Evergreen marine financial analysis

Introduction

Evergreen Marine (UK) is a UK multinational shipping company with headquarters in London. The company operates in different countries across the globe serving a large base of customers. As the level of competition increases in the shipping industry, Evergreen has been facing financial challenges that have eventually led to a reduction of its profit. In essence, the company has incurred huge losses over the past years. The report provides a financial analysis of the company in an attempt to find the possible causes of its poor performance. It also evaluates its strength, weaknesses, opportunities, and threats in the industry.

Trading Performance of the Business

The trading performance of the company can be evaluated by considering various factors that can impact on the profitability of the company. Through assessment of the financial statements of the company, it is possible to identify the trading trends over the years ( Liangn et al. 2016) . From the financial statements of Evergreen Marine (UK) Ltd, it is evident that there are both the positive and negative aspects of the company’s performance.

Positive Aspects of the Companies Performance

The positive aspects of the company performance can be determined by assessing the financial performance of the company on different activities. One of the positive aspects of the company’s performance is its strong sales over the years. Although Evergreen Marine has recorded losses for between 2013 and 2017 except for 2014, its sales are seen to be increasing over the period. Sales of the company have remained relatively stable for the past years showing that the demand in the Maritime industry is relatively stable despite a few fluctuations in some years.

Negative Aspects of the Companies Performance

A key negative aspect of Evergreen Marine is high and increasing cost of sales. Evidently, Evergreen Marine cost of sales is higher than sales or turnover and this makes it record gross losses. A profit making companies should ensure that its cost of sales is lower than the sales or turnover ( Zorn et al. 2018) . In this case, it seems as the company has not been able to control its cost of sales leading to gross losses over the years. There are many factors that might have contributed to the high cost of sales for the company and include an increase in labor cost, a high cost of fuel, an increase in storage cost and other harbor changes. All these factors might have contributed to the high and increasing cost of sales.

Key Financial Ratios

Financial ratios are important metrics that can be used to determine the financial performance of the firm over a given period. They basically provide a comparison between the financial statement categories or accounts. Analysis of the financial ratio can be used in decision making by investors, management of companies, creditors, and shareholders among other relevant stakeholders of organizations ( Laitinen, & Laitinen 2018) . In essence, the calculation and analysis of the financial ratios can help determine and understand how the business is performing and identify the areas that need improvements. In the analysis of the financial statements of Evergreen Marine, the key financial ratios considered are liquidity ratio, solvency ratio, efficiency ratio, and profitability ratio.

The Liquidity Ratio

The liquidity ratios are used to determine the ability of an organization to pay off its short term obligation and long-term liabilities as they become due. Liquidity ratios have been employed in the Evergreen Marine case as they will help in assessing its changing ability to repay short term debts. It can also show the ability of a company to convert its assets into cash ( DeFusco et al. 2015) . The analysis of the Evergreen Marine considers one liquidity ratio which is the current ratio and working capital.

The current ratio measures the ability of a firm to pay off its short term liabilities using its current assets ( Robinson et al. 2015) . The current ratio is calculated by dividing the current assets by the current liabilities. The calculated current ratio of Evergreen from 2013 to 2017 is shown in the table below.

Year	2017	2016	2015	2014	2013
Current Assets	306858	265525.9	267738	328389.8	496938.2
Current Liabilities	677466	570350.5	468144.4	463210.6	443171.9
Formula	Current assets/current liabilities
Current ratio	0.45	0.47	0.57	0.71	1.12

From the calculation, it is evident that for the four years starting from 2014 to 2017 Evergreen current assets cannot be used to fully pay its short obligation and this shows that it is at a higher risk of default and less likely to obtain finance from lending institutions or borrow and higher cost due to its credit risk. Low current ratio is a good indicator for Evergreen Marine, as it compares short term short term assets and liabilities.

Solvency Ratios

Solvency ratios which are also known as leverage ratio is a financial metrics that measure the ability of the company that can enable it to sustain its operation indefinitely through a comparison of the levels of its debts with assets, equity, and earnings. In essence, it is a measure that normally identifies issues of going concerns and the ability of a firm to pay its bills in the long-term ( Zorn et al. 2018) . The solvency ratio used to analyze the financial statement of Evergreen Marine is the equity ratio. They are used in this particular case as they will indicate whether the company is at the risk of insolvency or not.

Equity ratio refers to the solvency or investment leverage ratio that measure the number of assets financed by the investment of owners by comparing total equity to the total assets ( Penman 2015) . It highlights two essential elements that include the solvency and the sustainability of the business. Equity ratio is calculated by dividing the total equity of an organization by its total assets. The calculated equity ratio for the Evergreen Marine for the five years is shown in the table below.

Year	2017	2016	2015	2014	2013
Total Equity	2986	2985.9	2985.9	2985.9	2985.9
Total Assets	41117	85276.4	119067.1	159536.3	94292.8
Formula	Total equity/total assets
Equity Ratio	0.07	0.04	0.03	0.02	0.03

The calculated equity ratio indicates that a small percentage of the company's assets are funded by the owners. As a result, the majority of the assets are owned by creditors. The low equity ratio shows that the company has poor financial health. The entity is at the risk of financial crises and should increase its level of equity or repay debt.

Efficiency Ratio

Efficiency ratios are used to measure how well a company uses its assets to generate income. It normally considers the time that it takes a firm to collect the cash from its customers or the time an organization takes to convert its inventories into cash ( DeFusco et al. 2015) . The ratio can be used by the management of organizations to help improve the performance of the firm. The asset turnover ratio is the efficiency ratio considered to analyze the financial performance of the Evergreen Marine.

The asset turnover ratio turnover ratio is calculated by dividing the net sales by average total assets. It basically measures the ability of a company to generate sales from its assets through a comparison of net sales with average total assets. It is used in this particular case as it will help in identifying how much the entity is generating in sales from every dollar invested in its assets. The calculated assets turnover ratio for the company is as shown in the table below.

Year	2017	2016	2015	2014	2013
Net sales	1780741	1394238	1521533	1807819	1467847
Total Assets	41117	85276.5	119067	159536.3	94292.9
Formula	Net sales/total assets
Asset turnover ratio	43.30912	16.34962	12.7788	11.33171	15.56689

The asset turnover ratio for Evergreen Marine is high in all five years. This is an indication that Evergreen Marine is efficiently using its resources to generate sales. For example, in 2017, for every asset worth $1 a company generates $43.

Profitability Ratio

The profitability ratio is financial metrics that shows the ability of the firm to generate profits from its activities and operations. It focuses on a firm's return on investment. There are various ratios that can be used to show the profitability of a company such as profit margin, return on assets, gross margin ratio and return on equity ( Robinson et al. 2015) . The analysis considers the return on assets to assess the financial performance of the Evergreen Marine. Return on assets measures the net income produced by the total assets during a given period. It is calculated by divided net income by average total assets. The calculated return on assets for the company is shown in the table below.

Year	2017	2016	2015	2014	2013
Net Income	-43725	-133755	-39505.4	34151.7	-64123.4
Total Assets	41117	85276.5	119067	159536.3	94292.9
Formula	Net income/total assets
Return on assets	-1.06343	-1.56849	-0.33179	0.214069	-0.68004

As shown in the calculation net income of the return on assets of the company for the four years is negative and this shows that it is unfavorable.

Strategic SWOT Analysis

SWOT analysis as a tool that is used to assess the strengths, weaknesses, opportunities, and threats of organizations. A SWOT analysis can be used to provide some important information regarding the strategic objectives of the company. A summary SWOT table is as presented in the table below

Strengths	Opportunities
High global presence High level of sales Over 200 ships to offer service	Expansion in new markets Seeking venture capital
Weaknesses	Threats
Low ability to counter competition Low liquidity	Threats of new entry is high Threat of substitute products is high Competition

Source: Evergreen Marine UK Limited (2018).

The Strengths

The major strength of the company is its comprehensive global presences. The company operates in different countries across the globe where it serves many customers. It is a presence in various countries in Europe, the United States and Asia. The wide global presence ensures that it connects with many customers and thus improves its sales.

The company has more than 200 container ships that transport over 100 million tons of cargo on an annual basis ( Chen 2016) . This makes it be one of the leading players in the shipping industry and thus enjoys a competitive edge over its rival firms.

Weaknesses

The main weakness of the company is the high level of competition in the shipping industry. The shipping industry is composed of many competitors who offer similar products and services to the customers ( Meersman et al. 2018) . The high level of competition in the market is a condition that has contributed to its decline in market share ( Rau and Spinler 2016) . Low liquidity reduce the ability of the organization to finance its operations

Opportunity

The company has several opportunities that it can use to improve its performance. One opportunity that is available for the company is venture capital. The company can use venture capital to expand its operation and reduce its dependence on debt financing. There is also an opportunity for the company to expand in other markets and increase its market share, sales, and profit margin

Threats

The shipping industry faces a number of threats that can reduce the performance of companies. Evidently, there is a threat of new entrants and alternative products. The competitiveness in the industry can significantly reduce its market share and hinder its financial performance.

Conclusion

From the analysis of the company, it is evident that Evergreen Marine is experiencing significant challenges. The analysis of its financial statements shows that it has high debt and low equity something that can expose it certain risks such as bankruptcy and collapse. Also, the company has been recording losses over the past years and indication that it has poor financial performance. As a result, it should seek other business strategies that can enable it to become profitable in the competitive shipping industry.

Reference List

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Evergreen Marine UK Limited (2018). Annual report. Viewed from https://www.evergreen-marine.com/tbf1/jsp/TBF1_FinancialReports.jsp

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Zorn, A., Esteves, M., Baur, I., & Lips, M., (2018), Financial Ratios as Indicators of Economic Sustainability: A Quantitative Analysis for Swiss Dairy Farms. Sustainability , 10 (8), p.2942.