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The Effect of Liquidity Availability on Financing Activities in Transportation Companies

 Title: The Effect of Liquidity Availability on Financing Activities in Transportation Companies

Abstract:

The paper aims to find out the Effect of Liquidity Availability on Financing Activities in Transportation Companies. Five companies have been selected for the project. The vertical analysis is used to find the position of the company with respect to others in the peer group. The horizontal analysis is used to find the parameters with respect to itself in the previous years and a base years. Ratio analysis is used to focus on finding the liquidity of the company. It is seen that the liquidity is greatly affected by the financial position of the company as if the organisation is not able to meet its demands whether short term or long term then it has to increase the financing activities to find solution to the problem.

Introduction:

The main aim financial analysis is to find out that the company is performing well or is a good investment or not. The analysis also shows the future possibilities of the company’s parameters. By financial analysis it may be interpreted if the company has any weaknesses or problems that will jeopardise the investment or its growth. It also helps in finding the strengths of the company to build on them. Attention needs to be paid to the obligations in the short term that is the obligations which arise in the one year period and need to be met and long term obligations, the obligations which are to be met in excess of one year period. One needs to find out if the company is able to meet the requirements or not. If the company is profitable, that means it is able to make profits for the amount of capital invested in the same, then it may be performing steadily. It is important that the organisation’s efficiency is also important. The ratios which are used to find out the performance of the company are ROA, ROE. They are different for different types of companies. So comparison in peer group is a must. (Hall and Weiss, 1967; Kesner, 1987; Capon, Farley and Hoenig, 1990; Kang and Stulz, 1997; Persons, 1999; Athanasoglou, Brissimis and Delis, 2008).

This paper focuses on the effect of liquidity on fianacing activities of selected urban transport companies in the period from year 2014 to 2018. Financial analysis is done with the help of vertical and horizontal analysis and analysis and ratio analysis with reference to liquidity position to find the financial performance of the company.

 

Research Background:

Five companies that are publicly traded and whose data is available for past five years have been considered in this research. Vertical analysis is used to compare the performance of the companies to its peer group companies because of different sizes of the organisations. Horizontal analysis is used to find out the trends of the company in the last five years and ratio analysis is used to gauge the current health and future prospects, its strengths and weaknesses of the companies.

Importance:

Financial analysis is important as it helps in finding the issues that develop in the company, it helps in understanding the performance of the companies. The results of this analysis are significant to the shareholders of the company, the managers, the people who want to invest in the same, and law makers. The analysis provided data on various indicators which may be of help in decision making because they signal prospective problem that may generate with the company and whether the company has the ability to deal with the same. Various ratios such as liquidity ratios, solvency ratios, profitability ratios, etc are used to calculate numerically, the performance of the company.

Research Model Variables:

Dependent Variable: Financing activities such as issuance of equity, borrowing of debt, short term and long term loans etc

Independent Variable: Liquidity in the company

Research Questions/Objectives:

1. To find out effect of the liquidity position of the company on its financing activities.

2. To make recommendations based on the financial analysis of the company through vertical and horizontal analysis.

3. To gauge the performance of the company through ratio analysis.

Theoretical Background:

Transport companies can be related to railways, roadways, ships or aviation ones. As compared to other companies, in transportation a lot of investment is required in fixed assets for example, the five companies that we have considered are related to road transport. They need busses and coaches, their regular maintenance is a must. Then there is requirement of garages, workshops etc. All this requires a large amount to be invested in fixed costs. This may adversely affect the efficiency. Transportation companies majorly deal with the purchasing of the bus or coach then their maintenance. They also are different from other companies because for each vehicle they have to take insurance. The condition of the vehicles, the reputation of the transport company, the price that the companies charge, the reliability, its fleet and its operations, its service and customer feedback is very important to customers in a transportation company.

Literature Review:

Jaroslava H. and others in their research on transport companies in Czech republic have pointed out that to find the key parameters affecting the company can be found out with the help of financial analysis in which they have included ratio analysis and horizontal and vertical analysis. According to them the financial analysis is required to assess the financial performance of the company. 

Hoffman E and Lampe K have in their research studied about the logistics service providers. They concluded that there is a dissimilarity between single LSP and Cluster LSPs. They also analysed the capital, fimancial structures and liquidity of these companies.

According to John Szramiak of Viantage Blue investing, one should always try to find out the performance of the company. So if the companies are of different sizes and are of different industries it becomes difficult to compare. Here we can get help from vertical and horizontal analysis.

Tennent in 2018 has claimed that if we look at the financial results of an organisation in an individual way then it is of no use so we have to make comparisons for the same. Horizontal analysis measures the performance of the Facebook Inc over the preceding years and describes the growth over the past.  While vertical analysis compares each line item of the financial statement with its base within the financial information.

Bragg in 2019 defined vertical analysis “the proportional analysis of a financial statement, where each line item on a financial statement is listed as a percentage of another item”.

Hypothesis:

H0: The financing activities of the company are influenced by liquidity availability of the company.

H1: The financing activities of the company are influenced by liquidity availability of the company.

Research Methods:

The methods which are taken into consideration are vertical analysis. This is used to find the position of the company with respect to its competitors. The companies are of different sizes and to compare them on a similar scale they should be divided by a defined base. There are five transport companies that have been taken into consideration. This financial analysis is done for chosen five companies. The companies chosen are different in size and are representative of the transportation sector. Horizontal analysis is used for trend analysis that is to compare a parameter of the company with itself on a different time. Ratio analysis is then performed to gauge the health of the company. The ratios used are liquidity, profitability, solvency, leverage ratios etc. The short term obligations to be met can be detected from the liquidity ratios and the long term obligations can be found out by solvency and leverage ratios.

Data Collection:

The data is collected from the publicly available information as submitted by these companies in the past few years to the government. It includes data from annual reports that the companies have published in the previous years and also the trading data available on various trading websites. The financial statements from these annual reports are used. The balance sheets, income statement and cash flow statement of the specific years are considered to find the ratios. The data is of importance to managers, investors, government organisations etc.

Analysis, Results and Recommendations:

VERTICAL ANALYSIS

The below tables show Vertical analysis for the five selected transport companies:

Alpha

Assets (JD)

2018_VA

2017_VA

2016_VA

2015_VA

2014_VA

Alpha

Total Current Assets

0.205

0.256

0.362

0.393

0.377

Alpha

Fixed Assets, Net

0.696

0.609

0.638

0.607

0.623

Alpha

Total Assets

1.000

1.000

1.000

1.000

1.000

Alpha

Liabilities (JD)

 

 

 

 

 

Alpha

Total Current Liabilities

0.227

0.165

0.144

0.258

0.260

Alpha

Total Liabilities

0.561

0.468

0.144

0.258

0.309

Alpha

Retained Earnings

0.009

-0.307

-0.588

-0.534

(0.509)

Alpha

Total Shareholders’ Equity

0.439

0.532

0.856

0.742

0.691

Alpha

Total Liabilities & Shareholders Equity

1.000

1.000

1.000

1.000

1.000

Alpha

 Income Statement (JD)

 

 

 

 

 

Alpha

Operating Revenues

14.448

12.013

31.038

55.437

156.703

Alpha

Gross Profit

3.601

2.951

6.601

11.737

36.944

Alpha

Depreciation (period)

2.135

2.116

2.618

5.856

15.288

Alpha

Net Operating Income

1.900

1.119

0.040

0.006

8.819

Alpha

Other Revenues

0.096

0.557

1.850

8.875

1.238

Alpha

Interest Expenses

0.888

0.576

0.791

2.409

9.057

Alpha

Net Income

1.000

1.000

1.000

1.000

1.000

Alpha

Total Revenue

 

 

 

 

 

Alpha

Cash Flow (JD)

 

 

 

 

 

Alpha

Cash Balance (Beginning)

0.003

0.004

0.018

0.011

0.036

Alpha

Net Cash Flow from (Used In) Operating Activities

0.388

0.137

0.276

0.178

0.236

Alpha

Net Cash Flow from (Used In) Investing Activities

-0.620

-0.898

0.005

-0.016

(0.023)

Alpha

Net Cash Flow from (Used In) Financing Activities

0.238

0.761

-0.254

-0.157

(0.238)

Alpha

Cash Balance (Ending)

0.008

0.004

0.045

0.016

0.011

Alpha

Working Capital (JD)

 

 

 

 

 

RUM

Assets (JD)

2018_VA

2017_VA

2016_VA

2015_VA

2014_VA

RUM

Total Current Assets

0.173

0.155

0.157

0.407

0.205

RUM

Total Fixed Assets

0.202

0.207

0.308

0.358

0.721

RUM

Total Assets

1.000

1.000

1.000

1.000

1.000

RUM

Liabilities (JD)

 

 

 

 

 

RUM

Total Current Liabilities

0.187

0.178

0.165

0.119

0.111

RUM

Total Liabilities

0.221

0.224

0.258

0.256

0.247

RUM

Retained Earnings

-0.037

-0.015

0.057

0.076

0.007

RUM

Total Shareholders Equity

0.778

0.776

0.742

0.743

0.665

RUM

Total Liabilities & Shareholders Equity

1.000

1.000

1.000

1.000

1.000

RUM

 Income Statement (JD)

 

 

 

 

 

RUM

Operating Revenues

-4.796

-1.879

7.118

1.625

1.758

RUM

Gross Profit

-1.955

-0.815

3.146

0.715

0.801

RUM

Depreciation (period)

-0.940

-0.362

1.638

0.462

0.410

RUM

Net Operating Income

-0.166

-0.112

0.415

0.007

0.189

RUM

Other Revenues

-0.796

-0.068

2.088

1.730

1.032

RUM

Interest Expenses

-0.435

-0.218

0.998

0.222

0.193

RUM

Net Income

1.000

1.000

1.000

1.000

1.000

RUM

Cash Flow (JD)

 

 

 

 

 

RUM

Cash Balance (Beginning)

0.065

0.004

0.025

0.027

0.020

RUM

Net Cash Flow from (Used In) Operating Activities

0.119

0.231

0.126

-0.008

0.152

RUM

Net Cash Flow from (Used In) Investing Activities

-0.015

-1.347

0.135

-0.053

-0.397

RUM

Net Cash Flow from (Used In) Financing Activities

-0.152

1.184

-0.282

0.048

0.252

RUM

Cash Balance (Ending)

0.017

0.072

0.004

0.015

0.027

RUM

Working Capital (JD)

 

 

 

 

 

United

Assets (JD)

2018_VA

2017_VA

2016_VA

2015_VA

2014_VA

United

Total Current Assets

0.110

0.222

0.199

0.118

0.120

United

Total Fixed Assets

0.877

0.778

0.801

0.882

0.873

United

Total Assets

1.000

1.000

1.000

1.000

1.000

United

Liabilities (JD)

 

 

 

 

 

United

Total Current Liabilities

0.012

0.023

0.042

0.073

0.094

United

Total Liabilities

0.012

0.023

0.042

0.073

0.135

United

Retained Earnings

0.002

0.000

0.070

0.098

0.099

United

Total Shareholders Equity

0.988

0.977

0.958

0.927

0.865

United

Total Liabilities & Shareholders Equity

1.000

1.000

1.000

1.000

1.000

United

 Income Statement (JD)

 

 

 

 

 

United

Operating Revenues

4.372

3.449

3.068

3.723

5.527

United

Gross Profit

1.543

1.452

1.424

1.551

2.481

United

Depreciation (period)

0.549

0.439

0.381

0.492

0.680

United

Net Operating Income

1.244

1.207

1.232

1.296

1.388

United

Other Revenues

0.006

0.041

0.027

0.008

0.000

United

Interest Expenses

0.000

0.000

0.009

0.053

0.196

United

Net Income

1.000

1.000

1.000

1.000

1.000

United

Cash Flow (JD)

 

 

 

 

 

United

Cash Balance (Beginning)

0.313

0.286

0.110

0.071

0.044

United

Net Cash Flow from (Used In) Operating Activities

0.336

0.353

0.477

0.466

0.294

United

Net Cash Flow from (Used In) Investing Activities

-0.159

0.003

-0.012

-0.093

-0.037

United

Net Cash Flow from (Used In) Financing Activities

-0.406

-0.343

-0.298

-0.324

-0.203

United

Cash Balance (Ending)

0.085

0.299

0.276

0.121

0.098

United

Working Capital (JD)

 

 

 

 

 

NAQEL

Assets (JD)

2018_VA

2017_VA

2016_VA

2015_VA

2014_VA

NAQEL

Total Current Assets

0.321

0.363

0.367

0.371

0.306

NAQEL

Fixed Assets, Net

0.494

0.474

0.549

0.613

0.678

NAQEL

Total Assets

1.000

1.000

1.000

1.000

1.000

NAQEL

Liabilities (JD)

 

 

 

 

 

NAQEL

Total Current Liabilities

0.151

0.137

0.174

0.227

0.250

NAQEL

Total Liabilities

0.170

0.157

0.178

0.227

0.250

NAQEL

Retained Earnings

-0.204

-0.013

-0.026

-0.030

(0.032)

NAQEL

Total Shareholders’ Equity

0.830

0.843

0.822

0.773

0.750

NAQEL

Total Liabilities & Shareholders’ Equity

1.000

1.000

1.000

1.000

1.000

NAQEL

 Income Statement (JD)

 

 

 

 

 

NAQEL

Operating Revenues

-1.910

-29.003

47.416

75.472

(6.043)

NAQEL

Gross Profit

-0.131

-6.124

13.350

24.460

(1.482)

NAQEL

Depreciation (period)

-0.326

-3.796

5.379

11.508

(0.632)

NAQEL

Net Operating Income

0.394

0.382

3.164

7.093

(0.429)

NAQEL

Other Revenues

-0.009

-0.293

0.000

0.102

(0.014)

NAQEL

Interest Expenses

-0.048

-0.737

1.280

2.453

(0.179)

NAQEL

Net Income

1.000

1.000

1.000

1.000

1.000

NAQEL

Cash Flow (JD)

 

 

 

 

 

NAQEL

Cash Balance (Beginning)

0.043

0.049

0.044

0.052

0.066

NAQEL

Net Cash Flow from (Used In) Operating Activities

-0.075

0.131

-0.102

0.103

(0.048)

NAQEL

Net Cash Flow from (Used In) Investing Activities

0.074

-0.000

0.142

-0.037

(0.050)

NAQEL

Net Cash Flow from (Used In) Financing Activities

-0.033

-0.147

-0.041

-0.076

0.077

NAQEL

Cash Balance (Ending)

0.009

0.033

0.042

0.041

0.045

NAQEL

Working Capital (JD)

 

 

 

 

 

JET

Assets (JD)

2018_VA

2017_VA

2016_VA

2015_VA

2014_VA

JET

Total Current Assets

0.309

0.323

0.268

0.234

0.233

JET

Total Fixed Assets

0.550

0.522

0.546

0.560

0.535

JET

Total Assets

1.000

1.000

1.000

1.000

1.000

JET

Liabilities (JD)

 

 

 

 

 

JET

Total Current Liabilities

0.140

0.137

0.140

0.125

0.143

JET

Total Liabilities

0.181

0.195

0.140

0.139

0.172

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