Ratio Analysis of the Company

Financially ratios can for convenience be divided into four basic groups or categories: liquid
ratios, activity ratios, debt ratios, and profitability ratios. Liquidity, activity, and debt ratios
primarily measure risk, profitability ratios measure return.

Liquidity Ratios
The liquidity of a business firm is measured by its ability to satisfy its short term obligations as
they come due. Liquidity refers to the solvency of the firms over all financial position the case
with which it can pay its bills.

Networking Capital
Networking capital though not actually a ratio is commonly used to measure a firms over all
liquidity. It is calculated as follows.

Net working capital = current assets current liability
The networking capital = capital o
Net working capital = ,168,786,199 277,652,492 = 58,866,377


The figure is quite useful for internal control. A time series comparison of the firms net working
capital is often helpful in evaluating its operations.



Current Ratio:
The current ratio is one of the most commonly cited financial ratios, measures of the firms
ability to meet its short-term obligations.
It is calculated as follows.
For the year in 1999
Current ratio = current assets / current liabilities
=101,242,705 / 157,063,847
= 0.6446

2000
Current ratios = 168,786,119 / 227,652,492 = 0.7414

Quick Ratio (Acid Test)
A measure of liquidity calculated by dividing the firms current assets minus inventory by
current liabilities.
The quick ratio of the company is calculated as follows.


1999
Quick Ratio =

= .5219





2000

Quick Ratios =
=0.4805

Activate Ratio
Activity ratios can be used to asses the speed with which current accounts, inventory, accounts
receivable and accounts payable are converted into sales or cash.

Inventory Turnover
Commonly measures the activity, or liquidity of a firms inventory. It is calculated as


Inventory turnover =

1999


Inventory turnover =

=27.82 times

Inventory turnover can easily be converted into an average age of inventory by dividing it into
365 days. The number of days in a year. For the SUNRAYS TEXTIEL MILLS LIMITED the
average age of inventory would by (365/27.82) 138.2 days.


2000

Inventory Turnover =
=9.49 times


Average age of inventory = 365 / 9.49 =38.46days

Average Collection Period
Average collection period or average age of accounts receivable, is useful in evaluating credit
and collection policies. It is arrived at by dividing the average daily sales into the account
receivable balance.
Average Collection Period: = accounts receivables/average sales per day

1999
=2,527,379 / 1,700,189.761
=1.4865 or 1.5 days.

2000
Average collection period =4,238,031/1, 3839,349.96
=2.30days

This shows that the companies average collection period has been increased as compared to the
past year of 2000, which is not a good sign for the company.
Fixed Asset Turnover
The fixed asset turnover measures the efficiency, with which the firm has been using its fixed, or
earning, assets to generate sales. It is calculated by dividing the firms sales by its net fixed
assets:
Fixed asset turnover = sales / net fixed assets

1999
=612,068,314 / 293,395,271 =2.09 times

2000
=662,165,987/288,368,555 =2.29times
This means that the company turns over its net fixed asset 2.09 times in a year 1999 and in 2000
the net fixed asset turnover is 2.29 times which shows that the higher fixed asset turnover are
preferred, since they reflect greater efficiency of fixed asset utilization. This difference may be
for operating efficiencies.



Total Asset Turnover
It indicates the efficiency with which the firm uses all its assets to generate sales. Generally the
higher a firms total assets turnover, the more efficiently its assets have been used. This measure
is probably of greatest interest OT management, since it indicates whether the firms operations
have been financially efficient.
The total asset turnover is calculated as follow for the year.

Total Asset Turnover = Sales / Total Assets
1999 =612,068,314/398,161,034 =1.54 times
2000 =662,165,987/457,589,874 =1.45times

This is acceptable because of nominal change in the companys therefore turn its assets over 1.45
times a year.

Debt
The debt position of a firm indicates the amount of other peoples money being used in
attempting to generate profit. In general the financial analyst is most concerned with its long-
term debts, since these commit the firm to paying its interest over the long run as well as
eventually repaying the principle borrowed.
The more debt a firm uses in relation to its total assets, the greater its financial average a term
used to describe the magnificent of risk and return introduced through the used of fixed cost
financing such as debt and preferred stock. In other words the more fixed cost debt, or
Financial average a firm uses, the greater will be its risk and expected return.

Debt Ratio
The debt ratio measures the proportion of total assets financed by the firms creditors.
Debit ratio can be measured as follow.
Debt ratio = total liabilities / total assets
1999 =388,797,910/396,161,034 =0.89 or 98%
2000 =433,525,717/457,589,874 =0.95 or 95%
This indicates the firm this year has financed 95% of its assets with debts. The higher this ratio,
the more financial leverage the firms have.

Debt Equity Ratio
The debt equity ratio indicates the relationship between the long-term funds provided by
creditors and those provided by the firms owners.
Debt equity ratio = long term debts / stock holders equity
1999 = 54,932,816/7,363,124 =7.46
2000 =44,086,926/24,064,157 =1.83

Time Interest Earned Ratio
The time interest earned ratio measures the ability to make contractual interest payments.
The higher the value of this ratio, the better able the firm is fulfills its interest obligations.
Time interest = earning before interest and taxes / interest
1999 =50,687,436/45,555,696 =1.113
2000 =65,980,665/48,395,941 =1.36

Analyzing Profitability
A firms profitability can be assessed relative to sales, assets, and equity or share value.

Gross Profit Margin
The gross profit margin measures the percentage of each sales dollar remaining after the firm has
paid for its goods. The higher the gross profit margin the better and the lower the relative cost of
merchandising sold and vice versa.
G. P Margin = G.P / Sale
1999 = 76,037,251/612,068,314 =0.124 or 12%
2000 = 98,458,586/662,165,987 =0.149 or 15%
The CGS has decreased due to more efficient production process, less wastage of material.

Operation Profit Margin
It measures the percentage earned on each sales dollar before interest and taxes.
Operating profit margin = operating profit / sales
1999 =50,377,426/612,066,314 =8.2%
2000 =65,470,942/662,165,987 =9.9%

Net Profit Margin
It measures the percentage of each sales dollar remaining after all expenses, including taxes,
have deducted.
Net profit margin = net profit after taxes / sales
1999 =5,189,659/612,068,314 =0.85%
2000 =16,701,033/662,165,987 =2.5%

Returns on a Total Assets
It measures the overall effectiveness of management in generating profits with its available
assets, also called return on investment.
Return on total assets. = net profit after / total assets
=5,189,689/396,161,034 =1.3%
=16,701,033/457,589,874 =3.6%

Return on Equity
It measure the return earned on the owners investment in the firm
Return on equity = net profit after tax / stockholders equity
1999 =5,189,659/7,363,124 =70.5%
2000 = 16,701,033 / 24,064,157 =69.4%

Earning Per Share
ESP = earning available for common stock holders / share out standing
1999 = 5, 189, 659, /6,000,000 = 0.89
2000 = 16,701,033/6,000,000 = 2.8
Ratios 1999 2000 Time series
Liquidity
Networking capital
Current ratio
Quick ratio
55,821,142
0.645
0.522
58,866,373
0.7414
0.481
Ok
Good
Ok
Activity
Inventory turnover
Average collection period
Fixed assets turnover
Total assets turnover
13.42
1.5 days
2.09
1.54
38.86
2.3 days
2.3
1.45
Poor
Ok
Ok
Ok
Debt
DO indebtedness ratios
Time interest earned
98%
1.113
95%
1.4
OK
Ok
Profitability
Gross profit margin
OP margin
Net profit margin
Return on total assets
EPS
12%
8.2%
0.85%
70.5%
0.87
15%
9.9%
2.5%
69.4%
2.8
Good
OK
Very good
Ok
Good