MM 5009

FINANCIAL MANAGEMENT

Krakatau Steel (A): Financial Performance

Syndicate 11

Ali Milando (29117153)

AstriYuanita H.P. (29117014)

Azmi Said Al-Ghiffari (29117172)

Valeria Natasha N.P. (29117144)

MASTER OF BUSINESS ADMINISTRATION

SCHOOL OF BUSINESS AND MANAGEMENT

INSTITUT TEKNOLOGI BANDUNG

2018
 EXECUTIVE SUMMARY

I. Objective
BambangSupriyatno is an investor with a moderate risk profile and has to be sure whether he is
investing on the right stocks. Currently Bambang has been considering on investing a big amount of
money on Krakatau Steel’s stock. So he intends to do a background check on the company with
comparing other local companies (PT GunawanDianjaya Steel and PT Jayapari Steel) using three
methods; Trend Analysis, BUMN Financial Scoring, and DuPont Formula.

II. Analysis
• Trend Analysis

1
𝑉(𝑡𝑛 ) 𝑡0−𝑡𝑛
𝐶𝐴𝐺𝑅 (𝑡0 , 𝑡𝑛 ) = ( ) −1
𝑉(𝑡0 )

V(tn) = Ending Value

V(t0) = Beginning Value

tn-t0 = Number of years

Revenue
- Gross Profit margin
- Operating Profit Margin
- Net Profit Margin
- COGS to Revenue
- Operating Expenses to
Revenue
Market
- Earnings per share
- Book value per share
Return
- Return on Assets
- Return on Equity
Debt
- Debt to Equity
- Debt to Capital
Formula
Gross Profit / Revenue
Operating Profit / Revenue
Net Income / Revenue
COGS / Revenue
Operating expenses /
Revenue
Net Income / Revenue
Equity / Shares Outstanding
Net Income / Asset
Net Income / Equity
Debt / Equity
Debt / Capital
 Krakatau Steel Gunawan Dianjaya Steel Jayapari Steel
2007 2008 2009 2010 CAGR 2007 2008 2009 2010 CAGR 2007 2008 2009 2010 CAGR
Revenue
Gross Profit 21,0% -4,7%
11,9% 13,2% 7,0% 15,0% 5,9% 18,5% -11,4% 17,4% 16,2% 15,7% 11,7% 13,0% -5,3%
margin
Operating Profit 14,9% -5,1%
5,3% 6,6% 0,2% 6,7% 5,8% 13,8% -16,7% 12,1% 12,8% 13,4% 6,7% 9,0% -8,5%
Margin
7,8% 6,6%
Net Profit Margin 2,1% 2,2% 2,9% 7,2% 35,6% 2,7% -9,1% 10,0% 9,6% 6,7% 0,6% 6,6% -8,8%
COGS to 79,0% 1,1%
88,1% 86,8% 93,0% 85,0% -0,9% 81,5% 111,4% 82,6% 83,8% 84,3% 88,3% 87,0% 0,9%
Revenue
Operating
Expenses to 6,6% 6,6% 6,9% 8,4% 6,1% 6,1% 4,7% 5,2% 5,3% -3,6% 3,4% 2,3% 5,0% 4,0% 4,8%
Revenue
Return
Return on Asset 18,2% -3,2%
2,8% 3,0% 3,9% 6,0% 21,0% 4,0% -15,5% 16,0% 15,5% 12,3% 0,5% 6,9% -18,2%
(ROA)
-
Return on Equity -17,9%
6,2% 8,4% 8,5% 11,4% 16,6% 1559,0% 4,4% -31,6% 26,5% 18,8% 18,2% 0,7% 9,5% -15,8%
(ROE)
Market
Earning per share 10626, 38 - -13,9% 1847,4 2184,8 1264,2
3134,4% 4595,7% 4946,7% 35,7% 2458,5% 2090,6% 85,2% -9,0%
(full Rp) 8% 2597,0% % % %
Book value per 50743,3 54397,6 92939, -2,44 56304,6 15,3% 9805,1 11987, 12075, 13339,
58058,4% 16,3% 8211,3% 7874,5% 8,0%
share % % 2% % % 2% 1% 3%
Debt
-
-60,9%
Debt to Equity 119,1% 182,6% 120,4% 89,2% -7,0% 8671,6% 10,1% 104,7% 66,4% 21,8% 48,1% 30,3% 37,0% 14,1%

101,2% -20,7%
Debt to Capital 54,4% 64,6% 54,6% 47,1% -3,5% 9,2% 51,1% 39,9% 17,9% 32,5% 23,2% 27,0% 10,8%
CAGR of Three Companies Diagram (%)
 From the calculation above, we can use the data to know the CAGR of each
aspects. The higher company CAGR value, the better financial performance of each
company. The calculation of CAGR presented below :

Compound Annual Growth Rate (CAGR)

Gunawan Jayapari Krakatau
Dianjaya
Steel Steel
Steel
Gross Profit margin -4,7% -5,3% 5,9%

Operating Profit Margin -5,1% -8,5% 5,8%

Net Profit Margin 6,6% -8,8% 35,6%

COGS to Revenue 1,1% 0,9% -0,9%

Operating Expenses to Revenue -3,6% 4,8% 6,1%

Return on Asset (ROA) -3,2% -18,2% 21,0%

Return on Equity (ROE) -17,9% -15,8% 16,6%

Earning per share (full Rp) -13,9% -9,0% 35,7%

Book value per share 15,3% 8,0% 16,3%

Debt to Equity -60,9% 14,1% -7,0%

Debt to Capital -20,7% 10,8% -3,5%

The table above shows us that due to its stability of financial performance
which is the value of CAGR, PT Krakatau has a better mark than others, we can see
from datas, that PT Krakatau’s COGS to revenue, Debt to equity, and Debt to capital
are below than others. Its only -0.9%, -7%, and -3.5% respectively. We all know that
the important thing to see how good the company runs their business is from the
Return on Equity (ROE) value, which PT Krakatau has the highest score than others
as 16.%. The ROE is useful for comparing the profitability of a company to that of
other firms in the same industry, For high growth companies you should expect a
higher ROE. So, based on trend analyis we would recommend Mr. Bambang to invest
his money with PT Krakatau.
• BUMN Financial Scoring
To calculate BUMN Financial Scoring Framework, we should know some ratio so
we can get the result. Financial ratio as a benchmark for scoring the Financial
Scoring Framework is

Financial Indicators Weight Formula

Return on Equity (ROE) 20 Net Income / Equity
Return on Investment (ROI) 15 Ebitda / (Total Asset – Net Fixed Asset)
Cash Ratio 5 Cash / Current Liability
Current Ratio 5 Current Asset / Current Liability
Collection Period 5 Account Receivable x 365 / Revenue
Inventory Turnover 5 Inventory x365 / Revenue
Total Asset Turnover 5 Revenue / Asset
Total Equity/Total Asset 10 Equity / Asset
Total Score 70 (Total score is represented as TS)

For this measurement on the financial aspect, there are some rating to know
what is the classification of the company. The rating is presented below :

Rating Scoring Adjusted Score Classification

AAA TS >95 TS >66.5
AA 80< TS ≤95 56< TS ≤66.5 Healthy
A 65< TS ≤80 45.5< TS ≤56
BBB 50 < TS ≤65 35< TS ≤45.5
BB 40< TS ≤50 28< TS ≤35 Less
B 30< TS ≤40 21 < TS ≤28 Healthy
CCC 20< TS ≤30 14< TS ≤21
CC 10< TS ≤20 7 < TS ≤14 Unhealthy
C TS ≤10 TS ≤7
 The rating and classification to this three steel company is showed below :

Gunawan
Krakatau Steel Jayapari Steel
No Financial Indicators Dianjaya Steel
Value Score Value Score Value Score
Return on Equity 27% 20
1 11% 14 9% 12
(ROE) %
Return on Investment 29% 15
2 14% 12 11% 9
(ROI) %
1% 0
3 Cash Ratio % 61% 5 12% 2
169% 5
4 Curent Ratio % 177% 5 277% 5
Collection period 19,19 5
5 29,10 5 79,87 4,5
(days)
Inventory Turnover 118,86 4
6 160,92 3 99,58 4
(days)
Total Asset Turnover 159% 5
7 84% 3,5 104% 4
%
Total Equity/Total 60% 8
8 53% 8,5 73% 7,5
Assets %
62
Total Score 56 48
Rating A Aa A
Health Classification Healthy Healthy Healthy

Based on BUMN Financial Analysis we can conclude that the best choise to
invest in is with the PT Gunawan Dianjaya, because of their highest financial
management.

PT GunawanDianjaya Steel came for the first placed and reached 62 as the
highest total score, so they got AA grade rate which classifiedas an Healthy company. It
is esssentials to look for the ROE of the company, it is because of it represent how
efective the company runs. It’s also picture us the efficiency of the company. A rising
ROE suggests that a company is increasing its ability to generate profit without needing
as much capital. It also indicates how well a company's management is deploying the
shareholders' capital. So, if Mr. Bambang decide to invest in PT Gunawan Dianjaya he
would get 27% net income returned as a percentage of shareholder equity a year after his
investments. He also will get 29% of profit from his investment too.

PT Krakatau Steel gets 56 as the total score, AA as the rating and classified as
Healthy companyas the second places. For PT Jaya Pari itself, they only gets 48 as a
Healthy company for the results. This company only give back the profit of 11% and 9%
net income from the invested money. In a nutshell, we should reconsidering if we want
to invest to PT Jayapari, because of their lower performances than others.
• DuPont Formula
DuPont analysis breaks ROE into its constituent components to determine which
of these components is most responsible for changes in ROE.With this method, assets are
measured at their gross book value rather than at net book value to produce a higher
return on equity (ROE).

ROE = Profit Margin x Total Asset Turnover x Equity Multiplier

DuPont's Component Formula

Profit Margin Ratio Net Profit / Revenue
Total Asset Turnover Revenue / Asset
Equity Multiplier Asset / Equity
 PT. Krakatau Steel PT. Gunawan Dianjaya Steel PT. Jaya Pari Steel
DuPont's Component 2007 2008 2009 2010 2007 2008 2009 2010 2007 2008 2009 2010
Profit Margin Ratio 2,11% 2,23% 2,92% 7,15% 7,75% 2,75% (9,14) 10,02% 9,60% 6,71% 0,63% 6,65%
Total Asset Turnover 133,45% 134,19% 132,18% 84,49% 234,47% 144,33% 169,10% 159,15% 161,02% 183,48% 85,57% 104,01%
Equity Multiplier 219,08% 282,63% 220,40% 189,20% (8.571,15) 1.208,21% 204,67% 166,42% 121,84% 148,06% 130,28% 137,03%
ROE 6,2% 8,4% 8,5% 11,4% -1557,9% 48,0% -31,6% 26,5% 18,8% 18,2% 0,7% 9,5%

From the table of DuPont analysis above, the best result of DuPont Formula is PT GunawanDianjaya Steel because the total
score from all aspects (profit margin ratio, total asset turnover, equity multiplier) is the highest than others.PT GunawanDianjaya
Steel has 26.5% point for ROE, when Krakatau Steel and Jaya Pari Steel gets 11.4% and 9.5% respectively. For PT
GunawanDianjaya Steel they have capability to managethier profit margin up to 10% its higher than others company. They also
highly effevtive on operating their production as their asset turnover is 159.15%, it indicates that how often their assets be used in
generating revenue.PT GunawanDianjaya also have 166.42% as the equity multiplier, it indicates that a larger portion of asset
financing is attributed to debt.
III. Conclusion and Recommendation
3.1 Conclusion
1. PT Krakatau Steel is on the first places for trend analysis, with the highest ROE value
of 16.6% than others, PT Jayapari Steel and PT Gunawan Dianjaya Steel came as the
second and third for tred analysis rank.
2. PT Gunawan Dianjaya Steel came as the first company to invest by using BUMN
Financial Scoring analyisis, they got AA grade rate which classifiedas an Healthy
company with a good score of ROE of 27.7%
3. PT Krakatau Steel is the best choice to invest as we saw how stable the company is
on maintained their ROE from 2007 until 2010.

3.2 Recommendation
Best on our analysis, we would recommend Mr. Bambang to choose PT Krakatau
Steel to be invested his money. Eventhough PT Krakatau Steel’s ROE is not the highest score
among other, which PT Gunawan Dianjaya does, we should consider on how PT Krakatau
manage their operation and how stable their company is. From the datas we can see that PT
Krakatau’s evolution, almost all assessment indicators such as ROE, ROI, asset turnover etc
are increase steadily.