Financial Analysis Of Cyta

FINANCE 231 MANAGERIAL FINANCE

FINANCIAL ANALYSIS OF CYTA

Prepared for: Dr Loukia Evripidou

Prepared by: Margarita Englezou

Reg. no: F2004638

Course: FIN 231

Date:19/12/2007

FINANCIAL ANALYSIS OF CYTA

For the purpose of this project the company of my concern is CYTA. By using the annual report of 2004-2005 I will try to analyze the financial flotation of CYTA and I will also try to make industry analysis in order to compare the company with the rest of the industry.

Furthermore I will conduct an extended ratio analysis for the last two years of the company operations (based on the auditors and financial reports of 2004-2005) and finally I will criticize the company’s performance and end up with recommendations upon specific problems that I will define as crucial for the survival of the company.

Theory of the subject matter

CYTA AS A MONOPOLY

As Cyta has always been a monopoly in the telecommunications services in Cyprus, it found itself in a very crucial position once Cyprus was about to enter the European Union. Being a monopoly means 100% market share. It also meant that the rates of calls for mobile as well as for fixed telephony were controlled and decided only by the State. Cyta was making millions of profit, however, since there was no competition it was operating as any monopolist - having developments and changes certainly not as a number one goal. Cyta was reluctant to any pressures for reduction of call charges and updates.

CYTA showed millions of profits the last years. Although other companies entered the market the last three years, Cyta managed to boost up their profits importantly.

Revenue from other activities increased by Ð'Ј5m or 16.7% due to increased revenue from the ATM service, internet services and i-choice. Since the introduction of competition in Cyprus as from 1st January 2003, Cyta, in accordance with the interconnection agreements, charges other services providers for the use of its network. As a result, interconnection revenues increased from Ð'Ј33000 to Ð'Ј2.6m.

FINANCIAL ANALYSIS

Six year financial analysis 2005(Ð'Јm) 2004(Ð'Јm) 2003(Ð'Јm) 2002(Ð'Јm) 2001(Ð'Јm) 2000(Ð'Јm)

Operating revenue 231 232 223 233 236 202

Operating surplus 36 52 58 52 65 67

Surplus transferred to reserves 18 31 10 1 69 64

Total assets 590 567 497 555 508 446

Total liabilities 115 110 71 139 93 100

Reserves 475 457 426 416 415 346

Cash flow from op. activities 76 145 76 80 109 109

Investing activities (45) (92) (38) (47) (43) (49)

We draft the organizations financial statements from 1999-2005 and the 2005 Auditors Report and we will present you key figures that lead us in understanding the financial position that Cyta has today as well as its financial growth.

As we can clearly see in the graph, Cyta’s operating revenues increase rapidly. Operating revenue figure represents the net receipts from all telecommunication subscribers, mobile, fixed and Internet and includes both, rent of lines and calls. A 32% increase in operating revenue was market the last five years. The revenues climb from Ð'Ј168m at 1999 to Ð'Ј222m in 2004 and Ð'Ј232m in 2005. A slight reduction is observed during fiscal 2003 when competitors entered the market but two year after revenues jump to Ð'Ј232m. It shows clearly that the organization has still potential growth even in a fully competitive environment.

On the other hand the organization’s operating expenses grow steadily. Operating expenses represent all expenses incurred for the sake of profit and are directly related with the operating profit. Operating expenses were increased from Ð'Ј103m at 1999 to Ð'Ј168m at 2004 and Ð'Ј180m in 2005. This increase can be considered as expected because during the last five years a lot of changes occurred to the organizations structure and strategy and they needed cash to support them.

Ratio Analysis

2004в‚¤Ð²Ð‚™000 2005в‚¤Ð²Ð‚™000

1. Current Ratio 2.83 2.40

2. Cash Ratio 1.29 1.27

PROFITABILITY RATIOS

3. NET PROFIT MARGIN 15% 12%

4. Gross Profit Margin 22% 16%

5. ROI 6% 5%

6. ROE 7% 6%

ACTIVITY RATIOS

7. Asset Turnover 0.40 0.39

8. Fixed Asset Turnover 0.81 0.67

9. Days Debtors 0.30 0.34

10. Days Creditors 0.55 0.52

11. Gearing Ratio 2.37 2.58

Ratios and Calculations

Current Ratio Current Assets / Current Liabilities 224,494/99160 244,783/102172

Cash Ratio Cash/Current Liabilities 128,165/99160 130,275/102,172

Net Profit Margin Net Profit/Sales * 100 30 803/10914 * 100 13309/18489 * 100

Gross Profit Margin GrossProfit/Sales*100 52175/231,595 * 100 35906/230,450 * 100

ROI Net Profit/Total Sales 30803/231,595 * 100 18309/230,450 * 100

ROE Net