Saudi-Telecom: Analyzing profitability drivers on TTM

The average return on equity increased from 14.65 to 15.27 percent, on the back ground of a slight growth in return on net operating assets(RNOA) from 18.36 to 18.39 percent mainly supported by the increase in Net operating profit margin(NOPM). As to the second component of the equation i.e. Net non-operating activities, recorded a negative contribution by (3.62), the company has financial assets greater than financial obligations, some of the company’s funds have been invested in financial assets so the FLEV of 19.6 percent is negative and together with the operating spread yield a negative outcome of (3.62) that reduced the overall ROE.
To gain better understanding of operating performance, we decomposed it into profit margin and asset turnover drivers:
The company`s Net operating profit margin(NOPM) that measures the efficiency of profitability rose from 16.99 to 18.07 percent in the last TTM, mainly due to the rise in net operating profit after tax(NOPAT) with regard to the versus period. Thus, for each riyal of sales the company earns about 0.18 riyal after all operating expenses and tax.
On the other side, Net operating assets turnover (NOAT) which measures the efficiency of productivity of the company`s net operating assets, declined from 108.07 to 104.53 percent by the end of June 2017 and that can be attributable to the decrease in revenues against a growth in Net operating assets(NOA) as compared to the versus period. Such result means that, for each riyal of net operating assets, the company yields about 1.05 riyal of sales.
The amount of cash that Saudi-Telecom company generates by the end of June 2017, and after accounting for all capital expenditures increased to 5,038,79  million riyals as compared to 4,526,13 million riyals during the same period of the previous year.

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