2015-09-06
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In order to find ROE and ROIC, for each year we should create Managerial Balance Sheet, where the indicators of each year of Invested Capital (IC) should be equal to capital Employed (CE). We should use the following formulas:
| WCR = (Current Assets - Cash) - (Current Liabilities - Short-term debt) | |||||||||||||||||||
| IC = Cash + WCR + NFA | |||||||||||||||||||
| IC = CE | |||||||||||||||||||
| CE = Debt + Equity | |||||||||||||||||||
| ROIC = EBIT/IC | |||||||||||||||||||
ROE = EAT/Equity
Solutions are given in tables below:
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Table 1.Managerial Balance Sheet of Kazakhtelecom for 2011
So, in 2011 the whole activity was financed mostly by long-term financing. We can see it in lack of short-term financing (-73.175.948 thousand KZT). Thus, long-term financing covered the activity of the company (125. 741.181 thousand KZT
| Cash | 53 466 201 | - 42 116 386 | 11 349 815 |
| WCR | 41 997 257 | ||
| NFA | 289 265 302 | 84 113 643 | 373 378 945 |
Table 2.Managerial Balance Sheet of Kazakhtelecom for 2012
In 2012 there also was shortage of short-term financing, however, in comparison to 2011, it increased and became -42.116. 386 thousand KZT. Long-term financing again covered the activity’s operations.
| Cash | 42 352 823 | 29 525 733 | |
| 9 117 411 | |||
| NFA | 331 752 690 | 335 462 369 | |
Table 3.Managerial Balance Sheet of Kazakhtelecom for 2013
What about 2013, here Working Capital Requirement (WCR) is negative, therefore, it was transferred to the right sight of managerial Balance Sheet. It shows that this year Kazakhtelecom received a large amount of money right on the spot. We guess that all of this occurred due to innovational introduction into the enterprise.
With a view to identifying the most promising innovation proposals and promoting personal and professional potential of Kazakhtelecom’s employees in the area of innovative creativity, in 2013, the Company launched an internal information system “Fund of Ideas”. Today, the “Fund of Ideas” has the following crowdsourcing tasks within the Company:
1. selection of the most important and promising ideas for the Company based on the assessment of their cost effectiveness;
2. organization of an open dialogue of Company's management with employees as a part of innovative activities;
3. implementation of the most urgent and technically advanced innovative projects and introduction of developed ideas into the daily activities of the Company.
As a part of the Innovation and Technology Strategy, in 2013, the Innovation Committee considered 31 innovative ideas and technical improvement suggestions (in 2012 – 23 ideas and suggestions), of which 26 ideas and suggestions were approved for implementation (in 2012 – 9 ideas and suggestions).
Due to optimization of business processes the term of development and introduction of new products was shortened from 12 months to 9 months.
| WCR | 52 565 233 | 41 997 257 | - 29 525 733 | |
| IC | 387 930 479 | 384 728 760 | 344 579 780 | |
| CE | 387 930 479 | 384 728 760 | 344 579 780 | |
| ROIC | 7% | 8,5% | 8,8% | |
| ROE | 6% | 7,3% | 7,4% |
Table 4. The results of ROE and ROIC analyses of Kazakhtelecom for three years.
Return on Equity (ROE) measures a corporation's profitability by revealing how much profit a company generates with the money shareholders have invested. Therefore, the ROE has increased each year.
On December 21, 2011, Kazakhtelecom concluded an agreement to sell its 49% ownership in GSM Kazakhstan OAO Kazakhtelecom LLP to Sonera Holding B.V., a subsidiary of Swedish mobile operator Telia Sonera AB. The Board considered GSM Kazakhstan met the criteria to be classified as held for sale as of December 31, 2011 for the following reasons:
• On December 21, 2011, a sale-purchase agreement was signed stating the selling price of 1,519 million US Dollars.
• On February 1, 2012, the Group completed the sale for consideration of 1,519 million US Dollars Investments in the associate were classified as assets available for sale as of December 31, 2011 in the consolidated statement of financial position, and share in associate’s profit was classified as discontinued operation in the consolidated statement of comprehensive income for 2011 and 2010.
After, this profit was distributed in the form of dividends to shareholders. Thus, in does not affect the ROE in general.
The Return on Invested Capital (ROIC) measure gives a sense of how well a company is using its money to generate returns. So, from the table 4, we can see that ROIC is more than ROE. Therefore, it shows that company does not use debt wisely. Thus, in this case it is not a good situation, because they will pay more amounts of taxes and the quality of management is also bad.
