**Balance Sheet**

**Financial Liquidity **

For NM’s liquidity, the following is their results from 2007 to 2011 operations.

- Current ratio was 1.88, 1.86, 2.18, 1.73 and 1.47. Average of 1.83, which shows that in five years period it is fluctuating, its highest ratio was in 2010.
- The quick ratio was 1.88, 1.82, 2.11, 1.64 and 1.38. Its average was 1.77 which is also up and downtrend and high in 2010 while the lowest was in 2012 at 1.38.
- Working capital ratio average was .09, which shows positive result throughout its five years of operation, trending down with the highest ratio in 2008 at .20. Its lowest was 2011 and 2012 at .04.

As long as the company’s current asset could meet its current liabilities when due, the company is considered liquid. Therefore, NM is a liquid company; its current resources can meet its current obligations when becoming due. However, it did not meet the standard ratio of 2.

**Asset Management/Efficiency**

Laid below are the data gathered by Rio for Navios Maritime Holdings Inc.’s efficiency ratios from 2007 to 2011:

- The average inventory turnover ratio was 34.96 times and it takes 11 days to sell its stocks.
- The receivable turnover ratio was 7.64 times average which is equivalent to 52 days for its receivable to collect.
- While payable turnover ratio was 12.19 times and 33 days for the company to pay its suppliers.
- Asset turnover ratio average was .31 times. This ratio indicates the productivity of total assets in generating revenues.

**Cash Conversion Period**

Let’s see NM’s cash conversion cycle through the table and graph below:

Cash conversion cycle of Navios Maritime Holdings Inc. was 30 days average. In 2007, it was negative 1 since the inventory balance was 0. However, thereafter until 2011, it went high. This tells the owner the number of days that cash or capital stays tied up in the business processes of the firm.

### **Leverage**

Debt ratio, debt to equity ratio and the solvency ratio of NM from 2007 to 2011 are as follows:

- Debt ratio was .61, .64, .68, .71 and .64. Its average was .66 which means that total liabilities of the company was 66 percent against total assets.
- Debt to equity was 1.56, 1.80, 2.17, 2.47 and 1.75, an average of 1.95. It tells us that total liability was 195 percent of the owners’ equity.
- Average solvency ratio was .12 which means that the company did not meet the standard percentage of 20.

By looking at the above data, NM’s total debt was more than 50 percent of its total asset, more so with total equity which was 195 percent average. It indicates that the company expanded its assets through borrowings. Thus, it contributed to a lower solvency ratio of 12 percent.

Let’s get to find out now who has the majority claimants of the company based on total assets.

- Current liabilities to the total asset has an average of .11 which means that the company’s creditors have only 11 percent claim.
- While long-term liabilities to the total asset was .47 which tells us that the banks and bondholders have only 47 percent claim.
- And, stockholders’ equity to the total asset was .34 which means that its stockholders have only 34 percent claims on the total assets of NM.

“Therefore, it shows that the majority claimants of the total assets of the company are the banks and bondholders which have a percentage of 47,” Rio said.

**Property, Plant & Equipment**

Investment in the Navios Maritime Holdings Inc. in property, plant, and equipment from 2007 to 2011 are the following:

- The gross property, plant, and equipment have an average of 1,487 in five years period. It shows that its expansion had increased which started in 2010 doubling it’s 2009. Yearly percentage of growth was 75, 109, 44 and -17 percent.
- Accumulated depreciation was 135 average which is equivalent to 9 percent only.
- The cost of PPE was 1,352 average in five years or 91 percent of the total cost of the fixed asset.

Therefore, if the estimated life of the property was 5 years, its used life was the only half year, so, the property could still be usable for 4 and a half years more.

**Income Statement**

**Income**

- Revenue was 758, 1246, 599, 680 and 689 with trailing twelve months of 656. It was trending up and down which has a growth rate of 64, -52, 14 and 1 in 2011.
- Gross profit was 731, 153, 213, 296 and 299 with ttm of 258. Its percentage growth was -79, 39, 39 and 1.
- Operating income was 676, 53, 95, 132 and 138. It is the result after deducting operating expenses from gross profit.
- Income before tax was 275, 64, 69, 146 and 41 with a growth rate of -77, 8, 112 and -72 percent.
- And income after tax was 271, 119, 68, 146 and 41, with ttm of 41. This is the result of applying the provision for income tax.

The income of NM was up and down. Its revenue almost doubled in 2008 but decreased by 52 percent in 2009, rose back by 14 percent in 2010 and 1 percent in 2011. However, its income after tax showed a decrease of 56 percent in 2008, 43 percent in 2009 but recovered in 2010 by an increase of 115 percent but dropped in 2011 by 72 percent.

“Overall result was positive although there were an up and downtrend,” Rio explained.

**Expense**

Expense refers to any deduction from the company’s earnings in a given period. Details of NM’s expense from 2007 to 2011 are as follows:

- The cost of revenue was 28, 1093, 385, 384 and 391, ttm of 398 which is equivalent to 4, 88, 64, 56 and 57 of revenue.
- Operating expense was 54, 100, 119, 164 and 160 with ttm of 153, equivalent to 7, 8, 20, 24 and 23 percent of revenue.
- And total expense was 459, 149, 183, 256 and 267 whose average was equivalent to 36 percent of the total revenue.

NM’s expense percentage to revenue was the cost of revenue average of 54 percent, operating expense 16 percent and other expense 19 percent of a total of 36 percent.

**Margin**

Margin refers to the company’s total sales revenue minus its cost of goods sold, divided by the total sales revenue, expressed as a percentage. From 2007-2011, here are the margin of Navios Maritime Holdings Inc.

- Gross margin was .96, .12, .36, .44 and .43, ttm was .46. This is the percentage result of the gross profit over revenue.
- Operating margin was .89, .04, .16, .19 and .20, ttm of .30. This is the operating income over revenue in percent.
- Pretax margin was .36, .05, .12, .21 and .06. with ttm of .16
- And net profit margin was .36, .10, .11, .21 and .06, ttm was .17. This is the bottom line express in percentage.

Above data shows the percentage result of NM’s profit over its revenue. The average gross margin was 46 percent, operating margin was 30 percent after deducting the operating expenses and net profit margin was 17 percent.

**Profitability**

Profitability ratios help users of a company’s financial statements determine the overall effectiveness of management regarding returns generated on sales and investments. Let’s see what Rio got in NM’s profitability ratios from 2007 to 2011.

- Net margin of NM was .36, .10, .11 .21 and .06 average of .17. It is the bottom line of the income statement expressed in percent. As noted, it was high in 2007 at 36 percent and very low in 2011 at 6 percent.
- Asset turnover ratio has an average of .31 times.
- Return on asset was .14, .03, .02, .04 and .01 with an average of .05.
- Financial Leverage was 2.56, 2.80, 3.17, 3.47 and 2.75. Average was 2.95.
- Return on Invested capital was .07 average in five years period.
- Return on equity of NM was 15 percent using the DuPont method; if debt-free is only 5 percent.

**Return on Equity using the DuPont Method**

There are three components in the calculation of return on equity using the traditional DuPont model. They are the net margin, asset turnover, and equity multiplier. By examining each input individually, we can discover the sources of a company’s return on equity and compare it to its competitors.

The net profit margin is simply the after-tax profit that a company generated for each dollar of revenue. While asset turnover is a measure of how effectively a company converts its assets into sales. And the equity multiplier, a measure of financial leverage, allows the investor to see what portion of the return on equity is the result of debt.

To calculate the return on equity using the DuPont model, simply multiply the three components (net profit margin, asset turnover, and equity multiplier.) or follow this formula:

Return on Equity = (Net Profit Margin) (Asset Turnover) (Equity Multiplier).

“Through this method, we could determine what is the real ROE of the company if debt-free and what portion was the returns of the company earned on the debt at work in the business”, Rio said.

**Modified Income**

Rio really wanted us to understand things further so she made a graph which comprised the three areas of the income statement. So let’s get to know the graph better.

The data above shows that:

- Revenue of NM from 2007 to 2011 was 758, 1246, 599, 680 and 689 with trailing twelve months of 656.
- Total expenses were 487, 1127, 531, 534 and 648. ttm of 625 which include the cost of revenue, operating and others.
- And net income was 271, 119, 68, 146 and 41, trailing twelve months of 31.

The five years period profit and loss statement of NM company tells us that its total expense reached as high as 83 percent average resulting in a net income of 17 percent. Its high figures were in 2007 and 2010 and the lowest in 2011 but all positive result. What can we say to this company then? “Good enough to this company,” Rio answered.

**Cash Flow**

Presented below is Navios Maritime Holdings Inc Cash Flow. But as mentioned there are three categories. Why don’t we tackle each? Let’s go.

**Cash Flow from Operating Activities**

Net cash provided by operating activities of NM from 2007 to 2011 was 128, -28, 216, 182 and 107. ttm was 110. All results are positive, except in 2008 which was negative 28, but immediately recovered in 2009 to 2011. It means that the company has available funds for investing.

**Cash Flow from Investing Activities**

For Navios Maritime Holdings Inc., investing transactions from 2007 to 2011 were:

- Total cash inflows were 353, 75, 67, 552 and 120 which came from PPE reductions and other investing activities, while
- Cash outflows were -369, -527, -868, -682 and -295 which are an investment in PPE, acquisitions, purchase of investment and other investing activities.

Investing cash flow of NM showed a negative balance throughout its five years period because cash outflows were more than its cash inflows on investing activities.

**Cash Flow from Financing Activities**

Total cash inflow was 382, 322, 1016, 901 and 621 which came from debt issued and common stock issued. Cash outflow, on the other hand, was -165, -135, -390, -920 and -588 which were debt payment, repurchase of treasury stock, cash dividends and other financing activities.

The financing cash flow of NM results was positive in 2007 to 2009 and 2011 because its cash inflows exceed cash outflow while in 2010 cash outflow was -920. Its cash inflow was 901 resulting in a negative balance of 19.

### **Free Cash Flow**

The free cash flow of Navios Maritime Holdings Inc. was 83, -446, -562, -400 and -87. Cash flow shows a negative balance because of high capital expenditure starting 2008 to 2011. It indicates that financing is needed to support current operations and programs.

It is important to note that negative free cash flow is not bad in itself. If free cash flow is negative, it could be a sign that a company is making large investments. If these investments earn a high return, the strategy has the potential to pay off in the long run. Thanks to Rio for that wonderful explanation.

**Cash Flow Ratios**

For NM, cash flow ratios used from 2007 to 2011 are:

- Cash flow margin average was .17. It shows that the company is able to create $0.17 of cash out of $1 dollar in revenue.
- Average operating cash flow ratio was .52 which is not good at all. The company is not generating enough cash to pay off its short-term debt which is a serious situation. It is possible that the firm may not be able to continue to operate.
- Free cash flow ratio was .17 ttm. It is a measure of the financial strength of the company.
- Capital expenditure was -.78 which tells us that the company has no financial ability to invest in itself through capital expenditure.
- And total debt ratio was .06 which indicates NM’s ability to cover the total debt with its yearly cash flow from operations.

The overall cash flow of NM is not impressive as shown through its cash flow ratio results. Cash flow margin was .17, operating cash flow was.52, capital expenditure was -.78 and total debt ratio was .06; insufficient to cover its total debt.

Alright, probably this is my favorite part of the article. Not that it was close to ending but this is where I can see the perspective of the reader. So with this, I want to know what Rio can say to the overall of Navios Maritime Holdings Inc.

### Conclusion:

As to the financial strength of the company, its liquidity is at a moderate level with average cash conversion cycle of 30 days, leverage not so high however solvency is below normal. For the company’s margin and returns, net margin average in five years was 17 percent and returns on equity which include debt was 15 percent, however, if debt-free was only 5 percent. And for its cash flow, average cash flow margin was 17 percent and cash flow ratios showed that it is not impressive, did not meet the standard level.

Taking into consideration all the things mentioned above, therefore, my stand on this company is HOLD.

Written by Rio

Edited by Cris

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