Comparative Analysis JSC National Company Kazakhstan Temir Zholy and JSC Doszhan Temir Zholy

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Term Paper

Comparative Analysis

JSC National Company Kazakhstan TemirZholy

and JSC DoszhanTemirZholy

Prepared by:

Nailya Akhtyamova

ID 20111008

Tatyana Yablochkina

ID 20112880

Instructor:

M. MujibulHaque

Spring 2013

Content

Executive

Summary………………………………………………………………………………3

Acknowledgments…………………………………………………………………………

……..4

Letter of

Transmittal…………………………………………………………………………….5

I. Introduction………………………………………………………………………………

Scope………………………………………………………………………………………6

Methodology………………………………………………………………………………6

Limitations………………………………………………………………………………..6

II. Findings and

Analysis……………………………………………………………………7

1. Companies overview………………………………………………………………………

JSC “National Company Kazakhstan TemirZholy” (JSC “NC KTZ”)…………………..7

JSC “DoszhanTemirZholy”………………………………………………………………7

2. Du Pont analysis of the companies

performances…………………………………………8

3. Evaluation of the Working Capital

Policies……………………………………………..10

a) Working Capital Policy……………………………………………………………..10

b) Working Capital Financing Policy………………………………………………….12

4. Capital Structure

Policy………………………………………………………………….15

5. Dividend

Policy………………………………………………………………………….16

6. Break-even

Analysis……………………………………………………………………..17

Degree of Operating Leverage……………………………………………………………18

Degree of Financial Leverage……………………………………………………………20

Degree of Total Leverage………………………………………………………………..21

7. P/E ratio

Analysis………………………………………………………………………..22

III. Summary and

Recommendations………………………………………………………23

References…………………………………………………………………………………

…….24

Appendix

Executive Summary

The main objectives of of this paper are focused on developing and analyzing the

performance of two Kazakh companies: Kazakhstan TemirZholy Finance B.V. (which is a

special purpose subsidiary of JSC “National Company “Kazakhstan TemirZholy”)

(hereinafter KTZ) and JSC “DoszhanTemirZholy” (hereinafter DTZ). These companies

operate in transport industry, especially in goods traffic and passenger transportation. The

analysis was done using different methods and approaches: Du Pont and P/E Ratio;

evaluation of the working capital, capital structure policy, and dividend policy and

break-even and leverage analysis.

Our research discovered companies’ strengths and weaknesses. Current industry situation,

competitive environment were observed. It might be highlighted that KTZ as a main local

operator has several advantages over the DTZ, but still both companies are stable and has

good performance. Our report determines the risk and profitability relationship within the

companies.

Acknowledgments

We would like to express our deep appreciation to Mr. MujibulHaque.

His understanding, encouragement and personal guidance have provided

a good basis for our report. We are deeply grateful for his detailed and

constructive comments, and for his important support throughout this

work.

Letter of Transmittal

KIMEP

2 Abay Ave.,

Almaty 050010, Republic of Kazakhstan

Office: Room #302 – 8 Dostyk (Administrative) Building

Phone: 2 70 43 63 / 2 70 44 40 x2138

E-mail: mmhaque@kimep.kz / onmmh@yahoo.com

15.04.2013

Dear Dr. M.MujibulHaque,

Enclosed is a copy of our term paper. This report was prepared and completed during

Spring 2013. The main objectives of the paper are to summarize the information about the

companies and to compare the performance. Conducted trend analysis and financial

analysis of these companies will be helpful for potential investors to determine the

financial performance of the companies.

If you have any questions, comments or amendments regarding the data representation of

this paper please do not hesitate to contact me. Thank you for your valuable feedback on

this report.

Kind regards,

Nailya Akhtyamova, ID #20111008

atyanaYablochkina ID #

I. Introduction

In the modern world the value of the transport industry increases in the

economy of each state, as the level of transport directly affects the

competitiveness of the economy and national security. Transport is the

most important sector of the Kazakhstan economy and contributes a lot

to the country’s GDP. Geographic conditions of Kazakhstan (the lack of

direct sea access and navigable waterways), vastness of territory, the

structure of production of raw materials and distribution of productive

forces and underdeveloped road infrastructure make the role of railway

transport extremely important.The volume of trading operations

between neighboring countries will increase 1,5 times and reach $1

trillion by 2020 which will create Kazakhstan`s transit potential.

In addition to the contributions into economy, transportation industry

has a social function that is in providing population with organization of

recreational, educational and cultural development, as well as various

social problems solutions.

That’s why it is very interesting to compare the financial performance of

the leader in railway industry and of the growing company.

The objective of this term paper is to compare the financial performance

of two companies: JSC “National Company Kazakhstan TemirZholy”

and JSC “DoszhanTemirZholy”, to make a conclusion and summarize

the recommendations.

Scope

This analysis requires the financial statements for the two companies. We

had chosen necessary information and put it into excel to analyze. After

comparing these data we constructed all needed pie charts and diagrams.

All the necessary conclusions were provided at the end of each task.

Methodology

The report will use primary data for KTZ and DTZ, specifically its

Charter, financial statement and information from the Web site the year

2010, 2011 and 9 month of 2012. The financial statements were

downloaded from KASE website and from KTZ official website.

The following methods of the analysis and various ratios were used to

compare these two companies.

Du Pont analysis of the companies performances

Evaluation of the Working Capital Policies

Assessment of Capital Structure Policies

Assessment of Dividend Policies

Break-even and leverage analysis

P/E ratios analysis

Limitations

Limitations to writing this report include confidentiality considerations.

There was also lack of information about DTZ.Due to the fact that not

every company uses IFRS approach in preparing the financial statement

it was time consuming to do it in one format and compare.

II. Findings and Analysis

1. Companies overview

JSC “National Company Kazakhstan TemirZholy” (KTZ)

The Republican State Enterprise “Kazakhstan temirzholy” was established in January,

1997 “On reorganization of railway enterprises of the Republic of Kazakhstan” by merging

such republican state enterprises as Almaty railway Administration, Tselinnaya railway

Administration and West-Kazakhstan railway Administration. The purpose of the merger

was optimization of the management structure of the transportation process and

elimination of unnecessary units; financial and economic revival of railway industry.

On 2nd of April 2004 closed joint-stock company “NC “KTZ” was re-registered as a