Financial Analysis of Krakatau Steel Corporation

COMPREHENSIVE PAPER OF FINANCIAL STATEMENT AND

KRAKATAU STEEL COMPANY

ADHISTIA PUTRI HERDANTI

ALOYSIA GITA PUSPA D

BETHANOVIA GLORIA

IVRI NAIBAHO

FAKULTAS EKONOMI


ANALYSIS


by

ADHISTIA PUTRI HERDANTI (1306385873)

ALOYSIA GITA PUSPA D (13

BETHANOVIA GLORIA (13

IVRI NAIBAHO (13

FAKULTAS EKONOMI UNIVERSITAS INDONESIA

DEPOK

2015


STATEMENT OF AUTHORSHIP

Kami yang bertandatangan di bawah ini menyatakan bahwa makalah/tugas terlampir adalah

murni hasil pekerjaan kami sendiri. Tidak ada pekerjaan orang lain yang kami gunakan tanpa

menyebutkan sumbernya.

Materi ini tidak/belum pernah disajikan atau digunakan sebagai bahan untuk makalah/tugas pada

mata ajaran lain kecuali kami menyatakan dengan jelas bahwa kami pernah menggunakannya.

Kami memahami bahwa tugas yang kami kumpulkan ini dapat diperbanyak dan atau

dikomunikasikan untuk tujuan mendeteksi adanya plagiarisme.

Mata Kuliah : Analisis Laporan Keuangan

Pengajar :Dwi Nastiti / Arief Wibisono Lubis

Judul Proposal :

Nama Mahasiswa : Adhistia Putri H.

NPM : 1306385873

Tanda Tangan :

Nama Mahasiswa : Aloysia Gita Puspa

NPM :

Tanda Tangan :

Nama Mahasiswa : Bethanovia Gloria

NPM :

Tanda Tangan :

Nama Mahasiswa : Ivri Naibaho

NPM :

Tanda Tangan :

Company Profile


PT Krakatau Steel is an Indonesian state-controlled company engaged in the steel

industry. It is Indonesia's largest steel producer and produces various steel products, such as hot

and cold rolled coils as well as wire rods.

It is headquartered in Cilegon, Banten. The location is on the western end of Banten and

adjacent to the Sunda Strait, and where the Krakatoa volcano and island from which the

company takes its name are located.

Krakatau Steel has 6 (six) production plants making the company as the only integrated

steel plant in the country. These plants produce many kinds of downstream products from

upstream raw materials.

Currently, Krakatau Steel’s production capacity of crude steel is 2.45 million tons per

year. Through its ten subsidiaries, the company has a diversified business empire, which include

high-added-value steel production (spiral and ERW pipes, steel bars and steel sections), utility

industry (water and electricity), infrastructure industry (port and industrial estate), EPC

(Engineering Procurement and Construction) services, information technology and medical

services (hospital). The company produces products for both the domestic and the international

market.

PAPER 1 – CASH FLOW ANALYSIS

PT Krakatau Steel (persero) TBK

Instruction :

Prepare mini paper which consists the following points of discussion:

1. Calculate ratio of Cash flow from operating divided by Net income for year of 2012, 2013,

2014, discuss the trends.

2. Is there any debt principal repayment during period of 2012, 2013, 2014? Is debt repayment

sensitive to cashflow?

3. Is there any dividend payment during period of 2012, 2013, 2014? Is dividend policy

sensitive to cashflow?

4. Calculate company’s Free Cash Flow to Firm for year of 2012, 2013, 2014, discuss the

trends.

Answers.

1. Cash flow from operating / Net Income (in thousand USD)

2012 = -1,0454 -10, 454 %

2013 = -10,2114 -1021,14%

2014 = 0,014647 1,4 %

Cash flow from operations is cash that arise from transactions affecting net income, for

example cash payments received from customers, cash paid to suppliers and employees,

other operating expenses, trading securities, interest paid or received, dividends are received,

payment of taxes, etc. When the cash flow from operations exceeds net income, the

company may be much healthier than its net income suggests. Otherwise, when the cash

flow from operations is lower than net income of the company, it's a signal that the

company's earnings quality (the usefulness of earnings) is questionable. That’s why Many

investors focus on cash flow from operations instead of net income because there is less

room for management to manipulate, or accounting rules to distort, cash flow.

As the calculation above, we see that the percentage of cash flow from operations over Net

Income in 2012 is minus 10,454 % as the result of negative income (loss) which is minus

19560 million USD, and the cash flow from operation is 20448 million USD. From our

analysis, we think that it is caused by there are so many payment of PT Krakatau Steel in

2012.

In 2013, the percentage of CFFO to net income is much lower than the previous

period, which is minus 1021,14%, as the result from positive cash flow from operating

which is 138.875 millions rupiah, and loss profit 13.600 million rupiahs. This extreme

changes is caused by so many payment of PT Krakatau Steel in 2013.

And in the 2014, the percentage of CFFO to net income is positive (1,4%), since

they both have the same minus value.

2. Answer:

Yes, there was any debt principal repayment in 2012. The amount of debt repayment

in 2012 is 14.854 millions rupiah. The sensitivity of the debt repayment to Krakatau Steel’s

cashflow is = -0,26. From the computation we can see that the debt repayment is not

to sensitive to their cashflow because even they are paying their debt principal, their total

cash flow from financing activities still positive which means their debt principal payments

is not as big as their new debt.

And in 2013, we can see that PT Krakatau Steel also pay the principal of their debt.

The amount of their debt repayment in 2013 is 7.962 millions rupiah. So, the sensitivity of

the debt repayment to their cashflow is 0,52. From the computation we can see

that Krakatau Steel’s debt principal repayment in 2013 is pretty sensitive to their cashflow

because it contributes 52 percent of their total cash outflow from financing activities.

In 2014, PT Krakatau Steel also pay their debt principal, and the amount is 24.398

millions rupiah. The sesitivityofthe debt repayment to their cashflow from financing

activities is . From the computation we can see that in 2014, their debt

repayment not to sensitive to their cashflow from financing activities. It’s because they

receipt cash from their new debt in a big amount.

3. Answer:

For the dividend payment, Krakatau Steel not always doing it every year. In 2012, Krakatau

Steel pay their cash dividends, and the amount is 25.242 millions rupiah. With that amount,

so we can compute the sensitivity of payment of cash dividends to the total cashflow from

financing activities. The sensitivity is . With that result we can say that the

payment of their cash dividends are not sensitive to their cash flow from operating activities,

because the total cash flow form financing activities is still positive even though they are

paying the cash dividends.

But in 2013 PT Krakatau Steel is not paying the cash dividend, we can see it from

their statement of cash flow. In 2014 PT Krakatau Steel pay their cash dividend again. The

amount of their cash dividend payment is 8 million rupiah. The sensitivity is

. So from the result we can say that their dividends payment policy is

not sensitive to the condition of their cash flow.

4. Answer:

Krakatau’s Free cash flow

Free Cash Flow 2012 = Cash flows from operations – capital expenditure

= 20.448 – (-22.643)

= 43.091

Free Cash Flow 2013= Cash flows from operations – capital expenditure

= 138875 – (-27.485)

= 166.360

Free Cash Flow 2014= Cash flows from operations – capital expenditure

= 2298 - (-20.672)

= 22.970

By knowing company’s free cash flow, we can see the projection of growth or health

of PT Krakatau Steel. Calculation show that free cash flow of PT Krakatau Steel from year

to year is always positive, it means earning (sales) from company able to support business.

In 2012 to 2013 free cash flow from company is increasing but from 2013 to 2014 is

decreasing. It’s shown that return in 2013 is the biggest.

0

50.000

100.000

150.000

200.000

2012 2013 2014

KRA's Free Cash Flow

KRA's Free Cash Flow

PAPER II – LIQUIDITY ANALYSIS

1. Introduction

Liquidity is the company’s ability to convert assets into cash or to obtain cash to

meet short-term obligations. Short term is conventionally viewed as a period up to one year,

though it is identified with the normal operating cycle of a company (the time period

encompassing the buying-producing-selling-collecting cycle). The importance of liquidity is

best seen by considering repercussions stemming from a company’s inability to meet short-

term obligations. Liquidity is a matter of degree. Lack of liquidity prevents a company from

taking advantage of favorable discounts or profitable opportunities. More extreme liquidity

problems reflect a company’s inability to cover current obligations. This can lead to forced

sale of investments and other assets at reduced prices and, in its most severe form, to

insolvency and bankruptcy. These scenarios highlight why measures of liquidity are of great

importance in our analysis of a company. If a company fails to meet its current obligations,

its continued existence is doubtful.

2. Working Capital Measure of Liquidity

Working capital is defined asthe excess of current assets over current liabilities. It is

important as a measure of liquidassets that provide a safety cushion to creditors. It is also

important in measuring theliquid reserve available to meet contingencies and the

uncertainties surrounding a company’sbalance of cash inflows and outflows.

For Krakatau Steel, their working capital in 2012, 2013, and 2014 are:

2012 237.361 million rupiah

2013 -189066 million rupiah

2014 -481177 million rupiah

From the working capital of PT Krakatau Steel we can see that in 2012 they have pretty

good liquidity in their assets so they have some reserve if company meets any uncertain

condition. But we see in 2013 and 2014 that their amount of working capital is already

minus so it means that their liquidity is not good enough to cover their current obligations.

3. Current Ratio Measure of Liquidity

a. Relevance

Current liability coverage. The higher the amount (multiple) of current assets to

current liabilities, the greater assurance we have that current liabilities will be paid.

Buffer against losses. The larger the buffer, the lower the risk. The current ratio

shows the margin of safety available to cover shrinkage in noncash current asset

values when ultimately disposing of or liquidating them.

Reserve of liquid funds. The current ratio is relevant as a measure of the margin of

safety against uncertainties and random shocks to a company’s cash

flows.Uncertainties and shocks, such as strikes and extraordinary losses, can

temporarily and unexpectedly impair cash flows.

b. Limitations

Doesn’t measure and predict the pattern of future cash inflows and outflows.

Doesn’t measure the adequacy of future cash inflows to outflows.

For Krakatau Steel, their current ratio in 2012, 2013, and 2014 are:

2012 1.2

2013 0.85

2014 0.69

From the computation of their current assets we can see that in 2012 Krakatau

Steel’s current ratio is 1.2 is means that with their current assets they can cover their

current liabilities and still has a little excess amount. But in 2013 and 2014 their current

asset ratios are below one, so it is show that Krakatau Steel doesn’t have enough liquidity

to cover their current liabilities.

0

0,5

1

1,5

2012 2013 2014

Kras's Current Ratio

Kra's Current Ratio

4. Operating Activity Analysis of Liquidity

Accounts Receivable Liquidity Measures

Account Receivable Turnover

Accounts receivable turnover is calculated by dividing net credit sales by the

average accounts receivable for that period.

The reason net credit sales are used instead of net sales is that cash sales don't create

receivables. Only credit sales establish a receivable, so the cash sales are left out of the

calculation. Net sales simply refers to sales minus returns and refunded sales.

The net credit sales can usually be found on the company's income statement for the

year although not all companies report cash and credit sales separately. Average receivables

is calculated by adding the beginning and ending receivables for the year and dividing by

two. In a sense, this is a rough calculation of the average receivables for the year.

PT Krakatau Steel 2012 2013 2014

AR turnover 15.29777032 11.8975682 16.5684358

As we can see from the calculation above, PT Krakatau Steel’s receivable turnover

was decreasing in 2013, from 15 to 12. Since the receivables turnover ratio measures a

business' ability to efficiently collect its receivables, so a higher ratio in 2014 is more

favorable. Higher ratios mean that companies are collecting their receivables more

frequently throughout the year. Ratio of 17 in 2014 means that the company collected its

average receivables twice during the year. In other words, this company is collecting is

money from customers every 22 days.

Days’ Sales in Receivables

The days sales in receivables is calculated by dividing the ending accounts

receivable by the total credit sales for the period and multiplying it by the number of days in

the period. Most often this ratio is calculated at year-end and multiplied by 360 days.

The days sales in receivables calculation, also called the average collection period

or days' sales outstanding, measures the number of days it takes a company to collect

cash from its credit sales. This calculation shows the liquidity and efficiency of a

company's collections department.

In other words, it shows how well a company can collect cash from its customers.

The sooner cash can be collected, the sooner this cash can be used for other operations.

Both liquidity and cash flows increase with a lower days sales outstanding measurement.

0,000

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

2012 2013 2014

Days sales in receivabels

Days sales in receivabels


Days sales in receivabels 36.72182719 20.21853268 20.90504028

From the calculation above, we can see that the ratio was decreasing in 2013,

which means it takes PT Krakatau Steel approximately 21 days to collect cash from his

customers on average. This is a good ratio since PT Krakatau Steel is aiming for a 30 day

collection period.

A lower ratio is more favorable because it means companies collect cash earlier

from customers and can use this cash for other operations. It also shows that the accounts

receivables are good and won't be written off as bad debts.

A higher ratio indicates a company with poor collection procedures and customers

who are unable or unwilling to pay for their purchases. Companies with high days sales

ratios are unable to convert sales into cash as quickly as firms with lower ratios.

Inventory Receivable Measures

Inventory Turnover

The inventory turnover ratio is calculated by dividing the cost of goods sold for a period

by the average inventory for that period.

The inventory turnover ratio is an efficiency ratio that shows how effectively

inventory is managed by comparing cost of goods sold with average inventory for a

period. This measures how many times average inventory is "turned" or sold during a

period. In other words, it measures how many times a company sold its total average

inventory dollar amount during the year.

This ratio is important because total turnover depends on two main components of

performance. The first component is stock purchasing. If larger amounts of inventory are

purchased during the year, the company will have to sell greater amounts of inventory to

improve its turnover. If the company can't sell these greater amounts of inventory, it will

incur storage costs and other holding cost.

The second component is sales. Sales have to match inventory purchases

otherwise the inventory will not turn effectively. That's why the purchasing and sales

departments must be in tune with each other.


Inventory turnover 3.024903822 3.395486293 3.655563189

From the calculation above, we can see that there is no difference in inventory

turnover from 2012 to 2014 which means PT Krakatau Steel sold its total average

inventory dollar amount 4 times during the year

Days’ sales in Inventory

The days sales inventory is calculated by dividing the ending inventory by the

cost of goods sold for the period and multiplying it by 360.

Ending inventory is found on the balance sheet and the cost of goods sold is listed

on the income statement. Note that you can calculate the days in inventory for any period,

just adjust the multiple.

Since this inventory calculation is based on how many times a company can turn

its inventory, you can also use the inventory turnover ratio in the calculation. Just divide

365 by the inventory turnover ratio

Days inventory usually focuses on ending inventory whereas inventory turnover

focuses on average inventory.


Days sales in inventory 108.4756435 93.96034247 94.71646104

From the calculation above, PT Krakatau Steel’s days sales in inventory was

decreasing in 2013 from 109 days to 94 days, which means the company has enough

inventories to last the next 94 days or they will turn their inventory into cash in the next

94 days.

Liqudity of Current Liabilities

Days’ Purchases in Account Payable

DPO provides one measure of how long a business holds onto its cash.

DPO can also be used to compare one company's payment policies to another.

Having fewer days of payables on the books than your competitors means they are

getting better credit terms from their vendors than you are from yours. If a company is

selling something to a customer, they can use that customer's DPO to judge when the

customer will pay (and thus what payment terms to offer or expect).

Having a greater days payables outstanding may indicate the Company's ability to

delay payment and conserve cash. This could arise from better terms with vendors.

DPO is also a critical part of the "Cash Cycle", which measures DPO and the

related Days Sales Outstanding and Days In Inventory. When combined these three

measurements tell us how long (in days) between a cash payment to a vendor into a cash

85,00

90,00

95,00

100,00

105,00

110,00

2012 2013 2014

Days sales in inventory

Days sales in inventory

receipt from a customer. This is useful because it indicates how much cash a business

must have to sustain itself.


Average payable days outstanding 40.12980912 27.55351393 32.37571969

From the calculation above, we can see that there is a decrease in DPO from 40

days to 28 days which indicates that PT Krakatau Steel is taking fast to pay for its

suppliers. When accounts payable or DPO decrease, this is considered a use of cash, and as

such, it reduces the company's working capital (defined as current assets minus current

liabilities). But, The DPO increased in 2014 from 28 days to 32 days. When accounts

payable or DPO go up, this is considered a source of cash because the company is taking

longer to pay its invoices and thus not using cash as quickly.

Additional Liquidity Measures

CA Composition

The composition of current assets is an indicator of working capital liquidity. Use of

common-size percentage comparisons facilitates our evaluation of comparative

liquidity, regardless of the dollar amounts.

0,00

5,00

10,00

15,00

20,00

25,00

30,00

35,00

40,00

45,00

2012 2013 2014

Average payable days outstanding

Average payable days outstanding

http://www.investinganswers.com/node/5755



ASSETS

CURRENT ASSETS 2012 2013 2014

Cash and cash equivalent 19.45% 17.36% 22.35%

Short term investment 0.56% 0.71%

Restricted time deposit 0.29% 1.90%

Trade Receivable 28.19% 25.21% 23.50%

Other Receivable 1.51% 5.20% 2.94%

Inventories 46.97% 47.39% 45.42%

Advanced and prepaid

expenses

2.94% 3.24% 3.16%

Prepaid taxes 0.83% 0.08% 0.69%

TOTAL ASSETS 100% 100% 100%

Current assets composition shows factors that have caused changes in the amount of PT

Krakatau Steel’s current asset from 2012 to 2014. An analysis of Krakatau Steel’s common-size

percentages reveals marked deterioration in current asset liquidity in 2012 relative to 2013 and

also relative to 2014.

- Acid Test Ratio

A more stringent test of liquidity uses the acid-test (quick) ratio. This ratio includes those

assets most quickly convertible to cash and is computed as:

��ℎ + ��ℎ �� + �� + ��

��

2012 = ��,�� ,�� (��,�� ,��)

�,��,�� = 0.546

2013 = ��,�� ,�� (��,�� ,��)

�,��,�� = 0.416

2014 = ��,�� (��,�� ,��)

�,��,�� = 0.343

PT Krakatau Steel have current asset lower than current liabilities. Its means their current

asset from 2012 to 2013 to 2014 is not enough to pay their liabilities for short term. From

2012 to 2013 to 2014 acid test ratio is decreasing and it is not good for company.

- Cash Flow Measures

The statistic nature of the current ratio and its inability (as a measure of liquidity) to

recognize the importance of cash flows in meeting maturing obligations has led to a search

for a dynamic measure of liquidity. This cash flow ratio is computed as:

�� ℎ ��

��

2012 = ��,��

�,��,�� = 0.0166

2013 = ��,��

�,��,�� = 0.1220

2014 = (�,��)

�,��,�� = (0.0016)

From 2012 to 2013 percentage of using current liabilities for operating cash flow is

increasing. It is different from 2013 to 2014 that percentage of using current liabilities for

operating cash is decreasing.

- Financial Flexibility

Financial Flexibility is the ability of a company to take steps to counter unexpected

interruptions in the flow of funds. It can mean the ability to borrow depends on several

factors and is subject to change. It depends on profitability, stability, size, industry

position, asset composition, and capital structure. It also depends on market conditions

and trends. From calculation shows that PT Krakatau Steel have good financial flexibility

namely from their profitability and stability from year to year.

Source:

http://www.myaccountingcourse.com/

PAPER III - CAPITAL STRUCTURE AND SOLVENCY ANALYSIS

1. BASICS OF SOLVENCY

In liquidity analysis, the time horizon is sufficiently short for reasonably accurate

forecasts of cash flows. Long-term forecasts are less reliable and, consequently, analysis of

solvency uses less precise but more encompassing analytical measures.

Key elements :

- Capital structure

It is the sources of financing for a company that can range from relatively permanent

equity capital to more risky or temporary short-term financing sources. Once a company

obtains financing, it subsequently invests it in various assets. Assets represent secondary

sources of security for lenders and range from loans secured by specific assets to assets

available as general security for unsecured creditors.

- Earning (or earning power)

It is implying the recurring ability to generate cash from operations. Earnings-based

measures are important and reliable indicators of financial strength and the most desirable

and reliable source of cash for long-term payment of interest and debt principal. As a

measure of cash inflows from operations, earnings is crucial to covering long-term

interest and other fixed charges. A stable earnings stream is an important measure of a

company’s ability to borrow in times of cash shortage.

a. Importance of Capital Structure

Capital structure is the equity and debt financing of a company. A company’s

financial stability and risk of insolvency depend on its financing sources and the types

and amounts of various assets it owns.

b. Characteristics of Debt and Equity

a. Equity

o Uncertain or unspecified return

o Lack of any repayment pattern

o Degree of permanence

o Persistence in times of adversity

o Lack of any mandatory dividend requirement

Company can invest equity financing in long-term assets and expose them to business

risks without threat of recall

b. Debt ( both long-term and short-term)

- It must be repaid ; the longer the payment period and the less demanding its repayment

provisions, the easier it is for a company to service debt capital.

- It must be repaid in specified times regardless of company’s financial condition, and so

too much periodic interest on most debt.

- When the proportion of debt in the total capital structure of a company is larger, the

higher are the resulting fixed charges and repayment commitments .

For investors in common stock, debt reflects a risk of loss of the investment,

balanced by the potential of profits from financial leverage. For creditors, increased

equity capital is preferred as protection against losses from adversities. Lowering

equity capital as a proportionate share of a company’s financing decreases creditors’

protection against loss and consequently increases credit risk.

c. Motivation for Debt Capital

From a shareholder’s perspective, debt is a preferred external financing source for at least

two reasons:

1. Interest on most debt is fixed and, provided interest cost is less than the return on net

operating assets, the excess return is to the benefit of equity investors.

2. Interest is a tax-deductible expense whereas dividends are not.

d. Concept of Financial Leverage

Financial leverage is the use of debt to increase earnings. Leverage magnifies

both managerial success (income) and failure (losses). Companies with financial leverage

are said to be trading on the equity. This indicates a company is using equity capital as a

borrowing base in a desire to reap excess returns.

e. Other Effects of Leverage

Beyond the advantages from excess return to financial leverage and the tax

deductibility of interest, a long-term debt position can yield other benefits to equity

holders. In addition, if interest rates are increasing, a leveraged company paying a fixed

lower interest rate is more profitable than its nonleveraged competitor. However, the

reverse is also true. Finally, in times of inflation, monetary liabilities (like most debt

capital) yield price-level gains.

f. Adjustments for Capital Structure Analysis

1. Adjustments to Book Values of Liabilities

- Deferred Income Taxes. To the extent future reversals are a remote possibility, as

conceivable with timing differences from accelerated depreciation, deferred taxes

should be viewed like long-term financing and treated like equity.

- Operating Leases. Current accounting practice requires that most financing long-

term noncancelable leases be shown as debt. Yet companies have certain

opportunities to structure leases in ways to avoid reporting them as debt. Operating

leases should be recognized on the balance sheet for analytical purposes, increasing

both fixed assets and liabilities.

- Off-Balance-Sheet Financing. In determining the debt for a company, our analysis

must be aware that some managers attempt to understate debt, often with new and

sometimes complex means

- Contingent Liabilities. Contingencies such as product guarantees and warranties

represent obligations to offer future services or goods that are classified as liabilities.

Typically, reserves created by charges to income are also considered liabilities.

- Minority Interests. Minority interests in consolidated financial statements represent

the book value of ownership interests of minority shareholders of subsidiaries in the

consolidated group. These are not liabilities similar to debt because they have neither

mandatory dividend payment nor principal repayment requirements. Capital structure

measurements concentrate on the mandatory payment aspects of liabilities

- Convertible Debt. Convertible debt is usually reported among liabilities (or as an

item separate from both debt and equity listings). If conversion terms imply this debt

will be converted into common stock, then it can be classified as equity for purposes

of capital structure analysis.

- Preferred Stock. Most preferred stock requires no obligation for payment of

dividends or repayment of principal. These characteristics are similar to those of

equity.

2. CAPITAL STRUCTURE COMPOSITION AND SOLVENCY

The fundamental risk with a leveraged capital structure is the risk of inadequate cash

under conditions of adversity. Debt involves a commitment to pay fixed charges in the form

of interest and principal repayments. While certain fixed charges can be postponed in times

of cash shortages, the fixed charges related to debt cannot be postponed without adverse

repercussions to a company’s shareholders and creditors.This section discusses several

measures commonly used to estimate the degree of financial leverage and to evaluate the

risk of insolvency.

a. Common-Size Statements in Solvency Analysis

2012 % 2013 % 2014 %

C/L 1244435 0,485738 1138147 0,478313 1413295 0,543905

LTD 201526 0,0786613 189304 0,079556 293260 0,112861

C/S 855968 0,3341084 855968 0,359725 855968 0,329418

PIC 116956 0,0456512 117217 0,049261 116263 0,044744

other comprehensive

income

-5334 -0,002082 -55595 -0,02336 -58141 -0,02238

R/E (appropriated) 146834 0,0573134 146834 0,061708 146834 0,056509

R/E (unappropriated) -18358 -0,007166 -32344 -0,01359 -182159 -0,0701

TEC 1115986 0,4356007 1052053 0,442131 891868 0,343234

Total E & L 2561947 1 2379504 1 2598423 1

A common measure of financial risk for a company is its capital structure composition.

Composition analysis is performed by constructing a common-size statement of the

liabilities and equity section of the balance sheet.We have constructing the calculation of

common-size analysis of krakatau steel company’s liabilities and equity section of balance

sheet from 2012 until 2014. We can see that the proportion of current liabilities to total

equity and liabilities is not constan in every year.In 2013, current liabilities is decreasing, it

is caused by payment of short term bank loan in 2013, and increasing during 2013 to 2014, it

is caused by there was a proceeds from short-term bank loans in 2104. The proportion of

Long term debt to total debt and equity is always increasing during 2012 to 2014 but the

amount in dollar is decreasing in 2013 (it is caused by the smaller value of denominator).

The proportion of common stock to the right section of the balance sheet is higher in 2013

and lower in 2014 (actually the amount of common stock is stable but the proportion changes

depends on the total equity and liabilities). The proportion of paid in capital in rightside of balance

sheet is increasing in 2013 and decreasing in 2014. The proportion of retained earning to total equity

and liabilities is increasing in 2013 for about 4% and decreasing at 5% in 2014, but actually the

amount of retained earning in 2012 to 2014 is stable because in the last 3 periods company didn’t

gain profit (suffered financial loss) so it can’t magnifies the retained earning in balance sheet. In

addition, although the total amount equity capital of krakatau steel company is always decreasing

both in 2013 and 2014, the proportion to total equity and liabilities is increasing in 2013 because the

amount of total equity and liabilities in the year is lower than 2012. The company’s total equity and

liabilities is decreasing in 2013 from 2.561.947 thousand USD to 2.379.504 thousand USD, and

increasing in 2014 to 2.598.423 thousand USD. So, from all the components, PT krakatau steel uses

bigger proportion of current liabilities in its financial structure.

0,485737995

0,078661268

0,334108395

0,045651218

-0,00208201

0,057313442

-0,007165644

common size E&L 2012 C/L

LTD

C/S

PIC

other comprehensive income

R/E (appropriated)

R/E (unappropriated)

Capital Structure Measures for Solvency Analysis

1. Total Debt to Total Capital = Total Debt : Total capital

2012 = ��

�� =

�,��,�� ,��

�,��,�� ,��,�� ,�� = 0.56882

2013 = ��

�� =

�,��,�� ,��

�,��,�� ,��,�� ,�� = 0.56259

2014 = ��

�� =

�,��,�� ,��

��,�� ,��,�� ,�� = 0.66009

0,478312707

0,079556076

0,359725388

0,049261107

-0,0233641130,061707818-0,013592749

common size E&L 2013

C/L

LTD

C/S

PIC

other comprehensive income

R/E (appropriated)


0,543904899

0,112860762

0,329418266

0,044743677

-0,022375495

0,05650889

-0,070103674

common size E&L 2014C/L

LTD

C/S

PIC

other comprehensive incomeR/E (appropriated)


ANALYSIS :

Based on our calculation above, we know that the proportion of debt in krakatau

steel’s capital structure in 2013 is little bit lower than 2012 and increasing for about 10%

in 2014 become 66.009%. In 2012, the company uses 56.43% of debt to finance it’s

business. In 2013, the proportion is decreasing, where 55.79% of company’s capital

structure is financed by debt, and increased in 2014 to 64,68%. The larger the company’s

debt, the higher are the resulting fixed charges and repayment commitments, thus it

becomes less good for business continuity.

2. Total Debt to Equity Capital = Total debt : shareholder’s equity

2012 = ��

��′ �� =

�,��,�� ,��

�,��,�� = 1.31922

2013 = ��

��′ �� =

�,��,�� ,��

�,��,�� = 1.28619

2014 = ��

��′ �� =

�,��,�� ,��

��,�� = 1.94199

From the calculation, the ratio implies that the krakatau steel’s total debt in 2012 is 1.32

times it’s equity capital, total debt in 2013 is 1,29 times it’s equity capital, and in 2014,

the total debt of krakatau steel is 1,94 times to its equity capital. In other words,

krakatausteel’s credit financing equals 1.32, 1.29, and 1.94 for every $1 of each equity

financing in 2012, 2013, and 2014, respectively. So, for both 3 years, although it is

fluctuative, the Krakatau steel’s debt is greater than 1, it means that it uses larger

proportion of debt than the equity.

3. Long-Term Debt to Equity Capital Ratio = LTD : shareholder’s equity

2012 = ��

��′ �� =

��,��

�,��,�� = 0.183863

2013 = ��

��′ �� =

��,��

�,��,�� = 0.183419

2014 = ��

��′ �� =

��,��

�,��,�� = 0.333718

The proportion ofkrakatau steel’s long-term debt (usually defined as all

noncurrent liabilities) to equity capital is relative constant in 2012 and 2013 which is

about 18 %, and in 2014, the proportion of company’s long term debt increases to

33,37% of the equity capital. For their capital structure using of long term debt

4. Short-Term Debt to Total Debt

Short-term debt, as opposed to long-term debt or sinking fund requirements, is an

indicator of enterprise reliance on short-term (primarily bank) financing. Short-term debt

is usually subject to frequent changes in interest rates.

2012 = ��

�� =

�,��,��

�,��,�� = 0.860628

2013 = ��

�� =

�,��,��

�,��,�� = 0.857393

2014 = ��

�� =

�,��,��

�,��,�� = 0.828157

Using of short term debt from their total debt is always highest from year to year.

It shows that firm more pays attention their productivity for short term. PT Krakatau

Steel also have their short term debt is decreasing for every year. It is shown good for the

firm. They can decrease their liabilities.

b. Interpretation of Capital Structure Measures

Common-size and ratio analyses of capital structure are primarily measures of the risk

of a company’s capital structure. The higher the proportion of debt, the larger the

fixedcharges of interest and debt repayment, and the greater the likelihood of

insolvencyduring periods of earnings decline or hardship.

Analysis of short-term liquidity is always important because before we assess

longterm solvency we want to be satisfied about the near-term financial survival of the

company. Loan and bond indenture covenants requiring maintenance of minimum working

capital levels attest to the importance of current liquidity in ensuring a company’s longterm

solvency. Additional analytical tests of importance include the examination of debt

maturities (as to amount and timing), interest costs, and risk-bearing factors. The latter

factors include a company’s earnings stability or persistence, industry performance, and

composition of assets.

c. Asset-Based Measures of Solvency

1. Asset Composition in Solvency Analysis

Asset composition analysis

company’s capital structure. Asset composition is typically evaluated using common

size statements of asset balances.

Composition of asset in PT Krakatau Steel is normally stable in proportion every

year. The highest proportion is their property, plant, and equipment and its increasing

from 2012 until 2014. It means PT Krakatau Steel needs more fixed asset for their

productivity. For current asset is decreasing from 2012 until 2014 except for cash in

2014. It shows that in every year company is decreasing their productivity, and it is not

good for them. In investment is increasing for 2013 and decreasing for 2014.

2012

Current Asset

Cash $ 270,267

Accounts receivable $ 412,495

Merchandise inventory $ 652,368

Investments $ 257,148

Property, plant, and

equipment

$ 748,936

Total assets $ 2,561,947

$748.936

Common

Based Measures of Solvency

Asset Composition in Solvency Analysis

osition analysis is an important tool in assessing the risk exposure of a

company’s capital structure. Asset composition is typically evaluated using common

size statements of asset balances.




ctivity. For current asset is decreasing from 2012 until 2014 except for cash in



% 2013 %

$ 270,267 10.54928 $190,232 7.994607

$ 412,495 16.10084 $333,159 14.0012

$ 652,368 25.46376 $519,086 21.81488

$ 257,148 10.03721 $269,404 11.32186

$ 748,936 29.23308 $857,738 36.04692

$ 2,561,947 100 $2,379,504 100

0 $270.267

$412.495

Common-Size Analysis of PT Krakatau Steel's Asset Composition 2012

Cash

Accounts receivable

Mechandise inventory

is an important tool in assessing the risk exposure of a

company’s capital structure. Asset composition is typically evaluated using common-




ctivity. For current asset is decreasing from 2012 until 2014 except for cash in



2014 %

$236,689 9.108948

$279,990 10.77538

$480,871 18.50626

$227,541 8.756888

$1,097,410 42.23369

$2,598,423 100

3. EARNING COVERAGE

a. Earnings Coverage Measures

Common

$857.738

Common

EARNING COVERAGE

Earnings Coverage Measures

9.108.948

1.077.538

1.850.626

8.756.888

4.223.369


Accounts receivableMerchandise

inventoryInvestments

Property, plant, and equipment


Cash

Accounts receivable


Investments


0 $190.232 $333.159

$519.0860$269.404

$857.738


Cash

Accounts receivable


Investments


Size Analysis of PT Krakatau Steel's

Accounts receivableMerchandise

inventoryInvestments



Size Analysis of PT Krakatau Steel's Asset



Earnings coverage measures provide us insight into the ability of a company to meet its

fixed charges out of current earnings. There exists a high correlation between earnings

coverage measures and the default rate on debt—that is, the higher the coverage, the

lower the default rate. A study of creditor experience with debt revealed the following

default and yield rates for debt classified according to times interest earned ratios.

b. Relation of Earnings to Fixed Charges

Earnings coverage measures focus on the relation between debt-related fixed

charges and a company’s earnings available to meet these charges. These measures are

important factors in debt ratings (see Appendix 10A). Bond indentures often specify

minimum levels earnings coverage for additional issuance of debt. Securities and

Exchange Commission regulations require that the ratio of earnings to fixed charges be

disclosed in the prospectus of all debt securities registered. The typical measure of the

earnings to charges ratio is:

�� ℎ��

�� ℎ��

PT Krakatau Steel’s Income statement:

Using the financial data of PT Krakatau Steel, we compute the earnings to fixed charges ratio as:

2012 2013 2014

Pretax income (a)

(15,471.00)

(14,747.00)

(182,853.00)

Total Interest expense (b & c)

46,345.00

20,281.00

1,642.00

Interest implicit in noncapitalized lease amounts (d)

-

-

-

Depreciation included amortization of previously

capitalized interest (f)

-

137.00

199.00

Total Dividend (g)

(25,242.00)

-

-

Earnings available for fixed charges

5,632.00

5,671.00

(181,012.00)

Total interest incurred (h) 46,345.00 20,281.00 1,642.00

Amortization of stock issuance cost (c )

22,190.00

22,190.00

2,076.00

Intereset implicit in non capitalized less amounts(d)

-

-

-

Fix Charges

68,535.00

42,471.00

3,718.00

Earning to fixed charges ratio

0.08

0.13

(48.69)

From the computation above, we can conclude that in 2012, every 1 dollar of their fixed

cost only covered by 0.08 dollar of their earnings in current period. It means that their fixed cost

cannot be fully covered by their earnings. Where in 2013, company’s ability to cover their fixed

cost with their earnings is increasing a little bit to 13%. But even though their fixed cost

coverage was increasing, it still cannot be fully covered by company’s earnings. So it still not

good enough. Company’s ability to cover their fixed cost with their earnings become worst in

2014, where they didn’t have earnings to cover their fixed cost at all. So from their result in the

last 3 year, we can see that company’s coverage of their fixed cost is low even we could say that

it was bad. Because in the 2012 and 2013 their fixed cost were not fully covered and in 2014 it

was not covered at all.

c. Times Interest Earned Analysis

Another earnings coverage measure is the times interest earned ratio. This ratio considers

interest as the only fixed charge needing earnings coverage:

�� + �� + ��

��

Using the financial data of PT Krakatau Steel, we compute the time interest earned ratio as:

2012 2013 2014

EBIT (16,471.00) (14,747.00) (182,853.00)

Interest Expense

46,345.00

20,281.00

1,642.00

Time Interest Earned Ratio

(0.36)

(0.73)

(111.36)

From the computation above, we can conclude that in the last three year company

cannot cover their interest expense with their earnings before interest and tax. It means that

company cannot generate cash from its operation (EBIT) to meets their interest obligations.

So company has to use whether their cash on hand or cash from other activities to cover their

interest. And for 2014, the company’s ability to cover their interest has decreased pretty

extreme. For this situation, our group opinions are first, maybe it was because their revenues

are decreasing where some of their expenses are increasing and the second reason that may

has a pretty big impact is maybe because in 2014 the share loss that they got from their

associates are increasing pretty extreme even it was increased about 500% from last year.

d. Cash Flow to Fixed Charges Ratio

The cash flow to fixed charges ratiois computed using cash from operations rather than

earnings in the numerator of the earnings to fixed charges ratio. Cash from operations is

reported in the statement of cash flows. The cash flow to fixed charges ratio is defined as:

�� ℎ �� + �� (�) �ℎ��ℎ (�)

�� ℎ��

Using the financial data of PT Krakatau steel, we can compute the cash flow to fixed charges

ratio as:

Pretax Income

(15,471.00)

(14,747.00)

(182,853.00)

Pretax cash from operations

267,341.00

378,257.00

213,532.00

Interest Expense

46,345.00

20,281.00

1,642.00

Total numerator

298,215.00

383,791.00

32,321.00

Interest incurred

46,345.00

20,281.00

1,642.00

interest portion of operating rentals

-

-

-

Fixed charges

46,345.00

20,281.00

1,642.00

Cash flow to fixed charges ratio

6.43

18.92

19.68

From the computation above, we can conclude that in the last three year company’s

ability to cover their fixed cost with their cash flow are increasing. And in the last three year

company’s fixed cost always covered by their cash flow. From our group opinion, the reason

why Krakatau Steel cash flow from operation can cover their fixed cost when their earning

cannot cover the fixed cost is because Krakatau Steel got cash inflow from claims of their tax

refund, so it make their cash flow from operation is high. And maybe the other reason is because

their collection of receivables on that period is high, so it makes their cash flow is high too.

Overall Anaysis:

From the capital structure of Krakatau Steel, we can see that for financing their activities

they are more depend on debt rather than equity. It is showed by the proportion of debt in their

capital is larger than the equity.It was okay if the company can generate enough earnings so they

can meets their financial commitments and they have a good solvency.But for Krakatau Steel, in

the last 3 year, their earnings are not enough to cover their financial commitment.Showed by

their interest and fixed cost are not covered by their earnings.But why they can still survive when

even their earnings are not enough to cover their interest?

From our group’s opinion, the reason why they are still survive until now even with that

situation is because they are the one and only steel mining company that owned by government

in Indonesia. So, it will be “protected” by the government. Like lately, DPR just approved their

request to get a new national investment. And the amount of their new national investment is

amazing, which are Rp 1,5 trillion cash and Rp 956,49 billion non cash.And government support

are not just in the financing, but government also help the operating activities of Krakatau Steel.

Government said that all the government based construction companies must use steel from

Krakatau Steel. Even for protecting local steel, government will set a tax for import steel.

PAPER IV - CHAPTER 8 – RETURN ON INVESTED CAPITAL

1. Importance of Return on Invested Capital

The relation between income and invested capital, referred to as return on invested

capital (ROIC) or return on investment (ROI), is probably the most widely recognized

measure of company performance. It allows us to compare companies on their success with

invested capital. It also allows us to assess a company’s return relative to its capital

investment risk, and we can compare the return on invested capital to returns of alternative

investments.

Areas of analysis :

a. Measuring Managerial Effectiveness

Return on invested capital, especially when computed over intervals of a year or longer,

is a relevant measure of a company’s managerial effectiveness.

b. Measuring profitability

This profitability measure has several advantages over other long-term measures of

financial strength or solvency that rely on only balance sheet items (such as debt to

equity ratio). It can effectively convey the return on invested capital from varying

perspectives of different financing

contributors (creditors and shareholders).

c. Measure for planning and control

A well-managed company exercises control over returns achieved by each of its profit

centers and rewards its managers on these results. In evaluating investing alternatives,

management assesses performance relative to expected returns. Out of this assessment

come strategic decisions and action plans for the company.

2. Components of Return in Invested Capital

ROIC = Income / Invested capital

a. Defining Invested Capital

1. Net operating asset

Operating activities include all the activities necessary to bring a company’s

product or service to market. In the income statement, operating activities typically

include sales, cost of goods sold, and selling and general and administrative

(SG&A) expenses. On the balance sheet, operating activities are represented by the

assets and liabilities relating to these income statement accounts, such as accounts

receivable, inventories, PPE, accounts payable, and accrued expenses.

Many firms invest excess cash in financial assets, such as marketable

securities, and earn returns that are typically included in the income statement as

“other” income.Likewise, firms borrow money on short-term and long-term debt,

resulting in interest expense. Although effective management of an investment

portfolio along with astute borrowing can benefit income, these nonoperating

revenues and expenses are regarded as ancillary to the core operating activities of

the business. Consequently, investment returns and borrowing expenses do not

typically have a major impact on company value, unless they are extreme.

RNOA = net operating income after tax /average net operating asset

Net operating income after tax (exclude investment income and interest

expense)

average net operating asset ( TA - Financial asset such as marketable

securities)

2. Common Equity Capital

Return on common equity = (net income – preferred dividends) / Average common

equity

Common equity = total share holder’s equity – preferred stock

Preferred is excluded from the computation since, from the viewpoint of

common shareholders, preferred stock has a fixed claim to the net assets and

cash flow of the company, just like debt.

3. Computing Invested Capital for the Period

The invested capital for the period is typically computed using theaverage capital available to a

company during the period.

b. Adjustments to Invested Capital and Income

As we discussed, many accounting numbers call for analytical adjustment and several numbers not

reported in financial statements need to be included. Some adjustments, like those relating to

inventory, affect both the numerator and denominator of return on invested capital, moderating their

effect. Whatever their impacts, the analysis of return on invested capital should use the appropriately

adjusted financial statement.

c. Computing Return on Invested Capital

1. Return on Net Operating Assets

RNOA =Net operating profits after tax (NOPAT)

Average net operating assets (NOA)

NOA operating asset ( cash, A/R, inventories, prepaid expenses, deferred

tax assets, property, PPE and longterm investments related to strategic

acquisitions (such as equity method investments, goodwill, and acquired

intangible assets, and include investments in marketable securities) --

operating liabilities, such as accounts payable and accrued expenses, and

long-term operating liabilities, such as pensions and other postretirement

(OPEB) liabilities and deferred income tax liabilities, bonds, long term intrest-

bearing liabilities, and non current portion of capitalized leases.

- Net Financial Obligations (NFO) = Non Operating Liabilities- Non

Operating Assets

- Net operating assets (NOA) = Net financial obligations (NFO) +

Stockholders’ Equity (SE)

The distinction between operating and nonoperating activities

AVERAGE NOA OF KRAKATAU STEEL COMPANY

Analysis : From the computation above we can see that in 2012 Krakatau Steel’s

average net operating income is -6023330 million dollar. And in 2013 it increased

to -95839.5 million dollar and in 2014 it decreased to -155459.

-6023330

-95839,5 -155459

-7000000

-6000000

-5000000

-4000000

-3000000

-2000000

-1000000

0

2012 2013 2014

average NOA

average NOA

RNOA OF KRAKATAU STEEL

Analysis:

From the calculation above we can see that in 2012, company ability to

generate net income from its asset that used for operating activities are -0.486 and

in 2013 the company’s ability to generate net income from its operating asset is

decreasing significantly to -20.490 and in 2013 their ability to generate net

income from it operating activities is become better and increased to -3.975 but it

still not good enough. From year to year we can see that Krakatau Steel is not

efficient enough in using their operating asset to generate net income. It is shown

by the RNOA that is minus in the last three years.

Net Operating profit after tax (NOPAT)

Is the after-tax profit earned from net operating assets.

-0,486339622

-20,49063818

-3,975076627

-25

-20

-15

-10

-5

0

2012 2013 2014

RNOA= NOPAT/NOA

RNOA= NOPAT/NOA

The distinction between operating and nonoperating activities

NOPAT = (Sales - Operating expenses) x (1 - [Tax expense/Pretax profit])

NOPAT of Krakatau Steel

2. Return on Common shareholders’ Equity

ROCE = Net income - Preferred dividends

Average common shareholders’ equity

2929384,037

1963812,518

617961,4373

0

500000

1000000

1500000

2000000

2500000

3000000

3500000

2012 2013 2014

year

NOPAT

Higher return on common shareholders’ equity as compared to its return on net

operating assets reflects the favorable effects of financial leverage.

ROCE OF KRAKATAU STEEL

Analysis :

From the computation above we can see that in 2012 company’s ability to

generate net income from their equity that is invested by their shareholders is -0.017

and in 2013 it was increasing to -0.008 but it was decreasing again in 2014 to -

0.015. But in the last 3 years we can see that the ROCE has minus value so we can

see that company is not using their shareholders’ equity not efficient enough in

generating net income.

ROIC OF KRAKATAU STEEL

-0,017108505

-0,008851978

-0,015172427

-0,018

-0,016

-0,014

-0,012

-0,01

-0,008

-0,006

-0,004

-0,002

0

2012 2013 2014

ROCE= (NI-P/S)/ average common equity

ROCE= (NI-P/S)/ average common equity

Analysis :

From the computation above we can see that in 2012, Krakatau Steel’s ability to generate

net income from using its invested capital is -0.0078 and in 2013 company’s ability to generate

net income from its invested capital is become better and has increased to -0.0062 and in 2014

their ability is also increasing to -0.0059. From those result in the last 3 years we can see that the

company is not use their invested capital efficient enough in their operating activities in order to

generate income. It is shown by the ROIC that has minus values in the last 3 years.

Attachment

Krakatau steel company

Year 2011 2012 2013 2014

NOPAT 2929384 1963813 617961,4

NOA 12164170 117510 -74169 -385087

average NOA -6023330 -95839,5 -155459

RNOA= NOPAT/NOA -0,48634 -20,4906 -3,97508

-0,007887055

-0,006261724

-0,005924956

-0,01

-0,008

-0,006

-0,004

-0,002

0

2012 2013 2014

ROIC = Income/ Invested capital

ROIC = Income/ Invested capital

NI 151337 -19560 -15471 -14747

preferred dividends 0 0 0 0

average common equity 1143291 1747745 971960,5

ROCE= (NI-P/S)/ average common

equity -0,01711 -0,00885 -0,01517

average invested capital 2480013 2470726 2488964

ROIC = Income/ Invested capital -0,00789 -0,00626 -0,00592

ANALYZING RETURN ON NET OPERATING ASSETS

Disaggregating Return on Net Operating Assets

The NOPAT to sales relation is callednet operating profit margin(or simplyNOPAT

margin) and measures a company’s operating profitability relative to sales. The sales to net

operating assets relation is called thenet operating asset turnover (or simply NOA turnover) and

measures a company’s effectiveness in generating sales from net operating assets. This

decomposition highlights the role of these components, both NOPAT margin and NOA turnover,

in determining return on net operating assets (RNOA). NOPAT margin and NOA turnover are

useful measures that require analysis to gain insights into a company’s profitability.

Using the financial data of PT Krakatau Steel, we can compute as:

Disaggregating Return on NOA 2012 2013 2014

Net Operating Profit after tax (NOPAT)

20,019.00

(2,214.00)

(96,405.00)

Sales

2,287,445.00

2,084,448.00

1,868,845.00

Net operating profit margin

0.01

(0.00)

(0.05)

Sales

2,287,445.00

2,084,448.00

1,868,845.00

Average net operating asset (Av. NOA)

6,140,840.00

21,670.50

(229,628.00)

Net operating asset turnover

0.37

96.19

(8.14)


20,019.00

(2,214.00)

(96,405.00)

Average net operating asset (Av. NOA)

6,140,840.00

21,670.50

(229,628.00)

Return on net operating assets (RNOA) 0.33% -10.22% 41.98%

Analysis :

From the computation above, we can conclude that PT Krakatau Steel’s RNOA in 2012

is 0,33%, because, the have highest NOPAT and highest average NOA. But, in 2013, their

RNOA is -10,22% which is decreasing and the lowest if compared to the last there years,

because they get lower NOPAT and lower average NOA. And in 2014, although the company’s

RNOA is getting even bigger, but their NOPAT and average NOA (-96,405.00 and -229,628.00)

is decreasing extremely and are the lowest of the last three years.

Relation between Profit Margin and Asset Turnover

RNOA is a function of both margin and turnover, it is tempting to analyze a company’s

ability to increase RNOA by increasing profit margin while holding turnover constant, or vice

versa. Unfortunately, the answer is not that simple because the two measures are not

independent. Profit margin is a function of sales (selling price units sold) and operating expenses.

Turnover is also a function of sales (sales/assets). Consequently, increasing profit margin by

increasing selling prices impacts units sold. Also, reductions of marketing-related operating

expenses in an effort to increase profitability usually impacts product demand. Selling prices,

marketing, R&D, production, and a host of other business areas must all be managed effectively

to maximize RNOA.

Using the financial data of PT Krakatau Steel, we can compute as:

Analysis of Return on NOA 2012 2013 2014

Sales

2,287,445.00

2,084,448.00

1,868,845.00


20,019.00

(2,214.00)

(96,405.00)

Net operating asset (NOA)

117,510.00

(74,169.00)

(385,087.00)

Net Operating Profit after tax Margin 0.88% -0.11% -5.16%

Net operating asset turnover

19.466

(28.104)

(4.853)

Return on net operating asset (RNOA) 17.04% 2.99% 25.03%

Analysis :

From the computation above, we can conclude that, in las three years, PT Krakatau Steel

in 2012 achieves a 17,04% RNOA with a relatively highest NOPAT margin and a highest NOA

turnover. In 2013, PT Krakatau SteeL’s RNOA is 2,99% which is deacreasing, because they got

a lower NOPAT margin and lowest NOA turnover. Morever, In 2014, PT Krakatau Steel

achieves the highest RNOA (25,03%) , because they got a lowest NOPAT and lower NOA

turnover.

PAPER V PROFORMA KRAKATAU STEEL

Financial Analysis of Krakatau Steel Corporation

Economy & Finance

Transcript of Financial Analysis of Krakatau Steel Corporation