ratio analysis (1)

Ratio Analysis

Ratio Analysis

On

Income Statement

&

Balance Sheet

AL-NOOR SUGAR MILL LTD.

Ratio Analysis

Liquidity Ratios

(1) Current Ratio= current assetcurrent liabilities

2010 2009

979588459850866662

=0.97:1 818849436700499518

=1.03:1

Comments:

So company liquidity position in 2010 is not strong as compared 2009. As we know standard is 2:1 so weak position. Main reason for this is that because company payable increasing, so company are not able to make payment to creditor .markup also increasing as well as tax amount. So company is going down. Company has almost equal cash ability but more receivable in current period main cause of low ratio in 2010 as compared 2009 year. Bad debt against receivable also main cause of low current ratio. Stock also cause of more cash blockage in 2010.


Ratio Analysis

(2)Quick/Liquid Ratio=current asset−prepaid exp−stockcurrent liabilities

2010 2009

424304850866662

=0.30:1 358725700499518

=0.28:1

Comments:

As we know standard is 1:1, but our 2010 ratio is much better than 2009, because in 2010 our assets are more liquid as compared 2009.as well as cash balance is more in 2010. So company should use stock effectively and should use economies order quantity. If company invest low amount in stock then company can improve their cash ability as well working capital condition. Company should make proper system of payable to improve liquidity position of company. Low borrowing will be helpful in reducing interest cost, and that cost will be use as cash item which lead to success.


Ratio Analysis

(3)Absolute Liquid Ratio¿ cashat bank+cashat handcurrent liabilities

2010 2009

140429850866662=0.10:1

107769700499518=0.10:1

Comments:

So this ratio almost is same in both years because cash items are same, but according to standard (05:1) both are not good. So company needs proper management of resources. Sugar mill are taking more loan /borrowing from banking so that’s way absolute liquid position is more low than standard (0.5:1).sugar mill should invest low in inventory and should follow economic order quantity (EOQ) as well as carrying and ordering cost should be control. If sugar mill purchase raw material according to requirement and it will be a better for organization.

Profitability Ratios


Ratio Analysis

(4)Gross Profit Ratio¿ gross profitNet sale *100

2010 2009

2438917433989927964

*100=15.87% 1906575962409498357

*100=16.07%

Comments:

Gross profit ratio in 2010 year is little less as compared 2009. Reason is that cost are increasing mean to say cost of goods sold is very high in 2010 not drought sale is high in year 2010, but proportion of cost to sale is high in current year as compared previous year. So suggestion is that company should control cost of raw material, production setups and should redesigning the pricing policy, managing sale price and maintaining profit margin. Factory overhead should be control, as well labor cost should be maintaining according to policies.

(5)Net Profit Ratio=Net ProfitNet Sales *100


Ratio Analysis

2010 2009

1079049493989927964

*100=4.03% 856755592409498357

*100=2.82%

Comments:

So net profit ratio in current period is high as compared in 2009.reason is that company current year sale is more as compared 2009.sale is 50% more than previous year sale .it mean company are utilizing resources more effectively. And there is proper policies and procedure. Another reason of high profit in current period is that because share of associated undertakings is very high in 2010 as compared in 2009.high profit in current period shown that sugar mill are going toward strong position. And sugar mill will get good worth in market.

(6)Operating Profit Ratio=operating profitNet sale *100

2010 2009

1906774293989927964

*100=15.99% 1332703522409498357

*100=16.25%

Comments:

As operating profit ratio is 15.99% in 2010 and 16.25% in 2009.so we can see operating profit ratio is little low in 2010 as compared in


Ratio Analysis

2009. Reason of low in 2010 is that because profit from trading activities is low in 2010 as compared 2009.

(7)Administrative Expense Ratio=Administrative expenceNet sale *100

2010 2009

490086283989927964

*100=3.75% 513162982409498357

*100=4.19%

Comments:

Low administrative expense ratio in 2010 show high profitability and proper managing of expense of company. And administrative expense has proper proportion with sale revenue. Sale high in 2010 means expenses is under proper control.

Efficiency Ratios


Ratio Analysis

(8)Return on Capital Employed=Net profit after taxShare equity *100

2010 2009

107904949518012594

*100=22.82% 85675559447160057

*100=13.66%

Comments:

Return on capital employed is high in 2010 as compared 2009 because net profit and capital employed is both high in 2010 as compared 2009.in current period profit is high and and that’s way earning per share is also high in 2010 as compared 2009.

(9) Time interest earned ratio=NPAT + Interest expenceInterest expences

2010 2009

15985376151948812

=1.77 Times 13446620448790645

=1.41 Times

Comments:

Sugar mill has more ability to pay interest expenses in 2010 as compared 2011. Because ,company reducing their borrowing in


Ratio Analysis

2010 as compared 2009 so that’s way interest expenses reducing and profit increasing. More earning also main reason of high ability of repayment of interest expenses.

(10)Return on investment=NPAT + Interest expenceequity+long termloan *100

2010 2009159853761518012594

∗100=38.37% 134466204447160057

∗100=33.08%

Comments:

Return on investment is high in current period as compared 2009.because financing is very high in 2010 as compared 2009.not doubt company taking more loan but it making effective use of that’s loans. And high sale also main reason of high returns on investment. So if sugar mill try to reduce cost more than he can improve this ratio more.

(11) Asset Turnover Ratio¿ Net sale¿asset

2010 2009

3989927964776121141

= 2.23 TIMES 2409498357710126350

=7.71 TIMES

Comments:


Ratio Analysis

It show in current period our asset are not using effectively because in current period ratio is 2.23 times that is 70% less than previous period .so if company want to improve their asset turnover ratio than company must pay attention on effective use of resources.

(12) Debtor Turnover Ratio¿ Average net credit saleaverage tradedebtor

2010 2009

31997131619319

= 90 TIMES 24094983578533

=72 TIMES

Comments:

This ratio are showing good result of organization because in current period debtor turnover ratio is very good mean to say our debtor convert in to cash 90 times in year. So if company want to more improve than debtor collection period should be effective.

(13) Debtor conversion period= Days∈ yearDebtor turnover ratio

2010 2009

36590 = 4 days36572 =5 days

Comments:

It shows after four days debtor convert in to cash that is good period for collection from debtor.


Ratio Analysis

(14) Credit Turnover Ratio=Average net credit purchaseAveragetrade creditor

2010 2009

4572372516104 = 8.86 TIMES2823981385294 =7.33TIMES

Comments:

In current period credit turnover ratio is high as compared in previous. This ratio must be low because more cash should not used for payment to creditor but must be available for maintaining good working capital condition.

(15) Creditor conversion period= Days∈ yearCreditor turnover ratio

2010 2009

3658.86= 41.20 DAYS 3657.33=49.80 DAYS


Ratio Analysis

Comments:

We can easily observed that in current period we are making payment after 41.20 days that is not good as compared previous period. So we should make payment to creditor after long time not fastly.

(16) Inventory Turnover Ratio=Cost of good soldAverage Stock

2010 2009

5311417964496 = 5.51 TIMES 3567029963870 =3.7 TIMES Comments:

As we can see our stock are very quickly converting in to finished good because in current period answer is 5.51 times as compared 2009 in which answer is 3.7 times. Converting of stock into finished good quickly shows that there is just in time system operating in organization.

(17) Inventory conversion period= Days∈ yearInventory turnover ratio

2010 2009

3655.51= 66.36 DAYS 3653.7=98.64 DAYS


Ratio Analysis

Comments:

As we can see in current period our inventory are converting to finish within 66.36 days and in 2009 converting period is 98.64 days.

Solvency Ratio

(18) Debt-Equity Ratio= totaldebtequity

2010 2009

4085341114370

=0.37 Times 358463877527

=0.41 Times

Comments:

So we can observe sugar mill debt are reducing as compared 2009.in current period company are paying more debt and interest cost on loan as well as paying more payment to creditor. If company wants to improve their ratio more than company should reduce more debt by using other resources like reserves.

(19) Earnings per Share= NPATNoof share


Ratio Analysis

2010 2009

25439818570

=13.70 per share 11973818570

=6.45 per share

Comments:

Earning per share is high in current period as compared previous year, reason is that net profit after tax is very high in current period .high earning per share very is very helpful in retaining shareholders of company as well as show good repute of sugar mill in market. There is no dilutive effect on the basic earnings per share of the company because no of share outstanding are same in both period.

(20)Price Earnings Ratio=Market price of shareEarning per share

2010 2009

1013.70*100=72.99%

106.45

∗100=155.03%

Comments:

We can see low price earnings ratio in current period is better for sugar company ,it shows share price in market is low but our earnings per share is still high in 2010 as compared 2009.so if sugar mill want to improve price earnings ratio more than it should be improve his earning per share. This can be improving if company pays full attention on his expenses controlling.


Ratio Analysis

(21)Dividend Yield Ratio=Market Price of ShareDividend Rate

2010 200910

28.73%*100=34.81% 10

46.12%∗100=21.68%

Comments:

As dividend ratio in current period is high so we can say company in growing condition. If company to improve their dividend yield ratio then company organization must pay attention on their market worth.

(22) Book Value of Share= Net worthNoof share

2010 2009

1114315185703

= 6 per share 877074185703

=4.72 per share


Ratio Analysis

Z- SCORE MODEL

X1 =WorkingCapitalTotal Asset

2010 2009

9795884591755709600

= 0.33*1.2=0.40 8188494361528975786

=0.35*1.2=0.42

X2 =Retain EarningTotal Asset

2010 2009

9286671755709600

= 0.22*1.4=0.31 6918241528975786

=0.18*1.4=0.25

X3 = EBITTotal Asset

2010 2009


Ratio Analysis

3914531755709600

= 0.09*3.3=0.31 2107493802722

=0.05*3.3=0.18

X4 =Market value of shareTotal Book Debt

2010 2009

1051632

= 0.0002*0.6=0.0001 1051632

=0.0002*0.6=0.0001

X5 = Net saleTotalassets

2010 2009

63132204224464

= 0.25*.99=1.47 42499813802722

=1.00*.99=0.96

Sum of values from X1 to X5:

2010=0.40+0.31+0.31+0.0001+1.47=2.49

2009=0.42+0.25+0.18+0.0001+0.96=1.81

Result:

If sum <1.8 or equal= High Insolvency


Ratio Analysis

If sum is 1.81-2.99 =uncertainty

If sum >3.0 or equal=less chance of insolvency


ratio analysis (1)

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