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Assignment 11






FinancialEngineering 3

Currentratio 3

Returnon Equity 4

NetCash Flow 4

TurnoverGrowth 5

Netpresent value 5Introductionto question 2 8Problemsand Issues with the service 8Alternativesolutions 9Evaluationof solutions 10Proposedsolution 10Advantageand Disadvantage 10SWOT 11Balancescore board 11Riskanalysis:probability 12Conclusion 14Reference 15

Q1Financial Engineering

Businessowners and those entrusted with governance must constantly gauge howthe company is performing. Financial management is especially animportant aspect to the overall performance of an entity as itsmismanagement can result to the disintegration of the company. Withthe many things that happen on daily basis, keeping up can be quite achallenge. Those charged with governance use metrics to assist themkeep track of the periodic financial activities as well as help putthe performance into perspective. Below is an outline of the keyfinancial metrics commonly used to assess the financial strength ofan entity.


CurrentRatio is one of the liquidity ratios used to measure a company`scapability to settle its debt for the subsequent financial cycleusually 12 months. It is calculated by dividing the current assetswith the current liabilities. Sinopec Incorporation had a currentratio of 0.65 for the year ended 31st December 2013. Anacceptable current ratio value depends on the industry but for mostindustries, a current ratio that is around 2:1 is seen as healthy.The lower the ratio, the less capable the company is to settle itsfinancial obligations. If current is below one, it means that thecurrent liabilities surpass the current assets. In such cases, thecompany is likely to have problems meeting its expenses hence may belate to pay its bills. A low value like in the case of Sinopec Groupdoes not mean a critical problem for the business but it is a causeof concern all the same.

SinopecIncorporation may not be in financial turmoil but the managementshould keep a close eye on the short-term liabilities to ensure thatthe company is liquid enough to meet the obligations. The currentratio is not too low or too high which is an indication that SinopecInc. is making optimum use of its current assets.

Returnon Equity

Returnon Equity abbreviated as ROE is used to gauge a company`sprofitability. It is used to determine the return on net worth of acompany by measuring the profit made by the company against the moneyinvested by the entity’s common stock owners. It is calculated bydividing the net income by the average shareholder’s equity thenmultiplying it by 100. Returnon Equitylets the user make out the earnings that a dollar of equitygenerates. The figure of net income used is that of a full accountingperiod, usually one financial year, after taxes have been deductedand preference shares paid off but prior to common shares dividendspay off. The preference shares are not included in the calculation ofthe average shareholder’s equity.

Thereturn on equity is very different for different industries thereforeit is recommended that comparison should be done using previousvalues or between companies that operate within the same industry.Sinopec Inc had a return on capital of 11.63% in the year endedDecember 2013, which was lower than the 12.50% for the year endedDecember 2012.

NetCash Flow

Beingthe most popular and important metrics, the management has toconstantly observe on it. Net cash flow is calculated by deductingcash outflows from the cash inflows. It can also be calculated bytotalling up non-cash expenses such as depreciation or amortizationwith the net profit. If a business does not have adequate liquidity,it is unlikely that it can reach its potential, which means it willexperience severe growth challenges.

SinopecIncorporation has a net cash flow as at 31st Dec 2013 fromoperating activities was $ 151, 893 while that from investingactivities was $-182,332. This indicates that the company is liquidenough to run its day-to-day operations. The negative value alsoshows that the company is investing in long term projects.


Turnovergrowth is used to help in the process of assessing and calculatingthe approximate revenue growth. Most methods used to calculaterevenue increment are often based on assumptions and it rarelyconsiders unexpected events. However, a reliable metric require thatfactors such as industry growth averages, the industry pricingapproach, and the company’s market to be taken into consideration.From a chronological perspective turnover, growth has been known toprovide a reliable indicator of an entity’s performance. This helpsthe owners and the management to predict the average growth figuresthey should expect.

SinopecIncorporation’s income in 31st December 2013 was RMB2,880.3 billion this was about 3.4% increment on turnover growth fromthe previous year. This indicates that the company is growing hencemay be a good investment.

Netpresent value

Thenet present worth/ value (NPV) helps in the analysis of discountedcash flows. Since it involves the analysis of all cash flows relatingto a financial cycle using time value of money, it helps thosecharged with governance to appraise projects especially those thatrun over a long period. NPV would also help the management during theprocess of capital budgeting and help the company avoid activitiesthat would result to shortage or excess cash flow in future.

NPV=C0=(C1/1+r) + (C2/ (1+r) ²) + (Ca/ (1+1+r) ª)



R=Discount rate


Ironhorse Inc’s 2013’s pipe remedy project Net Present Value =

($ 000)



Total confirmed

Total feasible














Reserves Reconciliation

Confirmed amount

Feasible amount


31st Dec, 2012

&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp &nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp 1,012

&nbsp &nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp 416

&nbsp&nbsp&nbsp &nbsp&nbsp&nbsp&nbsp&nbsp 1,428

Technical Revisions








Economic Factors

&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp –





&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp –


31st Dec, 2013

&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp 637

&nbsp&nbsp&nbsp&nbsp&nbsp &nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp 172

&nbsp&nbsp&nbsp&nbsp &nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp809

Net asset 10% discounted value before (income) tax


31st Dec 2013($000)

31st Dec 2012 ($000)

Net present value (confirmed and feasible



&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp 39,507

Net working capital (debt)




Net asset value



&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp 36,230

Common shares as at Dec 31st 2013



&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp 27,860,824

NAV per share



&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp 1.30

Q2. Introduction

Increaseddevelopment of the economy, science and technology has resulted inthe extensive growth of high speed rail and the expresswayconstruction industry (RFS, 2009, p.1). Theuse of high speed rail systems has grown over the last two decades,mostly in China and quite a number of high speed railway corridorshave been set and reached 9,300km by 2012. Its advantages include theease to move large numbers of passengers in a manner that is safe andreliable in a very short time because they mitigate congested roadsand also promote economic development. Moreso, they are less affectedby bad weather conditions like storms and also their energyconsumption is less as compared to road and air transport (Rodrigue,2014, para.1).

Problemsand Issues with the service

Theconstruction of the high speed rail systems, is faced with ridershipproblems in that China is still viewed as a developing country andmost passengers still consider low fares in selecting thetransportation mode, hence it turns out not to be affordable for thegreater majority of the population(Rodrigue, 2014, para.12).

Thecontractors have been accused of using low quality fly ash, asopposed to high-qualityfly ashwhich is mixed with other substances. This result in a cheap trainline construction because of the shoddy materials used (Schwartz,2011, para. 2). In addition, the train’s system segments have beenreported to be more expensive than the initially estimated valueconfirming the allegations of corruption which may have occurred dueto a bidding process that was flawed (Richburg,2011, para.11).

Anotherissue raised pertains to those using the trains and it has been notedthat most of those using the trains are migrant workers and return totheir villages annually. This is not affordable to them even whenthey go for the cheapest tickets (Richburg,2011, para.20). Other questions tend to address the costs and publicneeds to be overlooked by the leadership in a bid to engender thenational pride in an effort to bring about growth through the massivespending of public works&nbsp(Richburg,2011, para.6).

AProfessor named ZhaoJian of Beijing Jiaotong University and a critic of the high speedrail, said that, the project could have a hidden debt bomb that maythreaten the banking system of China because the rail system was aburden in operating it and its costs were very high (Richburg,2011, para.9-10)


Therailway ministry has proposed a decrease of top speed of all trainsfrom 218mph to 186. It has also introduced safety checks for thenetworks of tracks. Moreover, the ministry will reduce ticket pricesso as to improve the lagging ridership and slow down the high speedlines construction, so as to avoid outpacing the public demand(Richburg,2011, para.3).

Basestation antenna can be used to improve the network performance andquality of network layout of the high speed rail. It countersproblems like unavailability of service, call, handoff failure andcall drop in high speed transportation (RFS, 2009, p.2).

Safetystandards can be improved by introducing track safety standards so asto address the operating environment of the railroad and also providefor future high speed train operations. Revisions should also be madeto safety standards for braking systems, signalling and train control(ParsonsBrinckerhoff, 2011, p.14)

Integratedvehicle track system should be stable, durable and in a position towithstand repeated dynamic loading that will not lead to excessivedeformation of track. Advancement of materials, techniques used inconstruction and the inspection methods and practises for maintenancehave improved the level of performance, and safety of the high speedrail systems (Parsons Brinckerhoff, 2011, p.14).

Evaluationof solutions

Reductionof speed and tickets does not guarantee the usage of the HSR becauseit depends on the percentage of the reduction rates. In addition, theBSA selection mode, has a direct bearing on network performance henceits reliability is important in deployment of wireless networkseffectively (RFS, 2009, p.6). The safety standards face the challengeof transferring technological HSR experiences and ensuring nodegradation of safety environmental effects, occur from itsdeployment (ParsonsBrinckerhoff, 2011, p.14).


Integratedvehicle track system should be encouraged because its objectiveincorporates the design, construction and the repeated maintenance ofthe HSR systems resulting into a fully integrated system (ParsonsBrinckerhoff, 2011, p.14).

Advantageand Disadvantage

Itsadvantage is that, the advancement of materials used, constructiontechniques and the inspection methods have highly elevated the safetyof these HSR systems and will lead to better performance ofinfrastructure in the near future. However, its disadvantage is that,the rail flaw detection tests interpretations are hard andinconsistent where these failures in occurring in field welds(ParsonsBrinckerhoff, 2011, p.14).


TheSWOT analysis is important in analysing the railway strengths andweaknesses, opportunities and threats. Therefore, the functionalityof China’s railway transport corridor will ensure services runsmoothly (Zurba, 2011, p.7). The strengths may include technologytransfer, number of passengers increasing and the weaknesses canoccur if their operations are limited by government regulations andnot being convenient for some commuters. However, opportunities mayarise due to business diversification within the region, it maybecome Asia’s transit center and also the development of hightechnology industry and passengers using the shortest transport time.New competition from domestic companies, regional wars, politicalturmoil and the possibility of open markets when foreigners joinworld trade organisation are all possible threats for this railwaysystem (Chen &amp Chou, 2006, p.7).

BalanceScore Board

Thiscan be viewed from the subdivisions namely pre pre-implementation,current evaluation and post implementation phase (Fan et al., 2013,p.1b). The economic and social growth of a region can be achieved ifthe transportation plan is effective and can be achieved by assessingthe current systems of transport. Therefore the balance scorecardhelps to track of execution activities and the consequences (Dong&amp Li, 2013, para1). Moreover, the safety performance of railsystems is important and to evaluate its safety performance thesystem index and comprehensive evaluation model have been developedso as to identify the weak points and try to improve on them.However, the fuzzy evaluation model is preferred because it givesfindings in a timely manner in identifying the hidden faults and paveway for preventive measures of safety, hence securing the performanceof the railway systems (Shi-Hao&amp Zhi-Gang, 2011, para 1).

&nbspAlotof time, resources, and even money are spent by companies in comingup with schemes for calculating risks. Risk refers to procedures,practises for analyzing and evaluating it and risk componentsnormally manifest as hazards or harms. Harms refer to the damages onpeople or environment while hazards are potential sources of an eventthat is harmful. Therefore risk matrices are important in guidingorganisations and also the key to unlocking processes that are riskbased (Lozier, 2011, para2-4).



Probability of occurrence







Highly likely


Near certainty


Safety,Environmental and customer criteria

  1. System failure (1%, unacceptable)

  2. Customer service (30%, minor)

  3. Machinery and equipment failure (2%, unacceptable)

  4. Intellectual property rights (10%, major)

  5. Environmental impact (50%, moderate)

  6. Delay and power disconnections (30%, minor)


Likelihood range level





Continuously experienced



Frequent occurrence



Can occur several times



Unlikely but can occur



Unlikely to occur but it is possible













Remote (0-20)

Unlikely (21-40)

Likely (41-60)

Highly Likely (61-81)

Near Certainty (81-100)


Theintroduction of HSR systems in China despite its challenges, andhaving overshot by trying to build too much in a short time is one ofthe best ways of uniting economies from different regions and alsoproviding mobility within (Ferry,2011,para.9). However, the debts incurred could have been one of thefactors that led to workers compromise safety and work with shoddymaterials and in turn the ministry of Railways had to reduce thespeed of trains so as prevent occurrences of collisions (Ferry, 2011,para.7).

Therefore,with road systems becoming crowded these HSR systems, will relievethe gridlock in city centres by encouraging many people to travel byrail hence decongest the roads. Moreover, the construction of therail system has created job opportunities for many people and alsoimproved investment opportunities within the country.

Froman environmental perspective, use of rail systems over air transportwill reduce the carbon footprint reducing environmental impacts.Results have shown that, increased usage of train, reduces pollution,road accidents and drops in infant mortality (Ferry, 2011, para .4).

Finally,the success of the HSR systems will be a success because existingtransport sectors are inadequate and the pressure is much in citiesand within towns.


ParsonsBrinckerhoff, 2011 HighSpeed Rail,Velocity Network Journal, issue no.73.

Ferry,D., &amp Associate, S. (n.d.). Regional Plan Association. WhatDo Problems For China`s High Speed Rail Mean for the U.S.?.Retrieved April 19, 2014, fromhttp://www.rpa.org/spotlight/what-do-problems-for-chinas-high-speed-rail-mean-for-us

Richburg,K., B. 2011, Are China’s high-speed trains heading off the rails?

Rodrigue,J. P., Comtois, C., &amp Slack, B. (2013). Thegeography of transport systems.Routledge.

Pettinger,&nbspT.2013,Prosand Cons of High Speed Rail HS2. (n.d.). EconomicsHelp.Retrieved April 19, 2014, fromhttp://www.economicshelp.org/blog/3088/economics/pros-and-cons-of-high-speed-rail-hs2/

BSASolutions for High–Speed Rail and Expressway Wireless Coverage inChina. (2009, August 12). RFS-.Retrieved April 19, 2014, fromhttp://www.rfsworld.com/bsa-solutions-for-high-speed-rail-and-expressway-wireless-coverage-in-china,281,1,publishedarticles,15.html

Schwartz,A. 2011, Theproblem with china`s high-speed rail

Chen,C. &amp Chou, S. 2006 A BSC Framework for Air Cargo Terminal Design:Procedure and Case Study

Lozier,T. 2011, RiskAssessment: Creating a Risk Matrix

Dong,H. &amp Li, B. 2013Evaluation Index System Design of Comprehensive Transportation UsingBalanced Scorecard

Fan, L., Cai, L. &amp Xie, Y. 2013, Pre-Evaluation Index System Researchof Urban Energy-Saving Emission Reduction Policies

Shi-Hao,L. &amp Zhi –Gang, L. 2011 Research on Fuzzy ComprehensiveEvaluation Model for Subway Safety Performance and Its Application

Zurba,S. 2011, Final SWOT report on the selected railway shuttles