Post on 18-Nov-2014
Financial Statement Analysis
Short Term Ratios
Current ratio
YEARS %age %age change
2004 2 100
2005 1.39 69.5
2006 1.32 66
2007 1.65 82.5
2008 1.27 63.5
Current ratio tells us that how much asset we have in our company which can
meet our current liabilities.
Over the 5 years period the ration has declined below 1 this is not a good sign
for the organization as the matter could become worse when it comes in
meeting short term liabilities
By Salman Ali Haider
Financial Statement Analysis
Quick ratio
YEARS %age %age change2004 1.58 100
2005 1.06 67.08861
2006 0.87 55.06329
2007 1.17 74.05063
2008 0.79 50
Quick ratio measures the liquidity situation excluding inventories.
This ratio also decreased over five year period. Indicating the management is
not working properly to maintain sufficient current assets to maintain current
liabilities.
By Salman Ali Haider
Financial Statement Analysis
Cash ratio
YEARS %age %age change2004 1.17 100
2005 0.71 60.68376
2006 0.49 41.88034
2007 0.79 67.52137
2008 0.37 31.62393
Cash ratio tells us that how much we have immediate cash or cash equallnt to meet our current liabilities.
This ratio had also decreased our period of five year. Just like quick and current ratio. So management need to consider this matter and need to take corrective measure to improve this ratio and in short term find ways and means to best meet their current liabilities.
Avg. collection period
YEARS Days %age change
By Salman Ali Haider
Financial Statement Analysis
2004 61 100
2005 62.04 100.3883
2006 61.56 99.61165
2007 62.9 101.7799
2008 61 100
The average collection period shows the number of days after which we
convert all our receivables to cash.
These numbers of days has been constant. This is an achievement for the
organization. Cause company holding expenses along with obsolesce expense
would decrease.
Turnover of inventory
YEARS Times %age change
By Salman Ali Haider
Financial Statement Analysis
2004 1.86 100
2005 2.22 119.3548
2006 2.29 123.1183
2007 2.02 108.6022
2008 2.03 109.1398
Age of inventory
YEARS Days %age change
By Salman Ali Haider
Financial Statement Analysis
2004 193.3 100
2005 162.3 83.96275
2006 157.3 81.3761
2007 178.01 92.09002
2008 176.6 91.36058
It is the period after which inventory is sold.
This period has to decrease to 176. Over the period of five years this shows
the increase in company sales and reputation of the company. This change is
also because of the decrease in profit margin ratio. Which means that
company has decrease its profit on per sale of unit.
Operating cycle
YEARS Days %age change2004 255.1 100
By Salman Ali Haider
Financial Statement Analysis
2005 224.4 87.9655
2006 218.79 85.76637
2007 240.9 94.43356
2008 237.6 93.13995
The number of days after which company purchases raw material, sell goods
and recover its collectables.
The operating cycle has decreased only because of decrease in average
inventory period. This is good for company reputation cause as operating cycle
decreases organisation would have cash more quickly to run its operations.
Turnover of working capital
YEARS Times %age change2004 0.7 100
2005 0.73 104.2857
By Salman Ali Haider
Financial Statement Analysis
2006 0.7 100
2007 0.65 92.85714
2008 0.67 95.71429
Avg. payment period
YEARS Days %age change2004 100 100
2005 85.1 85.1
2006 72.43 72.43
2007 83.3 83.3
2008 98 98
By Salman Ali Haider
Financial Statement Analysis
The number of days after which the company pay it’s payable.
The number of days has increased this shows that company is trying to utilize
money efficiently. As it is in the best interest of the company to retain money
for as long as it takes cause company could invest it in short term investment.
Cash cycle
YEARS Days %age change2004 155.5 100
2005 139.3 89.58199
2006 146.4 94.14791
2007 157.6 101.3505
2008 139.6 89.77492
By Salman Ali Haider
Financial Statement Analysis
It is the period for which we have cash in our pocket. This cash is after
collecting and paying activities.
This period had remained constant due to decrease in average inventory
period and increase in average payment period. So its good.
Long Term Ratios
T.I.E.R (Time interest Earned ratio)
YEARS %age %age change
2004 22.2 100
By Salman Ali Haider
Financial Statement Analysis
2005 23.13 104.1892
2006 29.88 134.5946
2007 28.61 128.8739
2008 30.9 139.1892
Through his ratio we calculate that how much times we have earned than the interest we have paid.
This ratio has increased over five year time. This shows efficiency of the organisation’s operations.
Debt to equity
YEARS %age %age change2004 0.178 100
2005 0.16 89.88764
2006 0.154 86.51685
2007 0.123 69.10112
By Salman Ali Haider
Financial Statement Analysis
2008 0.145 81.46067
Here we compare debt especially long-term debt with total assets.
This ratio has decreased because of increase in total assets and this ratio must
remain as low as it takes.
Debt to Tangible net Worth
YEARS %age %age change2004 0.21 100
2005 0.225 107.1429
2006 0.244 116.1905
2007 0.186 88.57143
2008 0.214 101.9048
By Salman Ali Haider
Financial Statement Analysis
This ratio compares long term debt with assets excluding factitious assets.
Thus showing real worth of assets of the organisation.
This ratio has remained constant over the period of five accounting periods.
Due to investment in fixed asset as business growing.
Debt/Equity ratio
YEARS %age %age change2004 0.676 100
2005 0.741 109.6154
2006 0.647 95.71006
2007 0.528 78.10651
2008 0.552 81.6568
By Salman Ali Haider
Financial Statement Analysis
This ratio tells us total debt compared to equity. This equity is asset –
liabilities.
This ratio has decreased. Due to greater increase in equity than debt.
Gearing ratio
YEARS %age %age change2004 0.229 100
2005 0.218 95.19651
2006 0.202 88.20961
2007 0.16 69.869
2008 0.145 63.31878
By Salman Ali Haider
Financial Statement Analysis
This ratio is calculated with respect to the scenario of Pakistan.
This ratio compares liability with sum of total equity and long term liability.
This ratio has decreased. Due to increase in equity of the organisation.
Profitability ratios
Net Profit margin
YEARS %age %age change2004 0.23 100
2005 0.21 91.30435
2006 0.22 95.65217
2007 0.17 73.91304
2008 0.21 91.30435
By Salman Ali Haider
Financial Statement Analysis
This is the Comparing of net income to net sales is called net profit margin.
This has decreased showing that company is trying to give access to more
people by decreasing profit earned. This also shows change in company
change in policy.
Total asset turnover
YEARS Times %age change2004 0.47 100
2005 0.56 119.1489
2006 0.57 121.2766
2007 0.53 112.766
2008 0.54 114.8936
By Salman Ali Haider
Financial Statement Analysis
It has increased over 5 years showing that assets are used more efficiently and
effectively as number of products produced and sold had increased.
Du Pont Return on asset ( Return on Asset )
YEARS %age %age change2004 0.124 100
2005 0.123 99.19355
2006 0.126 101.6129
2007 0.094 75.80645
2008 0.136 104.54839
By Salman Ali Haider
Financial Statement Analysis
Return has increased due to more increase in asset turn- over than net profit
margin.
Operating asset Turnover
YEARS Times %age change2004 3.32 100
2005 3.57 107.5301
2006 3.29 99.09639
2007 3.01 90.66265
2008 3.16 95.18072
By Salman Ali Haider
Financial Statement Analysis
Return on Equity
YEARS %age %age change
2004 0.209 100
2005 0.206 98.56459
2006 0.193 92.3445
2007 0.137 65.55024
2008 0.178 85.16746
By Salman Ali Haider
Financial Statement Analysis
Return or equity has decreased due to companies increased in equity over five
years period.
Summery:
Analyzing companies performance over five year. Had shown fluctuation in the
calculation of ratios and to make sure that it is easy to understand we had
made an assumption that if the ratio is showing increasing trend then ratio
had been considered as improving. The main causes for fluctuation are
increase in assets, sales and profit of the company. So we had taken
comparative increases and decreases in each item and analyzed that the
By Salman Ali Haider
Financial Statement Analysis
company is growing at a amazing rate but it need to considered many things
like current, quick and cash ratios must be greater than 2 as this ratio is taken
into consideration by all the investor. Rest of the ratios are good the way they
must be so from me side thumbs up.
By Salman Ali Haider