendency matches MN‘s tendency, so SM’s leverage is lower than MN’s. In other words, SM’s leverage risk is lower than MN, but MN’s profitability efficiency is also higher than SM’s.

1. Profitability

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Figure 5

EBIT margin reflect the company’s ability to make profit from the sales. MN’s EBIT Margin is higher than SM which means MN has good profitability based on sales.

[pic 9]

Figure 10

Higher EPS shows stronger power of a company to make profit, so that investors can gain more. EPS is affected by both the earning and the amount of shares, MN’s lower EPS but higher EBIT margin shows that SM has higher amount of shares.

1. Efficiency

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Figure 6

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Figure 9

SM’s ROA and ROE preform better than MN showing that its excellent using efficiency based on asset.