Academia de Studii Economice,

Bucureti










FINACIAL ANALYSIS
Simex S.A.
STANCIU Nicu, TUHARI Anatolii, UNGUREANU Vlad
Gr. 137, FABIZ Eng.
Abstract
This paper studies the financial position and performance of the Romanian furniture
manufacturing company Simex S.A. for the period of 2010-2012.
Contents

1. Introduction ................................................................................................................................................ 2
2. Key Financials ............................................................................................................................................ 2
3. Financial balance analysis .......................................................................................................................... 3
4. Financial performance analysis .................................................................................................................. 5
5. Cash flow analysis ...................................................................................................................................... 6
6. Ratio analysis .............................................................................................................................................. 7
7. Competitor comparison .............................................................................................................................. 9
8. Conclusion ................................................................................................................................................ 11
























1. Introduction

Simex S.A. (referred further as Simex) is a Romanian furniture manufacturing company, located in
imleul Silvaniei, Slaj county. It has been founded as a company in 1984, by a family that had a tradition
of over 50 years in furniture manufacturing. At the beginning of 90s, Simex had become known as an
exclusive manufacturer and exporter of furniture for German market. Soon after, Simex began to expand its
market towards east, entering countries such as Russia, Ukraine, and other former CIS republics. Nowadays,
Simex is a well-known brand in these countries. The company specializes in the production of furniture
made from massive wood, respecting the classical style, putting the importance upon quality and art. In
1998, the company was listed on Bucharest Stock Exchange, foreseeing further development. The year of
2000 was marked by the beginning of the company development, through the acquisition of five furniture
factories, located in Slaj and Satu Mare. In 2004, Simex scored a turnover of 4.5 million EUR, which
represented at that time 80% of Romanian furniture exports on eastern markets. In 2009, Simex had
inaugurated a warehouse (1000 m
2
) and a permanent showroom (200 m
2
) in Moscow. Nowadays, Simex has
over 20 stores, located in Russia, Ukraine, Hungary, Austria and Romania.

2. Key Financials
In the tables below, we have extracted main entries from balance sheet and P&L statement that are
going to be used in further analysis.
SIMEX SA RON 1-Jan-11 31-Dec-11 31-Dec-12
NonCurrentAssets 10,044,604 10,476,823 10,204,950
CurrentAssets 11,234,372 12,222,326 15,749,616
Inventory 6,728,973 7,818,054 10,167,995
Receivables 3,991,100 4,336,421 3,940,534
Cash&BankAcc 514,299 67,851 1,641,087
Prepayments 50,000 50,000 50,000
NetCurrAssets/STLiab 4,811,186 5,373,237 5,550,688
TotalAssets 21,328,976 22,749,149 26,004,566
STLiabilities 569,060 960,960 325,682
LongTermLiabilities 6,473,186 6,899,089 10,248,928
TotalLiabilities 7,042,246 7,860,049 10,574,610
SubscribedCapital 4,206,195 4,206,195 4,206,195
ReevaluationReserves 1,018,041 1,018,041 937,209
Reserves 8,061,349 9,097,285 9,777,268
Profit/Loss 1,066,618 602,371 540,856
ProfitDistribution 65,448 34,767 31,547
OwnShare 25 25 25
TotalEquity 14,286,730 14,889,100 15,429,956
AverageNoEmployees
(full time) 279 260 259





















3. Financial balance analysis

Net worth = Total assets Total liabilities

1-Jan-11 31-Dec-11 31-Dec-12
1
(m.u)
2
(m.u)
1
(%)
2
(%)
NetWorth 14,286,730 14,889,100 15,429,956 602,370 540,856 4.22 3.63

Called also net assets, represents the amount that remains to the owners discretion. This indicator is
represented in the balance sheet as TotalEquity. In our case we can see that NW indicator had a steady
growth through the period analyzed. During 2011, NW indicator grew by 602,370 RON, which translates
into 4.22%. At the end of 2012, this indicator score a growth of 540,856 RON, or 3.63%. This is a good
financial sign that the company is accumulating wealth.

SIMEX SA
RON 2010 2011 2012
Turnover 16,231,923 15,864,203 15,085,506
OperatingIncome 16,772,784 16,671,945 17,715,735
OtherOpIncome 41,658 76,013 103,271
RawMatExpense 4,875,125 5,016,572 5,320,757
OtherRMExpense 88,421 96,133 102,623
StorageExpense 127,213 135,438 114,305
UtilitiesExpense 482,835 492,345 592,864
SalaryExpense 5,601,128 5,876,863 6,296,034
CommercialDiscount 0 -48,362 -7,963
Deprec&Adjust:


NCAssets 901,675 813,591 873,553
Cassets 36,937 0 -5,808
ExternalServiceExp 2,843,447 3,037,566 3,209,222
OtherTaxExpense 90,483 101,045 90,093
OtherExpense 44,647 16,335 90,934
OperatingExpense 15,091,911 15,537,526 16,676,614
OpResult 1,680,873 1,134,419 1,039,121
FinIncome 320,352 343,390 451,019
FinExpense 692,275 718,300 831,089
InterestExpense 278,898 309,354 267,922
FinResult -371,923 -374,910 -380,070
ProfitTax 242,332 157,138 118,195
NetResult 1,066,618 602,371 540,856
OpVariableCosts 8,461,688 8,794,389 9,430,705
OpFixedCosts 5,691,611 5,977,908 6,386,127
TotDeprec&Adjust 938,612 765,229 859,782

Working capital = (SubscribeCapital+OwnShare+LTLiabilities)-NCAssets






This indicator reflects whether the company manages to cover its long-term financial needs. At the
end of 2011, companys WC decreased by 6,316 RON (-0.99%), and increased by 3,621,712 RON
(+576.26%) at the end of 2012. We can observe that the company had a huge growth of the indicator at the
end of 2012, mainly due to contracting LT liabilities. As a result, the company should not have financing
problems with long-term assets for several years. On the other hand, the sums borrowed seems too large, so
future investments are to be expected in order for the company to justify these debts.

RequiredWC = CurrentAssets-STLiabilities

1-Jan-11 31-Dec-11 31-Dec-12 1(m.u) 2(m.u) 1(%) 2(%)
RWC 10,665,312 11,261,366 15,423,934 596,054 4,162,568 5.59 36.96

This indicator shows how the company manages to cover short-term financial needs, in order to
finance its current activity. The company scored in both years positive results. At the end of 2011, the
indicator shows increase of 5.59%, and an increase of 36.96% at the end of 2012. In addition, this indicator
gives us a hint that the company is solvable on short term, because current assets cover ST liabilities. On the
other hand, we can observe that inventories pile up from year to year, which may indicate a problem with
sales of the production. The company has to work on its inventories turnover rate.

NetTreasury=WC-RWC

1-Jan-11 31-Dec-11 31-Dec-12 1(m.u) 2(m.u) 1(%) 2(%)
NetTreasury -11,300,114 -11,889,852 -19,674,132 -589,738 -7,784,280 -5.22 -65.47

NT indicator shows weather the company manages to keep a financial balance between financing
long term and short-term activity. We observe that the company has higher RequiredWC than available
Working Capital, and probably uses funds to finance short-term activity from funds assigned for long-term
financing. This leads to an unbalanced financial situation and a violation of the basic financial rule, which
states that long-term financial needs should be covered by long-term liabilities, and vice versa. The negative
differences computed above, show that the company has big decreases in cash flow from year to year, hence
liquidity problems.

1-Jan-11 31-Dec-11 31-Dec-12 1(m.u) 2(m.u) 1(%) 2(%)
WorkingCapital 634,802 628,486 4,250,198 -6,316 3,621,712 -0.99 576.26
In conclusion, we observe that the company has an aggressive financing policy, disregarding the
importance of financial balance and prudence. The company has to work on its sales turnover, which can
cover this unbalanced situation.

4. Financial performance analysis

We will analyze further the way the company had reached its net result at the end of each year. This
will give us an insight on sales and costs, hence insights upon
efficiency and profitability.
2010 2011 2012
OperatingIncome -
16,772,784 16,671,945
17,715,735

OpVariableCosts
8,461,688
8,794,389

9,430,705

= VarCostMargin -
8,311,096
7,877,556

8,285,030

OpFixedCosts
5,691,611
5,977,908

6,386,127

= EBITDA -
2,619,485
1,899,648

1,898,903

TotDeprec&Adjust
938,612

765,229

859,782

= OpResult +
1,680,873
1,134,419

1,039,121

FinIncome -
320,352

343,390

451,019

FinExpense
692,275

718,300

831,089

= EBT -
1,308,950

759,509

659,051

ProfitTax
242,332

157,138

118,195

= NetResult
1,066,618

602,371

540,856


We can see an obvious link between rising costs through all three periods, and decreases in profit
levels for all three years. The company should work upon reducing costs, thus increasing efficiency and
profitability. However, it is a good sign that the company continues to score profit.

Self-financing capacity=NetResult+Deprec&Ajust-AssetsDisposalIncome



2010 2011 2012
SFC 1,963,572 1,291,587 1,297,367
The table to the left gives us
insight upon the proportion of each entry
from the OperatingIncome. The variable
costs represent the biggest proportion of
sales, which is 50.45% (2010), 52.75%
(2011), and 53.23% (2012). The other
big part is represented by fixed costs:
33.93% (2012), 35.86% (2011), and
36.05% (2012). Total costs represent
84.38% (2010), 88.61% (2011), and
89.28% (2012). In addition, on average,
financial expenses are almost twice as
bigger as financial income, for all three
years. All these factors have an obvious
influence on net profit, which represents
6.36% (2010), 3.61% (2011), and 3.05%
(2012) from total operating sales.
This indicator shows us the financial potential of the company, and its possibility to self-finance the
development and operating activity, with resources yield by operating activity. In the case of the company
analyzed, this indicator is a positive one, for all three years. On the other hand, even if the company has self-
financing potential, it has to keep the eye on maintaining a positive cash flow. Otherwise, it will be
necessary to contract new ST liabilities to finance current activity. It is important that capacity and liquidity
be proportional, in order for the company to make use of the self-financing capacity.

5. Cash flow analysis

As stated before, it is important for a manufacturing company to keep a positive cash flow, because it
requires continuous input to operate. Therefore, in the next section we will analyze the position of the
company regarding its cash flow.
OperatingCF=SFC-FinIncome-RWC

2011 2012
OpCF 352,143 -3,316,220

The figure above speak for themselves. At the end of 2011, the company closed with a positive
operational cash flow, meaning that it could finance further operating activities with money generated by the
operating activity itself. However, at the end of 2012, has a negative cash flow for operating activities,
meaning that it has to be covered by financial cash flow.
FinancialCF=TotalEquity+LTLiabilities


Financial cash flow is positive, meaning that the company has money to cover the operating one. The
bulk of the financial cash flow is due to long-term liabilities contracted. It is not advisable to use long-term
liabilities for financing operating activities. Financial cash flow should be used for investment purposes.
However, the financial cash flow reported for 2012 can cover the operating one for that same year, giving
the company the ability to continue its operations.
InvestmentCF=TangAssets+FinResult

2011 2012
FinCF 993,506 3,859,148

2011 2012
InvCF 872,029 343,843

CF=OpCF+FinCF+InvCF

2011 2012
CF 2,217,678 886,771

Per total, the company cash flow is a positive one, however a big decrease can be observed at the end
of 2012.

6. Ratio analysis

Turnover ratio
Is a measure of operational efficiency and shows how long does it take a position to make a complete
turnover in the company.






We can observe above the average number of days for a position to make a rotation in the
production cycle of the company. We can observe that inventories and current assets have a very long period
to make a rotation in the cycle, which might be a reason for a decreased efficiency of the company. As it is a
manufacturing company, the company should focus on reducing the stocks and the days needed for them to
make a complete rotation. This will increase the turnover of the company, and as a result, it will become
more profitable and efficient.

Return on Assets


Gives an insight upon how efficient is the management in using available assets to generate returns.

(in days) 2010 2011 2012
NonCurrentAssets 223 238 244
CurrAssets 249 277 376
Inventory 149 177 243
Receivables 89 98 94
Cash&BankAcc 11 2 39
STLiabilities 13 22 8
LTLiabilities 144 157 245








1-Jan-11 31-Dec-11 31-Dec-12
ROA

4.29 3.49
Return on Equity


Shows how profitable is the company, by revealing how much was generated with the money
invested by the owners.
Interest expense/Debt Ratio


Reveals how much interest the company is paying for its debts. It is important to track this indicator,
in order to observe its stability. If the indicator rises, it means that the credits are becoming too expensive. In
the case of this company, the rates are stable and decreasing, which confers a degree of stability to the
business.
Quick and Rapid Ratio


These two represent liquidity ratios, and show if the company can cover short-term liabilities with
the current assets. Quick ratio shows the degree to which available cash can cover ST liabilities. We observe
through the year that the company has enough available monetary assets to cover immediate ST liabilities.
Rapid ratio shows the degree companys current assets less inventories cover ST liabilities. We observe the
negative signs of the ratio, showing that the company does not have enough current assets to cover ST
liabilities. Again, we observe that if we take the inventories out of the equation, the liquidity of the company
drops dramatically. This means that the sale of inventory is of utmost important to the company, in terms of
liquidity and profitability.
Debt Ratio



This is a solvency ratio, which show the companys ability to fulfill its financial obligations. The
first ratio shows that the company is heavy in debt on long term. In addition, this trend is an upward one,
which is a source of risk for the company.


1-Jan-11 31-Dec-11 31-Dec-12
ROE

4.22 3.63

1-Jan-11 31-Dec-11 31-Dec-12
IntExp/Debt 3.96 3.94 2.53

1-Jan-11 31-Dec-11 31-Dec-12
RapidLiqRate -3.37 -2.54 -14.18
QuickRatio 0.90 0.07 5.04

1-Jan-11 31-Dec-11 31-Dec-12
DebtRatio 43.57 43.53 65.05
7. Competitor comparison

We have chosen to compare the companys result to a competitor that has close parameters to our
analyzed company. This competitor is SC Mobil Rdui S.A (referred further as Radauti). It has similar
figures in terms of amounts, and in terms of employees. It means that the size of both companies are similar,
thus comparable.

Radauti key financials
SC MOBILA RADAUTI
SA RON 1-Jan-11 31-Dec-11 31-Dec-12
NonCurrentAssets 11,855,307 12,618,542 12,617,055
Tangible assets 11,628,923 12,381,681 11,826,647
CurrentAssets 4,644,655 5,052,645 4,395,358
Inventory 2,188,892 3,060,800 3,116,960
Receivables 2,374,546 1,899,555 1,196,300
Cash&BankAcc 81,217 92,290 82,098
NetCurrAssets/STLiab 1,500,293 1,250,653 1,436,358
TotalAssets 16,499,962 17,671,187 17,012,413
STLiabilities 3,144,362 3,801,992 2,959,000
LongTermLiabilities 0 0 0
Deferred income 60,067 55,783 51,499
TotalLiabilities 3,204,429 3,857,775 3,010,499
SubscribedCapital 13,437,292 13,437,292 13,437,292
ReevaluationReserves 780,545 780,545 755,615
Reserves 610,020 635,120 645,919
Profit/Loss
Credit Balance 2,023,076 517,879 213,432
ReportedProfit/Loss


Debit Balance 3,452,935 1,532,324 1,039,544
ProfitDistribution 102,465 25,100 10,800
AvgNoEmployess(full
time) 368 345 325
TotalEquity 13,295,533 13,813,412 14,001,914
SC MOBILA RADAUTI SA
RON 2010 2011 2012
Turnover 22,369,096 21,241,712 18,636,356
OperatingIncome 23,137,133 22,675,299 19,257,065
OtherOpIncome 59,250 64,141 58,472
RawMatExpense 8,584,980 8,333,640 7,812,022
OtherRMExpense 42,970 14,168 21,262
StorageExpense 35,104 64,871 64,545
UtilitiesExpense 1,332,938 1,352,779 1,468,365
SalaryExpense 9,356,296 9,450,717 7,860,602
CommercialDiscount 0 0 329,045
Deprec&Adjust:NCAssets 490,844 521,655 661,917
ExternalServiceExp 1,082,958 2,019,300 1,410,810
OtherTaxExpense 130,507 119,690 128,345

















Indicators and Ratios
In terms of Net Worth, Radauti has scored 3.90% increase and 1.36%. Simex has scored increases
of 4.22% and 3.63%. It means that Simex built more wealth than Radauti in the same period. In terms of
Working Capital, Radauti has problems covering the needs for long-term activity; mainly because Radauti
does not has any long-term liabilities. In case there will be problems with self-financing capacity or
liquidity, the company will have problems to continue its activity. It is obvious that the financial balance and
rule (e.g. long-term liabilities for financing long-term assets) is violated. In addition, RWC shows that at the
end of 2011 the company had also short term financing problems, which have been solved at the end of
2012. No matter the fact that Radauti does not respect the financial rule, it managed until the end of 2012 to
keep better score regarding the Net Treasury indicator than Simex. It means that Radauti was in a better
financial balance than Simex.
OtherExpense 18,336 90,789 12,961
OperatingExpense 21,074,933 21,910,846 18,986,395
OpResult 2,062,200 764,453 270,670
FinIncome 189,609 184,424 225,450
FinExpense 175,523 334,971 257,912
InterestExpense 23,906 77,781 44,957
FinResult 14,086 -150,547 -32,462
ProfitTax 53,210 96,027 24,776
NetResult 2,023,076 517,879 213,432
OpVariableCosts 11,097,286 11,875,547 10,789,965
OpFixedCosts 9,486,803 9,570,407 7,988,947
TotDeprec&Adjust 490,844 521,655 990,962

1-Jan-11 31-Dec-11 31-Dec-12 1(m.u) 2(m.u) 1(%) 2(%)
NetWorth 13,295,533 13,813,412 14,001,914 517,879 188,502 3.90 1.36
WorkingCapital 1,581,985 818,750 820,237 -763,235 1,487 -48.25 0.18
RWC 1,500,293 1,250,653 1,436,358 -249,640 185,705 -16.64 14.85
NetTreasury -3,082,278 -2,069,403 -2,256,595 -1,012,875 187,192 32.86 -9.05


(in days) 2010 2011 2012
NonCurrentAssets 191 214 244
CurrAssets 75 86 85
Inventory 35 52 60
Receivables 38 32 23
Cash&BankAcc 1 2 2
STLiabilities 51 64 57

In addition, Radauti has better turnover ratios than Simex, meaning that the cycle of converting
assets into profits is faster at Radauti. It means that Radauti is more efficient at selling its production.
Radauti is also better at collecting their receivables than Simex.

1-Jan-11 31-Dec-11 31-Dec-12
ROE

3.47 -4.13
ROA

3.50 -3.30
IntExp/Debt 0.75 2.02 1.49
QuickRatio 0.03 0.02 0.03
DebtRatio 0.00 0.00 0.00

No matter the fact that Radauti is more efficient in terms of turnover ratios, Simex has higher
profits. Even if Radauti makes more in terms of sales, it is not cost efficient. As a result, Simex makes
higher returns on assets and equity than Radauti, and has lower margins of costs upon sales.


8. Conclusion

In conclusion, we can stress the fact that the company per general is doing well, as it is still
producing profit. However, there are certain source of risk, which stem mainly from a high level of
indebtness. On the other hand, the company has many assets available to cover an eventual default. The
company made substantial investments in plants and property, which offer creditors a sense of stability for
their credits. In addition, the company has a lot of unsold inventory, which again fosters the creditors sense
of stability. Another issue to be tackled should be the converting of these inventories into profits, in order to
become more financial independent, and to decrease the Debt/Equity ratio. This is an important thing to do,
as the company has problems with liquidity. Problems with liquidity may translate at some moment in future
in the need to contract a new loan that will be needed in order to continue operations. This cycle of actions
may lead to substantial financial risks for the company. No matter the fact that Radauti has more employees
than Simex, Simex is more efficient in terms of exploiting available assets. The amount of profit is similar,
but ROA and ROE are better for Simex. On the background of these facts, Simex looks a better company
than Radauti, even if both of companies financial position have issues to be aware of in the future.

*Source of financial statements:
Simex SA: http://bvb.ro/Bilanturi/SIMF/SIMF_A_2012.pdf
http://bvb.ro/RapoarteFinanciare/anual11omf.aspx?s=SIMF&y=2011
SC Mobila Radauti SA: http://bvb.ro/Bilanturi/MOBT/MOBT_A_2012.pdf
http://bvb.ro/RapoarteFinanciare/anual11omf.aspx?s=MOBT&y=2011