PT Adaro Energy Tbk.

Website : www.adaro.com

Financial Analysis
Report

FRANKLYN BERRIS P.
29317357 | ENEMBA 3
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CONTENTS

CONTENTS .................................................................................................................. 1
COMPANY PROFILE ..................................................................................................... 2
FINANCIAL REPORT 2016 ............................................................................................ 7
FIN AND OPS HIGHLIGHT .......................................................................................... 13
FINANCIAL RATIO CALCULATION............................................................................... 14
FINANCIAL RATIO ANALYSIS...................................................................................... 17
SUMMARY ................................................................................................................ 30
REFERENCES ............................................................................................................. 31
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COMPANY PROFILE

Adaro Energy is a vertically integrated energy producer in Indonesia. We are all about
creating sustainable value from Indonesian coal and providing reliable energy to help build
Indonesia. We deploy an integrated pit-to-power business model with three engines of
growth: coal mining, mining services and logistics, and power. Our main location is in South
Kalimantan, where we mine Envirocoal, a low- pollutant thermal coal, and we have
subsidiaries along the pit-to-power value chain, including in mining, barging, shiploading,
dredging, port services, marketing and power generation.

VISION
To be a leading Indonesian mining and energy group.

MISSION
We are in the business of mining and energy to:
• Satisfy the needs of our customers.
• Develop our people.
• Partner with our suppliers.
• Support community and national development.
• Promote a safe and sustainable environment.
• Maximize shareholder value.
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PT Adaro Indonesia

PT Adaro Indonesia (AI) is currently Adaro Group’s largest coal mining operation from which we
produce our flagship Envirocoal product. AI’s concession is in South Kalimantan and it operates under
a CCA with the Government of Indonesia. Within its concession, AI has three pits, Tutupan, Paringin
and Wara. From these pits, AI produces sub-bituminous, medium heat value coal of between
4,000kcal/kg and 5,000 kcal/kg GAR . AI’s coal has distinct low-pollutant contents and therefore
branded as Envirocoal.

In 2016, AI produced 50.77 million tonnes (Mt) of coal, or relatively flat year-on-year, and sold 52.85
Mt, a 3% increase from 2015. Overburden removal at AI’s pits declined 12% y-o-y to 229.30 million
bank cubic meter (Mbcm), resulting in a strip ratio of 4.52x.
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AI expanded its product portfolio to include Envirocoal 4200 (E4200), which has created a new
market in the lower heat value coal category. AI sold 4.10 Mt of the E4200 in 2016 and this product
was well received in China and India. AI’s sales of 52.85 Mt in 2016 contributed approximately 90% of
AE’s revenue.

In line with our strategic intent to manage coal reserves for the long-term, AI plans to maintain flat
coal production in the coming years. Further, as Indonesia’s demand grows along with the operations
of new coal-fired power plants, we are committed to taking part in, and prioritizing, the domestic
market.

Balangan Coal Companies

PT Semesta Centramas (SCM), PT Laskar Semesta Alam (LSA) and PT Paramitha Cipta Sarana (PCS)
(Balangan Coal Companies) each separately have an IUP over an area of 7,500 ha that covers the
Balangan Coal Companies deposit. AE has 75% equity stake in each company.

The coal has a calorific value of between 4,200 to 4,400 kcal/kg, gar, and has low ash and very low
sulphur, less than 0.1%. The deposit is located approximately 11 km southeast of AI’s CCOW and the
Balangan Coal Companies’ mining operations can use AI’s supply chain. SIS is the mining contractor
for the operations.

Adaro Metcoal Companies

In May 2016, two AE’s subsidiaries, ATA and CTI entered into a conditional agreement with BHP
Billiton to acquire 100% of their coal assets in Central and East Kalimantan. ATA previously held 25%
of the assets in a joint venture with BHP Billiton. The assets comprise seven Coal Contracts of Work
(CCoW), i.e. Lahai, Maruwai, Pari, Kalteng, Sumber Barito, Juloi, Ratah and include an operating mine,
the Haju Mine in the Lahai CCoW, and associated infrastructure. The acquisition process was
concluded in October 2016.

BHP Billiton initially explored the Maruwai Coal Basin, in which the seven CCOWs are located in the
late 90’s and made a significant capital investment over a number of years for studying and defining
the potential and coal quality of the area. The basin is now considered to contain the largest
relatively undeveloped metallurgical coal deposit in the world. The current declared metallurgical
coal resource in the CCOWs is 1.27 billion tonnes, which is likely to increase as a result of the
exploration program scheduled for 2017. Exploration during 2017 will also focus on defining a large
thermal coal deposit identified in the Pari CCoW located in East Kalimantan.
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The acquisition provides Adaro Group with significant and sustainable growth options in a new
commodity – metallurgical coal. The group of CCoW companies are now referred to as Adaro
MetCoal Companies (AMC). Metallurgical coal is an essential component in the production of steel
and there is a high degree of confidence regarding the long term global demand for such a product.

PT Mustika Indah Permai (MIP)

AE has a 75% equity interest in MIP which holds a mining permit (IUP) for a 2,000 hectare coal
concession in the Lahat district of South Sumatera that contains a medium energy and ultra-low
pollutant sub-bituminous coal. Based on the JORC compliance report in 2016 the total estimated
resources are 287.5 Mt and reserves are 254.0 Mt of a 4,292 kcal/kg (gar) coal. The MIP coal is suited
for fuel supply to a dedicated mine-mouth power plant.

PT Bukit Enim Energi (BEE)

AE has a 61.04% equity in BEE. BEE holds a mining license (IUP) that covers an area of approximately
11,130 hectares near Muara Enim, South Sumatra, about 150 kilometers south west of the provincial
capital of Palembang.

Land ownership and land use identification continued. The area is used for residences, agriculture,
timber plantations and oil and gas production with associated pipelines. The complexity of land use
requires detailed land ownership identification. Further work on this aspect is planned. Development
options of the coal continued to be studied. Such options include a minemouth power plant, coal
upgrading and underground coal gasification.

PT Bhakti Energi Persada (BEP)

BEP owns seven subsidiaries who each own a mining license (IUP) that in total covers about 34,000
hectares. The IUP’s are in the Muara Wahau district, Kutai Timur, East Kalimantan, approximately 250
kilometers north of Balikpapan and 125 kilometers from the coast.

AE owns 10.22% of BEP. In 2012, AE entered into a convertible loan and share subscription
agreement with the option to provide a loan to BEP of up to US$500 million, convertible up to 51% of
equity in BEP (Option One), and an option agreement to acquire BEP shares from its controlling
shareholders by offering newly issued shares of AE (Option Two). The validity period for these two
options is up to 2021.
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The seven IUP’s contain a large contiguous coal deposit close to the surface with an estimated
resource of 7.96 billion tonnes. All the coal is low in sulphur and ash but with a high moisture
content. The large coal resource provides a number of development options for BEP. Evaluation work
of the options continued, including on coal upgrading, coal to chemicals and particularly on a mine
mouth power plant to supply electricity to the PLN grid. Some land purchase was done and
environmental monitoring and social programs continued.
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FINANCIAL REPORT 2016
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FIN & OPS 13

HIGHLIGHT
FINANCIAL RATIO 14

CALCULATION

N Name of Ratio Formula UoM 2016 2015 Var.

OVERALL PERFORMANCE MEASURES
1 Price / Earnings
=0.12615/0.01046 =0.03733/0.00477
Ratio Market Price per Share Times
Net Income per Share

12.06 7.83 4.23

2 Return on =(340686+50006*(1- =(151003+60762*(1-

Assets Net Income + Interest (1-Tax Rate) % 25%))/6522257 25%))/5958629
Total Assets

5.80% 3.30% 2.50%

3 Retun on =(340686+50006*(1- =(151003+60762*(1-

Net Income + Interest (1-Tax Rate) % 25%))/(2091820+378588 25%))/(2151113+335304
Invested Capital
Long Term Liabilities + Shareholders' Equity 2) 3)

6.43% 3.57% 2.86%

4 Return on Net Income % =340686/3785882 =151003/3353043

Shareholder's Shareholders' Equity

Equity 9.00% 4.50% 4.50%

PROFITABILITY MEASURES
5 Gross Margin Gross Margin % =685276/2524239 =543300/2684476
Percentage Net Sales Revenue

27.15% 20.24% 6.91%

6 Profit Margin Net Income % =340686/2524239 =151003/2684476

Net Sales Revenue

13.50% 5.63% 7.87%

7 Earnings Per Net Income Rp =340686/32570363 =151003/31656813

Share No of Shares Outstanding

0.01046 0.00477 0.01

8 Cash Realization Cash Generated by Operations Times =675523/340686 =511594/151003

Net Income

1.98 3.39 (1.41)

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N Name of Ratio Formula UoM 2016 2015 Var.

TESTS OF INVESTMENT UTILIZATION
9 Assets Turnover Sales Revenue Times =2524239/6522257 =2684476/5958629
Total Assets

0.39 0.45 (0.06)

10 Invested Capital =2524239/(2091820+378 =2684476/(2151113+335

Turnover Sales Revenue Times 5882) 3043)
Long Term Liabilities + Shareholders' Equity

0.43 0.49 (0.06)

11 Equity Turnover Sales Revenue Times =2524239/3785882 =2684476/3353043

Shareholders' Equity

0.67 0.80 (0.13)

12 Capital Intensity =2524239/(2436565+154 =2684476/(2026965+146

Sales Revenue Times 4187) 7111)
Property, Plant and Equipment

0.63 0.77 (0.13)

13 Day's Cash =1076948/(2298642/365

Cash Days =702452/(3194670/365)
)
Cash Expense / 365

171.01 80.26 90.75

14 Day's
Account Receivable Days =300689/(2524239/365) =195694/(2684476/365)
Receivables
Sales / 365

43.48 26.61 16.87

15 Day's Inventory
=73417/(1838963/365) =72791/(2141176/365)
Inventory Days
Cost of Sales / 365

14.57 12.41 2.16

16 Inventory Cost of Sales Times =1838963/73417 =2141176/72791

Turnover Inventory

25.05 29.42 (4.37)

17 Working Capital =2524239/(1592715- =2684476/(1092519-

Sales Revenue Times 644555) 454473)
Turnover
Working Capital

2.66 4.21 (1.55)

18 Current Ratio Current Assets Ratio =1592715/644555 =1092519/454473

Current Liabilities

2.47 2.40 0.07

19 Acid-test =(1076948+34+300689)/ =(702452+370+195694)/

Monetary Current Assets Ratio 644555 454473
(Quick) Ratio
Current Liabilities

2.14 1.98 0.16

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N Name of Ratio Formula UoM 2016 2015 Var.

TESTS OF FINANCIAL CONDITION
20 Financial Assets Times =6522257/3785882 =5958629/3353043
Leverage Ratio Shareholders' Equity

1.72 1.78 (0.05)

21 Debt to Equity Total Liabilities % =2736375/3785882 =2605586/3353043

Ratio Shareholders' Equity

0.72 0.78 (0.05)

22 Debt / =2091820/(2091820+378 =2151113/(2151113+335

Long Term Liabilities % 5882) 3043)
Capitalization
Long Term Liabilities + Shareholders' Equity

0.36 0.39 (0.03)

23 Times Interest
Pretax Operating Profit + Interest Times =(546520+50006)/50006 =(279973+60762)/60762
Earned
Interest

11.93 5.61 6.32

24 Cash flow / Debt Cash Generated by Operations % =675523/2736375 =511594/2605586

Total Debt

0.25 0.20 0.05

TESTS OF DIVIDEND POLICY

25 Dividend Yield =0.0019/0.126153617147 =0.00236/0.03733236679
Dividends per Share % 961 95651
Market Price per Share

1.51% 6.32% -4.82%

26 Dividend Payout Dividend % =60800/340686 =75500/151003

Net Income

17.85% 50.00% -32.15%

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FINANCIAL RATIO
ANALYSIS

A. OVERALL PERFORMANCE MEASURES

1. Price Earnings Ratio

2016 2015 Variance

No Name of Ratio
(a) (b) (a - b)
1 Price / Earnings Ratio 12.06 7.83 4.23

The price earnings ratio, often called the P/E ratio or price to earnings ratio, is a market prospect
ratio that calculates the market value of a stock relative to its earnings by comparing the market
price per share by the earnings per share. In other words, the price earnings ratio shows what the
market is willing to pay for a stock based on its current earnings. The PER slightly increased to be
12.08 times in 2016 as the market price per share increased to be $ 0.12615 per share. Adaro’s
P/E Ratio gain strong on Energy or Mining Industry which have P/E Ratio 13.35.

(source: reuters.com) – Adaro P/E Ratio (TTM-Trailing Twelve Months 2017).

2. Return on Assets

2016 2015 Variance

No Name of Ratio
(a) (b) (a - b)
2 Return on Assets 5.80% 3.30% 2.50%

The return on assets ratio, often called the return on total assets, is a profitability ratio that
measures the net income produced by total assets during a period by comparing net income to
the average total assets. In other words, the return on assets ratio or ROA measures how
efficiently a company can manage its assets to produce profits during a period. From the data
above, we can see that the ROA difference 2.50% increased to be better from the previous year to
get profits. This means Adaro occur efficiency in carrying out the company's operations even
tough in its industry, Adaro still fall behind from others mining company such as PT Bukit Asam
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Tbk (currently have 19.77%) and PT Golden Energy Mines Tbk (24.81%). While on Coal Industry
currently RoA is 10.03%.

(source: Market FT.com)

3. Return on Invested Capital

2016 2015 Variance

No Name of Ratio
(a) (b) (a - b)
3 Return on Invested Capital 6.43% 3.57% 2.86%

The return on investment capital (ROIC) is the percentage return that a company makes over its
invested capital. However, the invested capital is measured by the monetary value needed,
instead of the assets that were bought. Therefore invested capital is the amount of long-term
debt plus the amount of common and preferred shares. ROIC tells us how good a company is at
turning capital into profits. Result the ROIC slightly increased from previous year from 3.57% to
6.43% meaning that the company's performance is getting better. As of today on 2017, PT Adaro
Energy Tbk's WACC % is 12.59%. PT Adaro Energy Tbk's return on invested capital is 13.85% PT
Adaro Energy Tbk generates higher returns on investment than it costs the company to raise the
capital needed for that investment. It is earning excess returns. A firm that expects to continue
generating positive excess returns on new investments in the future will see its value increase as
growth increases. PT Adaro Energy Tbk earns returns that do not match up to its cost of capital. It
will destroy value as it grows.
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4. Return on Shareholder’s Equity

2016 2015 Variance

No Name of Ratio
(a) (b) (a - b)
4 Return on Equity 9.00% 4.50% 4.50%

ROE is a profitability ratio from the investor's point of view. In other words, this ratio calculates
how much money is made based on the investors' investment in the company, not the company's
investment in assets or something else. Every own capital to produce a net profit of 9.00% and
4.50% are available for holders of preference shares and ordinary. So the owner of the company is
getting stronger position to press ahead with an increase in the value of the ratio resulted in an
improved return on investment.

A. PROFITABILITY MEASURES

5. Gross Margin Percentage

2016 2015 Variance

No Name of Ratio
(a) (b) (a - b)
5 Gross Margin Ratio 27.15% 20.24% 6.91%

Gross margin ratio is a company's total sales revenue minus its cost of sales, divided by the total
sales revenue, expressed as a percentage. The gross margin represents the percent of total sales
revenue that the company retains after incurring the direct costs associated with producing the
goods and services sold by a company. The higher the percentage, the more the company retains
on each dollar of sales to service its other costs and obligations. The data above showed that the
gross margin percentage of the company in 2016 is higher about 6.91% than in 2015. So, Adaro
shall maintain or continue to increase their sales or decrease their production cost in the coming
of Coal price index still profitable trend until today (more than $85/MT).

Source: S&P Global Platts.

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6. Profit Margin

2016 2015 Variance

No Name of Ratio
(a) (b) (a - b)
6 Profit Margin Ratio 13.50% 5.63% 7.87%

Profit margin most basic profitability ratios that measure the percentage of net income to net
sales. This is the proportion of sales left over after all relevant costs have been adjusted. The
above data shows that the company has increased profit margin compared to the previous year.
Every penny sales generating net profits amounted to 5.63% and 13.50%. The increase of 7.87%
happened because start in Q4 2016 the coal price index significantly increased from $ 50/MT to
$100/MT.

Source: tradingeconomics.com

7. Earnings Per Share

2016 2015 Variance

No Name of Ratio
(a) (b) (a - b)
7 Earnings per Share 0.0105 0.0048 0.0057

Earnings Per Share (EPS) is the portion of a company's profit allocated to each outstanding share
of common stock. Earnings per share serve as an indicator of a company's profitability. Adaro has
increasing EPS from 2015 to 2016 ($ 0.0048 Vs. $ 0.0105). This is due to the net income increased
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77% from previous last year because the increasing trend of Coal Price Index. This will also
increase investor interest in the next coming year to Adaro. As we can see below, Adaro stock’s
price increased as increasing investment from investor.

(source: Investing.com)

8. Cash Realization

2016 2015 Variance

No Name of Ratio
(a) (b) (a - b)
8 Cash Realization 1.98 3.39 -1.41

Cash Realization is calculated by dividing cash flow from operating activities by net income. It
measures how close a company’s net income is to being realized in cash. Companies that are less
risky have cash realization ratios that exceed 1.0, indicating that income may not be dependent on
non-cash sources such as mark-to-market accounting valuations, which can be affected by
aggressive valuation decisions by management. This ratio is considered a good measure of
earnings quality. Adaro was within the good condition due to the cash realization is above 1 in
2015 and 2016. It indicates that the company not dependent to non-cash source which can be
affected by the management about valuation decisions and the company was experienced less
risk than the company with cash realization rates less than 1.
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B. TESTS OF INVESTMENT UTILIZATION

9. Assets Turnover

2016 2015 Variance

No Name of Ratio
(a) (b) (a - b)
9 Assets Turnover 0.39 0.45 -0.06

Asset turnover ratio is the ratio of the value of a company’s sales or revenues generated relative
to the value of its assets. The asset turnover ratio can often be used as an indicator of the
efficiency with which a company is deploying its assets in generating revenue. Higher turnover
ratios mean the company is using its assets more efficiently. Lower ratios mean that the company
is not using its assets efficiently and most likely have management or production problems. The
data above showed that asset turnover ratio of Adaro decreasing from 0.45 to 0.39. While on its
industry standard is 0.72. Although both of the sales revenue and cost of sales are growing, the
increasing number of total assets is significantly higher than the sales revenue, which leads to the
declining of assets turnover. This showed that Adaro have problems in managing their assets
efficiently. So, for the upcoming years Adaro should conduct better efficient assets management
in order to gain higher sales revenue.

10. Invested Capital Turnover

2016 2015 Variance

No Name of Ratio
(a) (b) (a - b)
10 Invested Capital Turnover 0.43 0.49 -0.06

Invested capital turnover explains about how good a company uses the invested capital to
generate sales. The quotient answers questions about how much sales (in relative terms) the
business is generating with money raised from investors and creditors. Adaro’s ability to generate
sales revenues from capital invested in 2016 amounted to 0.43 times and in 2015 amounted to
0.49 times of capital. This show in mining industry is very high capital investment because every
invested capital only produces less than 1 times to generate sales.
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11. Equity Turnover

2016 2015 Variance

No Name of Ratio
(a) (b) (a - b)
11 Equity Turnover 0.67 0.80 -0.13

Equity turnover is a ratio that measures the proportion of a company's sales to its stockholders'
equity. The intent of the measurement is to determine the efficiency with which management is
using equity to generate revenue. The equity turnover from the table above showed that Adaro
had slightly decreased on their Equity turnover. Because Adaro shareholder’ equity on 2016
increased 13% from previous year compare to the decreasing of Sales Revenue 6%.

12. Capital Intensity

2016 2015 Variance

No Name of Ratio
(a) (b) (a - b)
12 Capital Intensity 0.63 0.77 -0.13

Capital Intensity ratio is an indicator that measures of how much company revenue generated
from its fixed asset capital (property, plant and equipment). The table above showed that Adaro
capital intensity slightly decreased from the previous year. It probably happened because Adaro
had invested some fixed asset but not utilizes well or only support asset to gain revenue.

13. Days’ Cash

2016 2015 Variance

No Name of Ratio
(a) (b) (a - b)
13 Days' Cash 171.01 80.26 90.75

Days’ cash on hand is the number of days that a company can continue to pay its operating
expenses, given the amount of cash available. This calculation is one way to judge how well the
company is managing its cash. High values implying high liquidity and good by the creditor.
Adaro’s days’ cash is increased from 80 days to 171 days from 2015 to 2016. It happened because
in 2016 achieved more profit than previous year then they have more cash on their account.
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14. Days’ Receivables

2016 2015 Variance

No Name of Ratio
(a) (b) (a - b)
14 Days' Receivables 43.48 26.61 16.87

Day’s receivables is a measure of the average number of days that a company takes to collect
revenue after a sale has been made. Day’s receivables is often determined on monthly, quarterly,
or annual basis and can be calculated by dividing the amount of account receivable during a given
period by the total value of credit sales during the same period, and multiplying the result by the
number of days in the period measured. Days' sales in receivables with the company's credit
terms as an indication of how efficiently the company manages its receivables. In 2016, seems
Adaro had problem in their A/R management or overdue A/R which increased from 25.61 days
(2015) to 43.48 days.

15. Day’s Inventory

2016 2015 Variance

No Name of Ratio
(a) (b) (a - b)
15 Days' Inventory 14.57 12.41 2.16

Days’ inventory ratio calculates the number of days it will take a company to sell its entire
inventory. The days sales in inventory ratio also shows how many days a company's current stock
of inventory will last. This is an important to creditors and investors for three main reasons. It
measures value, liquidity, and cash flows. Both investors and creditors want to know how valuable
a company's inventory is. The data above showed that the days’ inventory of Adaro is increase
from 12.41 days at the end of 2015 to 14.57 days at the end of 2016. This indicates that the
company is slower than previous year in selling its current inventory.

16. Inventory Turnover

2016 2015 Variance

No Name of Ratio
(a) (b) (a - b)
16 Inventory Turnover 25.05 29.42 -4.37
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Inventory turnover is a ratio that describes how many times a company inventory is sold and
replaced over a period. This ratio is a reciprocal from day’s inventory ratio. Higher value indicates
an efficient strategy in managing inventory. In the year 2016 slightly decreased, this could be
correlated to the increasing of Day’s Inventory ratio. On 2016, inventory increased 1% while cost
of sales decreased 14%. It happened because Adaro lower their Stripping Ratio (SR) from 5.2 to
4.5 to low their mining cost and also the decreasing of fuel price.

17. Working Capital Turnover

2016 2015 Variance

No Name of Ratio
(a) (b) (a - b)
17 Working Capital Turnover 2.66 4.21 -1.55

The working capital turnover is a measurement comparing the depletion of working capital to the
generation of sales over a given period. This provides some useful information as to how
effectively a company is using its working capital to generate sales. The working capital turnover
ratio is used to analyze the relationship between the money used to fund operations and the sales
generated from these operations. It is seem on 2016, Adaro had more current liabilities than
previous year increased almost 46% to buy some assets while the sales revenue decreased 6%
than year 2015.

18. Current Ratio

2016 2015 Variance

No Name of Ratio
(a) (b) (a - b)
18 Current Ratio 2.47 2.40 0.07

The current ratio is a liquidity and efficiency ratio that measures a firm's ability to pay off its short-
term liabilities with its current assets. The higher values the better. The current ratio helps
investors and creditors understand the liquidity of a company and how easily that company will
be able to pay off its current liabilities. In 2015 and 2016, current assets capable of covering the
current liability because the ratio is more than 1. Adaro’s current ratio (2.47) is higher than its
industry standards (2.07).
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19. Quick Ratio

2016 2015 Variance

No Name of Ratio
(a) (b) (a - b)
19 Quick Ratio 2.14 1.98 0.16
The quick ratio or acid test ratio is a liquidity ratio that measures the ability of a company to pay
its current liabilities when they come due with only quick assets. Higher quick ratios are more
favorable for companies because it shows there are more quick assets than current liabilities. A
company with a quick ratio of 1 indicates that quick assets equal current assets. Adaro have quick
ratio 2.14 on 2016 which higher than its industry standards only 1.65. Peer analysis to PT. Golden
Energy Mines Tbk has 1.62 and PT. Bukit Asam Tbk (2.25), Adaro is better.

(Source: Market FT.com)

C. TESTS OF FINANCIAL CONDITION

20. Financial Leverage Ratio

2016 2015 Variance

No Name of Ratio
(a) (b) (a - b)
20 Financial Leverage Ratio 1.72 1.78 -0.05

Financial leverage ratios measure the value of equity in a company by analyzing its overall debt
picture. These ratios either compare debt or equity to assets as well as shares outstanding to
 27

measure the true value of the equity in a business. In other words, the financial leverage ratios
measure the overall debt load of a company and compare it with the assets or equity. This shows
how much of the company assets belong to the shareholders rather than creditors. Financial
leverage ratio indicates the reliability of a company on its debts to operate. Financial leverage can
help investors determine a business financial solvency and its dependency upon its borrowings.
Financial leverage of Adaro have slightly decreased from 1.78 in 2015 become 1.72 in 2016.

21. Debt Equity Ratio

2016 2015 Variance

No Name of Ratio
(a) (b) (a - b)
21 Debt / Equity Ratio 0.72 0.78 -0.05

The debt to equity ratio (DER) is a financial, liquidity ratio that compares a company's total debt to
total equity. The debt to equity ratio shows the percentage of company financing that comes from
creditors and investors. A higher debt to equity ratio indicates that more creditor financing (bank
loans) is used than investor financing (shareholders). The debt to equity ratio (DER) of Adaro
slightly decreased from 0.78 times in 2015 to 0.72 times in 2016, because Adaro managed to
minimize their debt or loan to creditor.

22. Debt Capitalization

2016 2015 Variance

No Name of Ratio
(a) (b) (a - b)
22 Debt / Capitalization 0.36 0.39 -0.03

The debt-to-capital ratio is a measurement of a company's financial leverage, calculated as the

company's debt divided by its total capital. The debt-to-capital ratio of Adaro is slightly decreasing
from the previous year, which decreases from 0.39 in 2015 to 0.36 in 2016. This indicates that the
company is tend to use equity financing rather than debt financing, because the higher the debt-
to-capital ratio, the more debt the company has compared to its equity.

23. Times Interest Earned

2016 2015 Variance

No Name of Ratio
(a) (b) (a - b)
23 Times Interest Earned 11.93 5.61 6.32
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Times interest earned (TIE) is a metric used to measure a company's ability to meet its debt
obligations. TIE indicates how many times a company can cover its interest charges on a pretax
earnings basis. In year 2016, Adaro had TIE 11.93. It means that 1 dollar of interest guaranteed by
11.93 dollar of profits. The ratio had increased from 5.61 to 11.93. Because the ratio indicates
how many times a company could pay the interest with its before tax income, so obviously the
larger ratios are considered more favorable than smaller ratios. Higher ratios are less risky while
lower ratios indicate credit risk. Adaro has good TIE. This condition shows Adaro has good ability
to repay debt interest.

24. Cash Flow to Debt

2016 2015 Variance

No Name of Ratio
(a) (b) (a - b)
24 Cash Flow / Debt 24.69% 19.63% 5.05%

The cash flow-to-debt ratio is a ratio of a company’s cash flow from operations to its total debt.
The cash flow-to-debt ratio is a type of debt coverage ratio, and is an estimate of the amount of
time it would take a company to repay its debt if it devoted all of its cash flow to debt repayment.
Cash flow is used to evaluate a company’s funds rather than earnings because it provides a better
insight into a company’s ability to pay its obligations. With a significant increase of the ratio of
cash flow-to-debt Adaro from 19.63 percent in 2015 to 24.69 percent in 2016, it is considered well
for the company because the higher the percentage ratios, the better the company's ability to
bring its total debt.

D. TESTS OF DIVIDEND POLICY

25. Dividend Yield

2016 2015 Variance

No Name of Ratio
(a) (b) (a - b)
25 Dividend Yield 1.51% 6.32% -4.82%

Dividend yield is a financial ratio that measures the amount of cash dividends distributed to the
common shareholders relative to the market value per share. Investors use the dividend yield
formula for calculating the cash flow they get from their investments in stocks. A dividend yield is
high or low relative to industrial companies. It also depends on the company's dividend policy.
Dividend yield of the above data shows that it declined from the previous year, with a difference
of 4.82 percent. The dividend yield can be considered unstable because of the number decreased
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significantly. This reflects that the dividends paid from the company each year relative to its share
price did not decrease significantly. So, the company should benefit more in order to achieve a
better return on investment for shares.

26. Dividend Payout

2016 2015 Variance

No Name of Ratio
(a) (b) (a - b)
26 Dividend Payout 17.85% 50.00% -32.15%

The dividend payout ratio measures the percentage of net income distributed to shareholders in
dividends during the year. Because investors want to see a sustainable flow of dividends from a
company, the dividend payout ratio analysis is important. A consistent trend in this ratio is usually
more important than high or low ratio. Regarding the ratio analysis prior to the Dividend Yield,
Adaro has decreased its payout percentage from 50.00% in 2015 to 17.85 % in 2016. Even though
compared to its industry standards (Dividend Payout = 14.29), Adaro still can compete / higher.
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SUMMARY

Based on the financial ratio analysis (26 ratios) as mentioned above, 14 ratios have better value
than the previous year, while only 12 ratios have slight decrement. So we might conclude, it was
a better year for Adaro on 2016 than 2015, because their whole performance better than
previous year. It was also supported by the rise of coal price index on 2016 and the declining of
solar price as well.

For easy reference, I might conclude by each performance’s category which are Overall
Performance Measures, Profitability Measures, Tests of Investment Utilization, Tests of
Financial Condition and Tests of Dividend Policy.

In Overall Performance Measures category, 4 key ratios such as P/E Ratio, ROA, ROIC and ROE
have increased. Those ratios show that Adaro has solid financial and operational performance
that its management is engaging the company’s total assets, liabilities and equity to make a
good profit.

For Profitability Measures, Gross Margin and Profit Margin in 2016 have increased 7% from
2015. As a result, the performances are stimulating the increment of earnings per share from $
0.0048 to $ 0.0150 (19%).

In Tests of Investment Utilization, there are 6 of 11 ratios which are slightly declining such as
Assets Turnover, Invested Capital Turnover, Equity Turnover, Capital Intensity, Inventory
Turnover, and Working Capital Turnover. As known in general, a mining industry is a high
working capital industry, therefore not every investment contribute directly to the increment of
the revenue. In fact, it can be concluded Adaro is a solvent and liquid company regarding its
good Current and Quick Ratio.

For Tests of Financial Condition, although some ratios are declining such as Financial Leverage
Ratio, DER, and Debt-to Capital ratio, Adaro still be able to have strong financial condition to
outcome their debt or liabilities, so their creditor(s) or investor(s) might feel secure on their
investments for Adaro.

In Tests of Dividend Policy, the 2 ratios which are Dividend Yield and Dividend Payout are
declining. The values are still above average industry standards. As allegedly, these are Adaro’s
strategies to maintain or keep some of its earnings to increase Adaro’s capital and growing its
business by buying some mining concession (IUPOP), alter its new equipment(s) and other
investments activities.

As the whole summary, Adaro is a healthy company and has a strong financial condition which
effect the investors have their confident to invest in Adaro. Beside its strong financial condition,
Adaro has a plenty coal reserve that it will be able to be operated for more than 30 years later.
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REFERENCES

Books

Robert N. Antony, David F. Hawkins and Kenneth A. Merchant, Accounting Text and Cases,
Thirteenth Edition, Mc GRAW-HILL INTERNATIONAL EDITION.

Website

https://www.adaro.com
http://www.idx.co.id/id/id/beranda/perusahaantercatat/laporankeuangandantahunan.aspx
https://markets.ft.com/data/equities/tearsheet/profile?s=ADRO:JKT
https://www.reuters.com/finance/stocks/financial-highlights/ADRO.JK
https://www.gurufocus.com/term/ROIC/OTCPK:ADOOY/Return+on+Invested+Capital/PT+Adaro+
Energy+Tbk
http://financials.morningstar.com/ratios/r.html?t=ADOOY
https://www.msn.com/en-us/money/stockdetails/analysis/fi-319.1.ID-ADRO.IDX.ADRO
https://tradingeconomics.com/commodity/coal
https://id.investing.com/equities/adaro-energy-t-candlestick
https://www.bloomberg.com/quote/ADOOY:US