Return to profitability

Sapura Energy Bhd’s plan to raise RM4 billion, via a major rights issue, will create value return to profitability shareholders and return the company to profitability as oil and gas market prospects improve, said Credit Suisse in a report dated last Friday. Sapura Energy share price fell last Friday in a knee jerk reaction to the rights issue announcement.

Sapura Energy announced last Friday that it planned to raise RM4 billion through a rights issue. Credit Suisse said under the exercise the number of company shares would increase from 5. 98 billion shares, with room to expand further to 19. The company plans to use the funds raised to boost its financial position and reduce its estimated RM16 billion debt to banks. It is also evaluating other options which may involve the listing of its oil and gas business and a possible strategic partnership in its drilling business. Sapura Energy, would subscribe in full its entitlement and has also given an undertaking to mop up excess shares that are not taken up to an amount to be agreed on later.

More importantly, if Sapura Energy successfully raises RM4 billion, it would save RM184 million per annum in interest. Velesto could leverage on Sapura Energy’s global footprint to revive its ailing business outlook. BEHIND THE STORY: What is Can-One’s endgame? Financial ratios are useful indicators of a firm’s performance and financial situation. Most ratios can be calculated from information provided by the financial statements.

Financial ratios can be used to analyze trends and to compare the firm’s financials to those of other firms. In some cases, ratio analysis can predict future bankruptcy. Financial ratios can be classified according to the information they provide. Liquidity Ratios Liquidity ratios provide information about a firm’s ability to meet its short-term financial obligations.

They are of particular interest to those extending short-term credit to the firm. Short-term creditors prefer a high current ratio since it reduces their risk. Shareholders may prefer a lower current ratio so that more of the firm’s assets are working to grow the business. Typical values for the current ratio vary by firm and industry. For example, firms in cyclical industries may maintain a higher current ratio in order to remain solvent during downturns. One drawback of the current ratio is that inventory may include many items that are difficult to liquidate quickly and that have uncertain liquidation values. The quick ratio is an alternative measure of liquidity that does not include inventory in the current assets.