From the financial statement analysis on the income statements, LONBISC’s revenue grew 57% frm year year 2009 with a CAGR of 12%. However, it net profit is showing a negative gorwht with a CAGR of -3%. This is mainly contributed by various expenses (COGS, Administrative Expenses, and Financ Cost) which grow faster than it revenue. Net profit margin is the first element on the ROE DuPont analysis and the drop in the net profit is the first big RED FLAG for LONBISC.
The balance sheet analysis show us that LONBISC kept on
borrowing money from banks and putting its hands out asking money from shareholders
to grow its revenue. The inflow of money not able to growth the net profit maring but sponsor the growth of the PPE. The PPE grew 64% (CAGR 13%) and now the PPE is contributing 75% of LONBISC's total asset. This is further impact on the ROE in view of the asset turnover (with asset in the denominator) is the second element on the ROE DuPont analysis . The unhealthy PPE growth serve as the second RED FLAG.
Financial leverage is the third part of ROE DuPont analysis. Financial leverage is a double edge sword it can hurt ROE badly in the bad times. And, high leverage can make a company’s balance sheet unhealthy and become risky during economy downturn. LONBISC Cash/Total Debt is only 12% and it is hardly to see LONBISC able to generate free cash flow from its business. In view of this, does LONBISC have enough cash to serve it's debt? The financial leverage on LONBISC is a RED FLAG for me.
Financial leverage is the third part of ROE DuPont analysis. Financial leverage is a double edge sword it can hurt ROE badly in the bad times. And, high leverage can make a company’s balance sheet unhealthy and become risky during economy downturn. LONBISC Cash/Total Debt is only 12% and it is hardly to see LONBISC able to generate free cash flow from its business. In view of this, does LONBISC have enough cash to serve it's debt? The financial leverage on LONBISC is a RED FLAG for me.
If we look at the return of assets (ROA=net profit/Total assets), LONBISC ROA is just 2.2% (and
deteriorating unabated) compared to 12.5% of APOLLO. The 2.2% ROA is even lower than the FD in the bank. This certainly is another RED FLAG.
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