Fin254(Incomplitnno 2 . if u Edit Make It 3)

7/27/2019 Fin254(Incomplitnno 2 . if u Edit Make It 3)

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[All ratios {written in red} taken from

summit power, if want more inf0. See

summit power

[Interpretation not done of all {red}in

bellow}

[see in bellow ]{send me final

report ..tonmoy }

FINANCIALPERFORMANCEANALYSIS:

1] Liquidity Ratios:

Liquidity ratios attempt to measure a company's ability to pay off its short-term debtobligations. The analysis of these ratios is done by comparing a company's most liquid assets

(those easily convertible to cash) to its short-term liabilities. So the liquidity ratios show the

relationships between the firms current assets to its current liabilities.

a. Current Ratio:!urrent ratio measures the number of dollars of current assets foreach dollar of current liabilities. "t helps to estimate the capacity of the firm to

meet its maturing obligations#

Current Ratio=(Current Assets/Current Liabilities)

Current Ratio 2007 2008 2009

Square 1.27 1.21 1.35

Prime 1.0 1.0! 1.07


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Interpretation:

"t is seen that for $rime Te%tiles Ltd.# there is a gradual decrease in current ratio from&. in year * to &.* in the year +.The !urrent ratio decreases because current

asset over the last three years decreases gradually followed by gradual increases in

current liabilities. The decrease in current ratio tells us that the $rime Te%tiles isdegrading year by year but in comparison to them# Square Te%tiles is in a better financial

position. "n case of Square Te%tiles# current ratio increases from &.* in the year * to

&., in the year + with a downfall in the year with a current ratio of &.*. The

standard deviation for current ratio is &. /n an average over the last three years# currentratio for Square Te%tiles is &. times than whereas current ratio for $rime Te%tiles on an

average is &.*. So both the companys are standing at the same line and needs to better

off their position. 0ut since $rime Te%tiles ration is gradually decreasing# it needs toovercome it# whereas Square Te%tiles is in the upward position. This may have happened

due the reduction of the number of 1ebtors and due to an increase in the number of

creditors of Square Te%tiles# which has helped it to be in a better position# though $rimeTe%tiles is not very far behind.

b. Quik Ratio: The quic2 ratio or the acid-test ratio is a liquidity indicator that

further refines the current ratio by measuring the amount of the most liquid current

assets there are to cover current liabilities. The quic2 ratio e%cludes inventory andother current assets# which are more difficult to turn into cash.

C!rrent A""et # In$entorie"% & C!rrent Liabilitie"

2007 2008 2009

Square 0."2 0.7! 0."!

Prime 0.!! 0.#" 0.3"


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Interpretation:

"n case of Square Te%tiles# there is a gradual increase in quic2 ratio from .+ times in year *

to .+3 times in the year +# with a downfall of .*3 in the year . The increase in quic2ratio is because the companys current asset e%cluding the inventories are increasing gradually

even though there is a gradual decrease in liabilities from year * to year +. The increase in

quic2 ratio is quite favorable for the company. 4ote that# even if the inventory level is highest in compared to * and +# the difference between current asset and inventory is

increasing gradually along with decrease in current liabilities for which quic2 ratio shows a

gradual increase. This tells that Square Te%tiles is able to meet its financial obligations out ofcurrent liquid assets. "n case of $rime Te%tiles# quic2 ratio decreases from .33 in the year *

to .5+ in the year and to .,+ in +. The benchmar2 for quic2 ratio is &&. "n comparison

to $rime Te%tiles# 6uic2 ratio is better for Square Te%tiles# which is on average .(a little lessthan the benchmar2) whereas $rime Te%tiles has a quic2 ratio of about .& over the last three

years. This tells us that $rime Te%tiles has lots of wor2 in progress# or unsold products which

have caused its inventory to be high.

. !et "orkin# Capital: 7or2ing !apital measures the percentage of total assetsthat is invested in current assets. "t helps to analy8e capital intensity as well as

corporate liquidity.

47! 9C!rrent A""et& 'otal A""et

7or2ing !apital :atio 2007 2008 2009

Square ##!$"23$#12 5"3$7"$5# 35$51$#21

Prime 55$7!3$1#0 !1$"22$2" 57$501$53


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Interpretation:

;rom the analysis done# Square Te%tiles is in a much better position to pay off it shorttime liabilities in comparison to $rime Te%tiles which is falling much behind. This might

have occurred because a larger amount of the total assets is used to cover the current

assets. Sufficient wor2ing capital provides assurance to short-term creditors that they will

be paid by the company as soon as possible.

2] Productivity Ratios/ asset management ratio:

a. Fixed Asset Turnover% &i'e Assets urno*er=Sales/+et &i'e Assets

The fi%ed asset turnover means how much of sales have been generated by using the fi%ed assets.

2007 2008 2009

Square 1.!2 1.2" 1.70

Prime 0."! 1.00 0.50


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$nterpretation: "n the year +# T< & worth of fi%ed asset of Square Te%tiles cangenerate a sale of T< &.*. The ;i%ed =sset Turnover :atio for Square Te%tiles shows anincrease from &.3 in the year * to &.* in the year + with a downfall of &.+ in

. ;i%ed =sset Turnover ratio decreased from * to due to the rapid decrease

in sales in lac2 of generating net fi%ed asset but from to + fi%ed asset turnoverratio increased due to the rapid increase in sales for generating net fi%ed asset. "n the year

+ T< & worth of fi%ed asset of $rime Te%tiles can generate a sale of T< .. There

has been an increase from .+3 to &. from * to but a downfall of . in +.

This may have happened because of the rapid decrease in sales in lac2 of generating netfi%ed assets. The data analysis hence indicates that Square te%tiles has a better position in

terms of ;i%ed =sset Turnover.

b. %otal Asset %urno&er: The total asset turnover(T=T/) illustrates how much of sales

have been generated from the total assets used. Total =sset Turnover evaluates theefficiency of managing all of the company's assets.

'otal A""et t!rno$er: Sale" & 'otal A""et

2007 2008 2009

Square 0.!" 0.53 0.70

Prime 0.!7 0.!0 0.37


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"nterpretation"n the year +# every T< & worth of asset is generating T< .* worth of

sales in case of Square Te%tiles. The Total =sset Turnover increases from .3+ in year * to

.* in the year + but falls slightly to ., in the year . This is because> sales were high

in the year + in comparison to * and # the increase in sales accompanied by aupgrade in total asset has caused the total asset turnover to improve drastically in + from

. 7hereas# $rime Te%tiles Total asset turnover decreases from .3* in year * to .3 in

the year and falls drastically . The decrease in total sales followed by decrease in total assethas caused negligible change in turnover. The data analysis shows that Square Te%tiles has a

better total asset turnover than $rime Te%tiles.

. $n&entor' %urno&er Ratio : The ratio is regarded as a test of ?fficiency and indicates the

rapidity with which company can move its merchandise.

In$entor( '!rno$er: Co"t of )ood" "old& In$entor(

2007 2008 2009

Square 107.55 17.73 102.73

Prime 71." 1#.30 177.!0


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Interpretation:

There is a gradual decreasein inventory turnover from &*. times in the year *to &.*, times in the year + in case of Square Te%tiles. This indicates that cost of

goods sold has decreased gradually and number of inventory in the warehouse hasincreased in +. Square Te%tiles has not sold and stoc2ed its inventory more which is

unfavorable. $rime Te%tiles inventory turnover increases from *&.+ times to &**.3

times in the year * to +. The reason behind this is increase in cost of goods soldfrom * to +. The data analysis shows that $rime Te%tiles has a better inventory

turnover than Square Te%tiles.

d. (a's Sales )utstandin# The 1ays Sales /utstanding ratio shows both the average time

it ta2es to turn the receivables into cash i.e. how much time it ta2es to collect money from

collectors and the age# in terms of days# of a company's accounts receivable. This ratio isof particular importance to credit and collection associates.

*a(" Sale" O!t"tandin): Re+ei$able"& Ann!al Sale"&,-.%

2007 2008 2009Square 117.!7 202.0! 15.2!

Prime 72.3 7.03 57.57


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Interpretation:The days sale outstanding for Square Te%tiles increases graduallyfrom &&*.3* days in the year * to &.3 days in the year + which is a very badsign. This tells us that Square Te%tiles has worsen its credit sales collection over the last

three years. @owever# $rime Te%tiles 1ays Sales /utstanding shows a steady decrease

from *., days in the year * to *.* days in +# which is favorable for $rime

Te%tiles. "t shows that $rime Te%tiles is able to collect its receivables more effectivelythan that of Square Te%tiles.

e. A&era#e Colletion *eriod {missin#}

f. A&era#e *a'ment *eriod {missin#} { not essential }

3] Leverage/(ebt +ana#ement Ratios

a. %otal (ebt to %otal Asset: %edebt-to-asset ratio tells us how much of the total assets arefinanced by the overall liability of the company.

*ebt to A""et Ratio: 'otal Liabilit(& 'otal A""et


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2007 2008 2009

Square ##.7", #."5, #3.37,

Prime 53.25, 5!.3", 3#."1,

"nterpretationThe debt to asset ratio for Square Te%tiles shows a slight decrease from 55.*+A

in the year * to 5,.,*A in the year +. /n the other hand# in case of $rime Te%tiles# debt to

asset ratio falls gradually from ,.A in the year * to ,5.+&A in the year +. "n the year

+# Square Te%tiles 5,.,*A of total asset were financed by debt i.e. for every T< & of asset#

T< .5, were financed by debt. /n the other hand# in the year +# $rime Te%tiles ,5.+&A oftotal asset were financed by debt i.e. for every T< & of asset# T< ., were financed by debt.

@ence# $rime Te%tiles with lower debt to asset ratio is in a favorable position than Square

Te%tiles from the view point of creditors# because lower the debt ratio# the greater the cushion

against creditors losses in the event of ban2ruptcy.

b. (ebt-/uit' Ratio The debt-to-equity ratio is a leverage ratio that compares a company's

total liabilities to its total shareholders' equity. This is a measurement of how much suppliers#

lenders# creditors and obligors have committed to the company versus what the shareholdershave committed.


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*ebt to E/!it(: 'otal *ebt & S0are0older1" E/!it(

2007 2008 2009

Square 1.11, "5."1, 7!.5,

Prime 113."2, 12".32, 53.!3,

"nterpretation"n case of Square Te%tiles# 1ebt to ?quity ratio decreases from &.&&Ain the year * to *3.A in the year +. This is because debt is decreasing graduallyyear by year and lower debts are financed by increasing equity. $rime Te%tiles debt to

equity ratio decreases gradually from &&,.+A in the year * to ,.3,A in the year+. This is because increasing debts are financed by increasing equity. The data

analysis suggests that $rime Te%tiles has a lower debt to equity ratio compared to Square

Te%tiles which is quite favorable for $rime Te%tiles.

C.

'i2e" Intere"t Earned:

arnin#s before $nterest and $nome %aes 1 $nterest Car#es


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23 *rofitabilit' Ratios

a 3ro"" Profit Mar)in:

3ro"" Profit Mar)in: 4Sales - Cost of 5oods sold6 1sales

Gross Profit Marin

2005 200 2007 2008 2009

Square 22.72, 22.13, 22."3, 15.1, 13.7#,

Prime 10.22, ".!2, 10.12, 11.2, 12.2,

b. !et *rofit +ar#in

Net Profit Mar)in: Net in+o2e & Sale"

2007 2008 2009

Square 13.7, 7.75, !.71,

Prime 3.35, #.50, 2."5,


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c. Return on Asset

Ret!rn on A""et: Net In+o2e & 'otal A""et!eturn on Asset

2007 2008 2009

Square ".!3, #.07, #.73,

Prime 2.2#, 2.70, 1.0",


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d. Return on /uit'

Ret!rn On E/!it(: Net In+o2e & 'otal Co22on E/!it( !eturn on "#uity

2007 2008 2009

Square 17.##, 7.", .3!,

Prime #.7", !.20, 1.!7,

73Stok +arket Ratios

a. 0oo2 Balue per Share

4oo5 $al!e per S0are: S0are 0older1" e/!it( & N!2ber of "0are"


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b. *i$idend Pa(o!t Ratio Yield:

Pa(o!t Ratio" 6 *i$idend per "0are & Earnin) per S0are

C .arnin#s *er Sare

Earnin)" per S0are: Net In+o2e & Co22on S0are O!t"tandin)

d. +arket to 8ook 9alue

Mar5et to 4oo5 7al!e Ratio: +arket *rie per Sare 1 8ook 9alue per Sare

e. *rie to arnin#s Ratio

Pri+e Earnin)" Ratio: Mar5et Pri+e per S0are & Earnin)" per S0arePri$e%

"arnins !atio

2007 2008 2009

Square 17.10 2#.# 30.23

Prime 3.! !.5" 1.5


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. Pri$e to &as' Flow !atio

Pri$e to &as' Flow !atio

2007 2008 2009

Square 12.33 15.#3 17.2"

Prime 3.7# !.#5 17."!


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#.(u-*ont /uation

R- = (+/Sales) ' (Sales/A) ' (A/quit

. market &alue ratio . Mar(et to )oo( !atio

2007 2008 2009

Square 2." 1." 2.52

Prime 0.1 0.#1 0.31

. Pri$e to &as' Flow !atio

i.tended (u-*ont /uation

*. Pri$e%+ales !atio


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2007 2008 2009

Square 2.37 1."2 2.03

Prime 0.13 0.30 0.55

{,- missin}

APPENDIX

Finan+ial Anal("i" of (ear 899


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:=T"/ ;ormula forcalculation

Sqrure

(Target

!ompany)

prime(!ompetin

g !ompany)

!/CC?4T

;i/uidit'

!urrent ratio

!urrent

=ssetsD!urrent

Liabilities

$oorDgood

6uic2 ratio (!urrent =ssets-

"nventories)D!urrent

Liabilities

$oorDgood

7or2ing

!apital ratio

!urrent =ssetD Total

=sset

$oorDgood

Asset

+ana#ement

"nventory

turnover

ratio

!ost of goods sold D

"nventories

$oorDgood

The days

sales

outstanding

:eceivablesD(=nnual

salesD,3)

1ays $oorDgood

;i%ed asset

turnover

ratio

SaleDnet fi%ed asset E E $oorDgood

Total asset

turnover

ratio

SaleD Total =sset E E $oorDgood

:eceivable

Turnover

SaleD=ccount

:eceivable

E E $oorDgood

(ebt

+ana#emen

t 1ebt ratio

Total debtDTotal

=sset

A A Low ris2

payout

Times-

"nterest-

?arned (T"?)

ratio

?0"TD"nterest

charge

E E @igh(Food)D Low(less

ris2y)

1ebt-?quity

:atio

Total debtDTotal

equity

E E Low(less ris2y)

!ash ;low to1ebt :atio

!ash flow fromoperationD Total debt

A A $oorDgood


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[All ratios {written in red}ta(en from summit power

if want more inf/. +ee

00summit power00}

Fin254(Incomplitnno 2 . if u Edit Make It 3)

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