Financial Analysis and Comparison of

ABB Limited
&

Alstom T&D Limited

Submitted By:

Group 3, Section B
SN 1 2 3 4 5 6 7 Name Kanika Agrawal Raunak Hisaria Sankhadeep Biswas Vinita Deswal Aritra Raymukherjee Ajay Kumar Shashi Joshi Roll No 12DM-068 12DM-116 12FN-114 12FN-154 12FN-026 12DM-015 12IB-042

Contents 1. Brief about the Companies Page | 1

1.1. ABB Limited 1.2. Alstom T&D Limited 2. Key Ratios and Comparisons 2.1. Liquidity Ratios 2.2. Leverage or Capital Ratios 2.3. Profitability Ratios 2.4. Other Profitability Ratios 2.5. Activity Ratios 3. Conclusions

1. Brief about the Companies 1.1 ABB Limited ABB is a Swedish-Swiss multinational corporation headquartered in Zrich, Switzerland, operating in robotics and mainly in the power and automation technology areas. It ranked 143rd in Forbes Ranking (2010). ABB operations in India include 12 manufacturing facilities with over 10,355 employees. Customers are served through an extensive countrywide presence with more than 23 marketing offices, 8 service centers, 3 logistics warehouses, 2 Power & Automation Engineering Centers and a network of over 550 channel partners. The ABB Group is increasingly leveraging the Indian operations for projects, products, services, engineering and R&D. 1.2 Alstom T&D India Limited Alstom is a large French multinational conglomerate which holds interests in the power generation and transport markets. According to the company website, in the years 2010-2011 Alstom had annual sales of over 20.9 billion, and employed more than 85,000 people in 70 countries. Alstom's headquarters are located in Levallois-Perret, west of Paris.[2] Its current CEO is Patrick Kron. Alstom is active in the field of hydroelectric power generation; in conventional islands for nuclear power plants; and in environmental control systems. It is also the manufacturer of the AGV, TGV, and Eurostar trains, as well as of Citadis trams. Alstom is also present in the urban transport market, and is behind regional train models, signalling infrastructure equipment, and a number of associated services.

2. Key Ratios and Comparisons The consolidated ratios of the two companies have been calculated with the help of an excel sheet attached(Appendix 3). The ratio have been calculated of two years, while the comparison includes the five years analysis wherever required. Also the industry averages have been quoted for most of the ratios. Page | 2

Liquidity Ratios Current Ratio - A liquidity ratio that measures a company's ability to pay short-term obligations.

The Current Ratio of ABB Limited and Alstom T&D India Limited have reduced considerably from previous year. Though the current ratio is healthy, as it is above 1, but if we compare it with industry average of 2, both the companies have a lower efficiency of changing its product into cash.

Quick Ratio The quick ratio measures a company's ability to meet its short-term obligations with its most liquid assets.

The quick ratio is healthy for both the companies, though it has reduced considerably for both the firms. But still it is 40% more than the industry average.

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Inventory Turnover A ratio showing how many times a company's inventory is sold and replaced over a period.

Both the companies show a high inventory ratio which is almost 50% more than the industry average. Alstoms inventory turnover has reduced considerably from the previous year.

Leverage or Capital Structure Ratio

D/E Ratio It indicates what proportion of equity and debt the company is using to finance its assets.

ABB is self- financed. If we see the trend of ABB for the past 5 years, it can be seen that the company hasnt taken much loans and repaid it quickly. Page | 4

Alstom has taken a lot of debt in year 2010. It has cleared of 1/3rd of its debt in the current year.

Interest Coverage It is a ratio used to determine how easily a company can pay interest on outstanding debt.

ABB has almost doubled its coverage ratio from previous year. This is because the profits have more than doubled than previous year. Alstom has been consistent in this. If we compare both with the industry average, ABB is half while Alstom is one-fourth of the industry average. But the coverage is well above danger level. 2.3 Profitability Ratio Gross Profit Margin(%), Net Profit Margin(%) and Operating Profit Margin(%) Gross profit margin serves as the source for paying additional expenses and future savings.

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All the three ratios have increased for ABB, as they have shown double profits this year. Alstom have shown consistent profits over the years. But considering from Industry averages, ABB has too low operating profit margins.

Operating Ratio(%)

ABB shows a high operating ratio. That means that only 1% is used in expansion, dividends, interests and taxes. Though this seems less, but considering the huge reserves of ABB, they can easily leverage and operate at high operating ratio. Alstom has a lower operating ratio but 2.4 Profitability Ratios Return on Assets(ROA)(%) ROA tells you what earnings were generated from invested capital (assets).

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The increase is due to the high profits of ABB in this year. If we compare it with Alstom, we can clearly see that ABB has lacked as Alstom and again consistently shown good ROAs. ABB, only this year has increased its ROA manifold to come to the level of Alstom.

Return on Capital Employed(ROCE)(%) ROCE should always be higher than the rate at which the company borrows, otherwise any increase in borrowing will reduce shareholders' earnings.

Again the returns of ABB has doubled but is still below Alstom. Alstom on the other hand has decreased its ROCE marginally.

Return on Equity(ROE)(%) The ROE is useful for comparing the profitability of a company to that of other firms in the same industry.

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ABB though have increased their ROE manifold but still is far below the industry average. Alstom on the other hand is considerably near the industry average showing a good ROE consistently.

Earnings per Share(EPS) Earnings per share is generally considered to be the single most important variable in determining a share's price.

ABBs huge increase in the EPS is again evident from the change in EBIT of ABB. The increase has been enough to go above Alstoms EPS this year. We can conclude that ABB has been successful in shareholders wealth maximisation this year. Alstom has shown a dip in the EPS this year.

Dividend Per Share(DPS) DPS refers to the earning of the shareholder from the payout of the dividends on each share.

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Alstom has been consistent since last 4 years in providing dividends. ABB has increased the dividend this year, although none has shown considerable change.

Dividend Payout Ratio he payout ratio provides an idea of how well earnings support the dividend payments.

Both the companies have low dividend payout ratio. None of them are giving high dividends to its shareholders and investing more on expansions(Alstom) and operations(ABB) for maximising the profits.

P/E Ratio The ratio gives an idea about the position of the shares in the secondary market relative to the earnings of the company.

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Alstom has shown consistent P/E ratio. ABB has shown extravagant P/E ratio in the year 2010, while now it has normalised. This clearly shows that the market price has not risen as per profits. While previously ABB was overpriced, now it has normalised, if compared with Alstom.

Earning Yield and Dividend Yield If the earnings yield is less than the rate of the 10-year Treasury yield, stocks as a whole may be considered overvalued. If the earnings yield is higher, stocks may considered undervalued relative to bonds. Both the ratios for both the companies are negligible clearly showing that the value of the companies in the secondary market is much more than the primary market. 2.5 Activity Ratios Total Assets Turnover Asset turnover measures a firm's efficiency at using its assets in generating sales or revenue - the higher the number the better.

The total assets turnover of both the companies are comparable and not much difference can be found between the two. The companies have much higher assets turnover than the industry Page | 10

averages, showing that they have employed their assets very efficiently, which is also evident from their inventory turnover ratio.

Conclusion ABB has reported a solid double digit rise in orders, revenues and earnings. Most of it can be due to improvements in the company. High orders in all divisions, large improvement in Discrete Automation and Motion, orders growing 15 percent in Power Products, due in large part to higher orders for transformers in China. Alstom on the other hand has shown consistent performance over the years, though there was a fall in its profits in the current year, it can be due to the huge debt they have taken in 2010, mainly for expansion. In both the companies, Alstom is still a growing company whereas ABB has more or less settled in the sector. It has taken no debt in the previous years and it has a lot of reserves to pay for any kind of expansion or purchase of machinery.

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