MM 5007

FINANCIAL MANAGEMENT

KRAKATAU STEEL CASE B

SYNDICATE 3

KRISTIANTO WICAKSANA (29114305)

JONATHAN SOMBA (29114307)

FLORENTINA ANDRE (29114312)

RATNA SARI RADITHA NING TYAS (29114357)

MASTER OF BUSINESS ADMINISTRATION

SCHOOL OF BUSINESS AND MANAGEMENT

INSTITUT TEKNOLOGI BANDUNG

2015

EXECUTIVE SUMMARY

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Short brief of project

I. Objective

Bambang Supriyatno wants to invest in Krakatau Steel group. Before he put his money on Krakatau Steel group, he needs to check the financial ratios and also the Moody’s scoring. These assessments are needed to determine whether PT Krakatau Steel is a good place to invest.

II. Analysis

Bambang Supriyatno use several ratios to compare Krakatau Steel financial performance to other

similar industry. Using The Moody Scoring, Bambang need several indicators to use as shown below

To analyze using Moody’s there are seven rating categories. Those categories vary from Caa to Aaa. Caa is the worst rating that a company can achieve while the Aaa rating is the highest one. Score attached for each rating is also vary, from zero to six. Below are the indicated rating categories in Moody’s.

Aaa Aa A Baa Ba B Caa

6 5 4 3 2 1 0

2

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The scoring result of Krakatau Steel is shown below:

2008 2009 2010 2008 2009 2010 2008 2009 20101 Net Consolidated Sales Aaa 6 25% 1,5 A 4 25% 1 Ba 2 25% 0,52 Operational Diversity3 Regional Diversity4 Import Threat/Export Reliant

1EBIT Margin (Average EBIT of three years /

Average Revenue of three years)Ba 2 10% 0,20 Baa 3 10% 0,30 Baa 3 10% 0,30

2Return on Average Tangible Assets

(EBIT/(Total asset-other asset))Baa 3 5% 0,15 A 4 5% 0,20 Aa 5 5% 0,25

3Volatility based on the Coefficient of

Variation of CFO/Net SalesA 4 10% 0,40 Caa 0 10% 0,00 Ba 2 10% 0,20

1 Debt/Capital B 1 15% 0,15 Ba 2 15% 0,30 A 4 15% 0,602 Debt / EBITDA Caa 0 10% 0,00 Ba 2 10% 0,20 Baa 3 10% 0,30

1 EBIT/Interest Ba 2 5% 0,10 Baa 3 5% 0,15 Aaa 6 5% 0,302 CFO-Div/Debt Caa 0 5% 0,00 Caa 0 5% 0,00 Aa 5 5% 0,253 3. FCF / Debt Caa 0 5% 0,00 Baa 3 5% 0,15 Aaa 6 5% 0,30

2008 2009 2010 2008 2009 2010 2008 2009 20101 Net Consolidated Sales Ba 2 25% 0,5 Baa 3 25% 0,75 B 1 25% 0,252 Operational Diversity3 Regional Diversity4 Import Threat/Export Reliant

1EBIT Margin (Average EBIT of three years /

Average Revenue of three years)Baa 3 10% 0,30 Ba 2 10% 0,20 B 1 10% 0,10

2Return on Average Tangible Assets

(EBIT/(Total asset-other asset))Baa 3 5% 0,15 Ba 2 5% 0,10 Ba 2 5% 0,10

3Volatility based on the Coefficient of

Variation of CFO/Net SalesB 1 10% 0,10 A 4 10% 0,40 Caa 0 10% 0,00

1 Debt/Capital Caa 0 15% 0 Caa 0 15% 0 Caa 0 15% 02 Debt / EBITDA Caa 0 10% 0 Caa 0 10% 0 Caa 0 10% 0

1 EBIT/Interest Aa 5 5% 0,25 Ba 2 5% 0,10 B 2 5% 0,102 CFO-Div/Debt Caa 0 5% 0,00 Caa 0 5% 0,00 Caa 0 5% 0,003 3. FCF / Debt Aaa 6 5% 0,30 A 4 5% 0,20 Aa 5 5% 0,25

Rating Categories

Sub-factor Weighting

Weighted Factor score

337.124,03$ 764.449,14$

2,55 2,49

11,93% 5,50% 2,49%

4 10% 0,4

11,62 1435,19%

39,05% 345,29%

94,71% 109,68%

Scoring

298,60%

Financial Strength

Total

POSCOScoring

Rating Categories

Sub-factor Weighting

7 Aa 5 10%1

Size and Businesss

profile

2Operating

Performance and volatility

11,12

Ba2 Ba1 B22,10 2,25 1,20

8,65% 6,62% 2,60%47,22% 18,64% 26,77%

10,22% 4,12% 2,82%

0,5 7 Aa 10% 0,5 6 A5

Weighted Factor score

Arcelor MittalScoring

Rating Categories

Sub-factor Weighting

Weighted Factor score

U.S. SteelScoring

148.788,56$

Rating

86,83%

6,373

Financial Policies

4

TotalRating

2,90Baa2

2,60Baa3

3,20Baa2

4,45% 54,28%

63,61%31,95%

10% 0,2

Rating Categories

Rating Categories

Rating Categories

Sub-factor Weighting

Weighted Factor score

Scoring ScoringSub-factor Weighting

Weighted Factor Score

Ba 2

4Financial Strength

3,01 5,04 64,76

-4,95% 11,61% 56,04%9,28%

3Financial Policies

89,20% 66,42% 37,03%5,85 4,03 2,01

2

2Operating

Performance and volatility

6,20% 9,70% 10,65%

7,22% 12,51% 23,25%

A Baa

916,79%

4 310% 0,4

Krakatau Steel Gunawan Dianjaya Steel Jaya Pari Steel

1Size and

Businesss profile

149.430.532,90$ 18.171.438,81$ 4.173.023,49$

5 3

Weighted Factor score

Sub-factor Weighting

10% 0,3

4

The table above show the ratio analysis needed to calculate the Moody’s Rating Score. From

the table we can see that the total score and rating for Krakatau Steel is slightly better than

the other local and international company. This can be seen from the broad rating factor

categories: operating performance and volatility which get higher score than other

categories.

III. Conclusion and Recommendation

3.1 Conclusion

From those Krakatau Steel conditions above, we can see that the Krakatau Steel is a good

place to invest. Based on calculation above The Krakatau Steel’s Moody’s rating score is

quite good, compared to other company. Moreover, we can see that The Krakatau Steel’s

Moody’s rating score is Baa3, which is indicated as a healthy company.

3.2 Recommendation :

If this analysis is used as decision base wheter to invest or not, Bambang Supriyatno should

invest in Krakatau Steel as their Moody’s rating score is better than the other Industries. As

we can see, from average year 2008 to 2010, Krakatau Steel’s Moody’s rating score is Baa3.

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