# Fauji Bhae Project

Document Sample

```					       ANALYSIS OF RATIOS

For the analysis of the financial statements of the Fauji Fertilizer Company private limited we use
the ratio analysis in order to get a clear vision about the financial position with simple
interpretation. For this purpose we can analysis the financial statements through the followings
ratios:

1     LIQUIDITY RATIOS

2     DEBT RATIOS

3     ACTIVITY RATIOS

4     MARKETABILITY RATIONS

5     PROFITABILITY RATIOS

LIQUIDITY RATIOS

The liquidity of a business firm is measured by its ability to satisfy its short-term obligations as
they came due. Liquidity refers to the solvency of the firm’s overall financial position__ the ease
with which it can pay its bills. Basic measures of liquidity are:

(1) Net working capital

(2) Current ratio

(3) Quick ratio

(4) Cash ratio

By putting the values taken from the annual report of “Fauji Fertilizer Company Limited” in the
formulas of above ratios the results are shown in the following table.

LIQUIDITY RATIOS                           2002                               2001
Net working capital                      395860                            5585658
Current ratio (times)                     1.04                               2.34
Quick ratio (times)                      0.79                               1.90
Cash ratio (% age)                      6.73%                             16.25%
INTERPRETATION OF THE RESULTS

NET WORKING CAPITAL

Net working capital, although not actually a ratio, is commonly used to measure a firm’s overall
liquidity. This requirement is intended to force the firm to maintain sufficient operating liquidity
and helps to protect the creditor. Fauji Fertilizer Company shows a sufficient amount of working
capital in all the years of its performance. NWC has been gradually increasing by the year
2001.But it has decreased from 5585658 in the year 2001 to 395860 in the year 2002. This
positive NWC shows good liquidity position of the firm.

CURRENT RATIO

A current ratio of 2.0 is occasionally cited as acceptable, but a value’s acceptability depends on
the industry in which the firm operates. A current ratio of 1.0 would be considered acceptable for
a utility but might be unacceptable for a manufacturing firm. The more predictable a firm’s cash
flows, the lower the acceptable current ratio. Current ratio of the company has been successfully
up till year2001 but it is 1.04 times in the year 2002 and it is 2.34 in the year 2001. Although
there is a decrease in CR but it is still acceptable because it is more than one.

QUICK RATIO

The quick ratio is similar to the current ratio except that it excludes inventory, which is generally
the least liquid current asset. Quick ratio is an extended version of current ratio in which only
very quick assets (which can be quickly liquidated) are considered. A rule of thumb is that figure
of Hh8€ h4he short-term liquidity position of the firm is very healthy because of the following
points:

1. Current ratio of the firm is 1.08 times which shows that the firm has more current assets
as compared to the current liabilities.
2. Net Working capital of the firm is positive
3. Quick ratio of the company is .79 times which is also good.
4. Cash ratio of the company is also very good which is 6.73% of total assets

ACTIVITY RATIOS

Activity ratios are used to measure the speed with which various accounts are converted into sales
or cash. With regard to current accounts, measures of liquidity are generally inadequate Basic
measures of activity are:

(1) Inventory turnover
(2) Fixed assets turnover

(3) Total asset turnover

(4) Average age of inventory

(5) Average collection period

(6) Accounts receivable turnover

(7) Operating cycle

(8) Account payable turnover

(9) Average payment period.

Activity ratios                          2002                            2001
Inventory turnover                          4.49                            3.35
Average age of inventory                      80.10                          104.33
Account receivable turnover                    11.98                           13.61
Average collection period                     30.04                           26.45
A/c payable turnover                         6.40                            5.26
Avg.payment period                            56                              68
Operating cycle                            92                             118
Fix asset turnover                         1.76                            7.85
Total asset turnover                         .60                             .86

INTERPRETATION OF THE RESULTS

INVENTORY TURNOVER

Inventory turnover commonly measure the activity, or liquidity, of a firm’s inventory. An
inventory turnover of 20.0 would not be unusual for a grocery store, whereas a common
inventory turnover for a manufacturer would be 4.0. Inventory turnover of the company is 4.49
times in the year 2002 and it has increased from the last year figure of 3.45 times. Though there
is a decrease in inventory turnover yet it is acceptable.

TOTAL ASSETS TURNOVER

Total assets turnover indicates the efficiency with which the firm uses all its assets to generate
sales. Generally, the higher a firm’s total asset turnover, the more efficiently its assets have been
used. This measure is probably of greatest interest to management, because it indicates whether
the firm’s operations have been financially efficient. Fauji Fertilizer Company turns its asset over
in 2002 by .6 times and it was .86 times in the year 2001 This shows that the total assets
turnover has been very low. Thus it shows inefficiency of the management of the firm to use
assets to generate revenuers.

NET FIXED ASSETS TURNOVER

Net fixed assets turnover of the company is 1.76 times in the year 2002 which has significantly
decreased as compared to the last year’ s turnover of 7.85 times. This is not a good sign for the
company..

GROSS FIXED ASSETS TURNOVER

Gross fixed assets turnover of the company 0.8 times has decreased from the last year figure of
1.02 times that is not in the favor of the company.

AVERAGE AGE OF INVENTORY

Average age of inventory tells that for how many days on average the inventory is held .The
greater the number of days, the inefficient will be the management. Average age of inventory of
the company has reduced to 80 days in the year 2002 from 104 days in 2001 This shows
inventory is kept for less number of days as compared to the last year.

AVERAGE COLLECTION PERIOD

Average collection period indicates that how many days are required to collect amount from the
trade debts. The earlier the cash is received from the debtors; the better will be for the company.
Average collection period of the company has increased to 30 days in the year 2002 from the year
2001 figure of 27 days. This shows inefficiency in the collection of Accounts receivable

ACCOUNTS RECEIVABLE TURNOVER

Account receivable turnover indicates that how many times accounts receivable is converted into
cash a high turnover indicates the efficiency of the management. Accounts receivable turnover
has decreased to 11.98 times in 2002 from 13.61 times in the year 2001. This is not a good sign
for the company.
OPERATION CYCLE

Operating cycle of any company shows the number of days lapsed from the acquisition of raw
material till the receipt of cash from the sale of finished goods. Operating cycle of the company is
92.08 days in 2002 and is 117.94 in 2001.This is a good sign for the company.

ACCUOUTS PAYABLE TURNOVER

Accounts payable turnover indicates that how many times accounts payable converted into cash
payments. It should be maximum one. Accounts payable has increased to 6.4 times in 2002 from
5.26 times in 2001 that is not a good sign for the company.

AVERAGE PAYMENT PERIOD

Average payment period indicates that after how many days the payment to creditors is made.
This time period should be maximum one. Average payment period of the company has
decreased to 56 days from 68 days in 2001. This is not good sign for the company.

DECISION

Activity ratio shows that the management of the firm is quite active in utilizing its assets to
generate sales for the business. Thus we can say that operating efficiency of the business is very
good due to the following reasons:

1. Inventory turnover of the company is good
2. Average age of inventory of the company is also acceptable
3. Accounts receivable turnover of the company has been excellent

DEBT RATIOS

The debt position of a firm indicates the amount of other people’s money being used in
attempting to generate profits. In general, the financial analyst is most concerned with long-term
benefits, because these commit the firm to paying interest over the long rum as well as eventually
repaying the principally borrowed. Because the creditors claims must be satisfied before, the
distribution of earnings to share holders. Basic measures of debt are:

(1) Debt ratio

(2) Debt-equity ratio

(3) Interest coverage ratio
(4) Fixed assets to long term debts

(5) Operating cash flow/total debts

Debt ratios                           2002                             2001
Debt ratio                         61.79%                             32%
Debt equity ratio                      161.69%                           47.05%
Interest coverage ratio                     8.24                             19.14
Fix asset to long term debts                  2.24                             13.64
Operating cash flow/TD                     27.15%                            41.09%

INTERPRETATION OF THE RESULTS

DEBT RATIO

The debt ratio measures the proportion of total assets financed by the firm’s creditors. The higher
this ratio, the greater the amount of other people’s money being used in an attempt to generate
profits. FFC’s debt ratio has increased to 61.79% in the year 2002 from 32% in the year 2001.
This shows that the company has increased its dependence on the outsider’s sources of finances.
This ratio is slightly high than the acceptable limit of 60%. This shows that there is a significant
increase in the debts of the company.

DEBT EQUITY RATIO

The debt-equity ratio indicates the relationship between the long-term funds provided by creditors
and those provided by the firm’s owners. It is commonly used to measure the degree of financial
leverage of the firm. FFC’s debt equity ratio is 161.69% in the year 2002 and has increased
significantly from 47.05% in the year 2001. This shows that debts are more as compared to
shareholders equity So this shows risk for the investors.

INTEREST COVERAGE RATIO

Interest coverage ration tells that how many times the firm is able to pay its financial charges out
of its profit .A high ratio is desirable. This ratio for the company is 8.24 times in the year 2002
and has significantly decreased from 19.14 times in the year 2001. This shows not good sign for
the company. It shows that due to high debts financial charges of the company has increased.

FIXED ASSETS TO LONG TERM DEBT

Fixed assets of the firm are almost 2.24 times its long-term debts in the year 2002. There is a
significantly decrease 11.44 times in this ratio in this year This shows that the firm has got more
LTD in this year.
OPERATING CASH FLOW/TOTAL DEBTS

Operating cash flow of the company is 27.51% of the amount of total debts of the company. This
shows good sign for the firm. This ratio has decreased as compared to the ratio of 41.09% in the
year 2001.This shows that the firm has earned less from its operations in this year as compared to
the pervious year.

Long-term solvency of the company is also very good because their profitability ratios are very
high and the firm is using debts. Interest coverage of the company is also very good. And fixed
assets to net worth is 1.74 times.

PROFITABILITY RATIOS

There are many measures of profitability. Each related the return of the firm to its sales, assets,
equity, or share value. As a group, these measures allow the analyst to evaluate the firm’s
earnings with respect to a given level of sales a certain level of assets, the owners’ investment, or
share value. With out profit, a firm could not attract outside capital. Basic measures of
profitability are:

(1) Gross profit margin

(2) Operating profit margin

(3) Net profit margin

(4) Return on shareholders investment

(5) Return on total assets

(6) Earning per share

Profitability ratios                        2002                              2001
Gross profit margin                        39.78%                            46.90%
Operating profit margin                      31.09%                            38.37%
Net profit margin                         18.31%                            26.74%
Return on total asset                      10.91%                            22.93%
Return on SH investment                      28.56%                            33.72%
Earning per share                          11.98                             12.49

INTERPRETATION OF THE RESULTS
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
merchandise sold. Gross profit margin of the company has decreased in the year 2002 as
compared to last year, which has gross profit margin of 47%. This decrease is due to increased
cost of goods sold.

OPERATING PROFIT MARGIN

The operating profit margin measures the percentage of each sales dollar remaining after all costs
and expenses other than interest and taxes are deducted. It represents the pure profits earned on
each sales dollar. A high operating profit margin is preferred. Operating profit margin of the
company has decreased to 31.09% in 2002 as compared to the year 2001(38.37%).

This has increased due to increased selling and administrative expenses.

NET PROFIT MARGIN

The net profit margin measures the percentage of each sales dollar remaining after all costs and
expenses, including interest and taxes, have been deducted. The higher the firm’s net profit
margin, the better. The net profit margin is commonly cited measure of the firm’s success with
respect to earnings. Net profit margin of the company has decreased to 18.31% in the year 2002
against 26.74% in the year 2001. This has just reduced due to the industry crisis.

RETURN ON SHAREHOLDERS INVESTMENT

Return on shareholders investment (ROI) measures the overall effectiveness of management in
generating profits with its available assets. The higher the firm’s return on investment, the better.
For the year 2002 it is 28.56%, which is less than that of 2001(33.72%). So it is not a good sign
for the company.

RETURN ON TOTAL ASSETS

Return on Total asset of the company has decreased to 10.91% in the year 2002 from 22.93% in
the year 2001. It shows inefficiency of the company management to generate profit on the total
assets.

EARNING PER SHARE

The firm’s earnings per share (EPS) are generally of interest to present or prospective
stockholders and management. The earnings per share represent the number of dollars earned on
behalf of each outstanding share of common stock. They are closely watched by the investing
public and considered am important indicator of corporate success. Earning per share of the
company has decreased to 11.98 per share in the year 2002 against 12.49 per share in the year
2001. This is just because of industry crisis.

DECISION

Profitability position of the firm is very good though it has decreased yet it is very good due to
the following points:

1. Gross profit of the company is very good which is 32.59%
2. Operating profit of the company is also good which is 22.04%
3. Net profit, Return on investment, Return on total assets, all are very good and are
10.40%, 21.26%, 7.93% respectively.

MARKETABILITY RATIOS

Equity investor is more interested in the dividends of the company. It is also concerned about the
profitability positing of the firm. For the purpose of equity investor we calculated the following
ratios:

1. Dividend per share
2. Dividend payout ratio
3.   Dividend yield ratio
4.   Book value per share
5.   Price earning ratio
6.   %age of earnings retained
7. Degree of financial leverage
Marketable ratios                          2002                            2001
Dividend per share                          9.00                            8.50
Dividend payout ratio                      75.11%                          68.05%
Dividend yield ratio                      11.25%                          10.63%
Price earning ratio                        6.68\$                           6.41\$
Degree of financial ratio                     1.14                            1.00
%Age of earnings retained                    24.89%                          31.95%
Book value per share                        41.96                           37.04

INTERPRETATION OF THE RESULTS
DIVIDEND PER SHARE

Dividend per share of the company of the company is 9 per share in the year 2002 and it was 8.5
in the year 2001. Company has increased its dividend to a little bit extent. Dividend per share of 9
is ideally good.

DIVIDEND PAYOUT RATIO

Company is giving maximum dividend to its shareholders. This ratio has increased to 75.11% in
the year 2002 from 68.05% in 2001. It is a good thing for the equity y investor because he is
interested in dividend.

DIVIDEND YIELD RATIO

Dividend yield ratio the company is 10.59% in the year 2002 and last year this ratio was 10%. For
those investors who want to earn current profit ,for them this ratio is good but for those investors
who want to earn capital gain low dividend yield ratio is acceptable.

%AGE OF EARNING RETAINED

Company‘s %age of earnings retained are just 31.95% and 24.89 % in both the current years of
2001 and 2002 respectively. This shows more attractiveness for the equity investor. There is a
decreased in this ratio due to the more distribution of the dividend as compared to the last year.

OPERATING CASH FLOW/CASH DIVIDEND

Operating cash flow to cash dividend compares operations cash flow to cash dividend paid by the
firm. A high ratio is desirable .The company is generating sufficient cash from its operations to
declare cash divided This ratio has improved to 2.17 times in the year 2002 against the last year
figure of .76 times. It shows that the firm has sufficient cash available for the distribution of
dividend.

PRICE EARNING RATIO

The stocks of the company are being traded 7.1 times its earnings. This shows investor’s
confidence on the firm’s ability to generate earnings and growth opportunities for the firm. Price
earning ratio of 7.1 times shows that to earn one rupees the investor is willing to invest 7.1 rupees

DEGREE OF FINANCIAL LEVERAGE

Degree of financial leverage is defined as the percentage change in EBIT over percentage change
in EBT. This leverage results from the presence of fixed cost within the expenses of the firm.
Degree of financial leverage of the firm is 1.14 times and it has increased from 1.06 times in year
2001.This shows that if EBIT increase by 100% EBT will increased by 106%.

BOOK VALUE PER SHARE

Book value per share is good one if it is below the market price of its shares. Book value per
share of the company is 41.96 per share, which shows investor’s confidence on the firm’s ability
to generate profits.

DECISION

From the point of view of equity investor the firm is very much attractive because of the
following s points:

1. Dividend per share of the company is 9 per share, which is very much attractive for the
investor.
2. Dividend payout ratio of the company is also very high i.e. 75% of the earning per share
3. Earring per share of the company is also very high whichsi11.98 per share.
4. operating cash flow /cash dividend of the firm is 2.17 times of the cash dividend.

CONCLUSION

From our analysis we might conclude that the liquidity position of the firm is good, operating
performance is also well as compared to the past year. The firm is operating in a good manner,
but from the last year the firm has obtained loans from the outside sources. As the firm is a
levered firm so this debt will increase the profits of the firm very much.
Common Statement Analysis

(Vertical Analysis)

INCOME STATEMENT

FAUJI FERTILIZER COMPANY LIMITED

For the year ended December 31,2002.

Description /Items     Year 2002         % Age           Year 2001   %Age
Sales           16786699           100%           11982414     100%
-CGS            10109117          60.22%           6362616    53.10%
Gross profit        6677582          39.78%           5619798    46.90%
- Selling & Dist.Exp     1457797           8.68%           1022139     8.53%
Operating Profit      5219785          31.09%           4597659    38.37%
+ Other incomes         783922           4.67%           1061844     8.86%
- Other charges        496073           2.96%            390520     3.26%

Profit before I. & T     5507634          32.81%          5268983     43.97%
- Financial charges       668213           3.98%           275271      2.3%
Profit before Tax       4839421          28.83%          4993712     41.68%
Taxation            1766000          10.52%          1790000     14.94%
Profit after Tax       3073421          18.31%          3203712     26.74%
Common Statement Analysis

(Horizontal Analysis)

INCOME STATEMENT

FAUJI FERTILIZER COMPANY LIMITED

For the year ended December 31,2002.

Description /Items     Year 2002          % Age           Year 2001   %Age
Sales           16786699            140%           11982414    100%
-CGS            10109117          158.88%           6362616    100%
Gross profit        6677582          118.82%           5619798    100%
- Selling & Dist.Exp     1457797          142.62%           1022139    100%
Operating Profit      5219785          113.53%           4597659    100%
+ Other incomes         783922           73.82%           1061844    100%
- Other charges        496073          127.02%            390520    100%

Profit before I. & T     5507634          104.52%          5268983     100%
- Financial charges       668213          242.74%           275271     100%
Profit before Tax       4839421           96.91%          4993712     100%
Taxation            1766000           98.66%          1790000     100%
Profit after Tax       3073421           95.93%          3203712     100%
Common Statement Analysis

(Vertical Analysis)

BALANCE SHEET

FAUJI FERTILIZER COMPANY LIMITED

For the year ended December 31,2002.

Asset side

Index analysis            2002           %Age             2001   %Age
Tangible fix assets
Operating fix assets      9378161         33.30%        1511310    10.82%
Capital work in process      138313         00.49%          15917    00.11%
Total tangible fix assets    9516474         33.79%        1527227    10.93%
Goodwill             1987694                           0
Long term investment       7077892         25.13%        2491364    17.83%
Ltd prepayments & def.cost     128495         00.18%         161881    00.32%
Lt advances and loan         50137         00.46%          45369    01.16%
Total fix assets        18760622        66.61%        4225841    30.24%
Current assets
Stores and spares        1618373         05.75%        1229557    08.80%
Stock in trade          630808         02.24%         614327    04.40%
Trade debts           1400893         04.97%         880298    06.30%
Loans and adv.pre payments    1068419         03.79%        1025100    07.34%
Short term investments      2792279         09.91%        3726744    26.67%
Cash and bank balances      1894680         06.73%        2270358    16.25%
Total current assets       9405452         33.39%        9746384    69.76%
Total assets          28166144        100.0%       13972225    100.0%
Common Statement Analysis

(Vertical Analysis)

BALANCE SHEET

FAUJI FERTILIZER COMPANY LIMITED

For the year ended December 31,2002.

LIABILITY SIDE

Index analysis                 2002        %Age            2001     %Age
Authorized capital             3000000      106.51%        3000000   214.71%
Issued, subscribed and paid up       2564959       9.11%         2564959    18.36%
Capital reserve               160000       0.57%          160000     1.15%
Revenue reserve               8038098      28.54%         6776673    48.50%
Total stock holder equity         10763057      38.21%         9501632    68.00%
Long term liabilities
Redeemable capital              4420014      15.69%            0      0.00%
Long term loans               1283481       5.56%         223867    1.60%
Deferred taxation              2690000       9.55%          86000    0.62%
Total long term liabilities        8393495      29.80%         309867    2.22%
Current liabilities
Current maturities of redem.cap        379946       1.35%          0         0.00%
Current maturities of l.t loans      538045       1.91%       503151       3.66%
Short term running finance         3388897      12.03%       800000       5.73%
Creditors, accured. & Other liab.     2829008      10.04%      1561004      11.17%
Taxation                   975960       3.47%       527083       3.77%
Dividend payable                641240       2.28%       512992       3.67%
Proposed dividend               256496       0.91%       256496       1.84%
Total current liabilities         9009592      31.99%      4160726      29.78%
Total liabilities and SHE         28166144       100%      13972225       100%
Common Statement Analysis

(Horizontal Analysis)

BALANCE SHEET

FAUJI FERTILIZER COMPANY LIMITED

For the year ended December 31,2002.

ASSET SIDE

Index analysis            2002          %Age              2001   %Age
Tangible fix assets                                                100.0%
Operating fix assets      9378161        620.53%        1511310    100.0%
Capital work in process      138313         868%            15917    100.0%
Total tangible fix assets    9516474         623%          1527227    100.0%
Goodwill             1987694                           0      100.0%
Long term investment       7077892          284%         2491364    100.0%
Ltd prepayments & def.cost     128495         79.37%         161881    100.0%
Lt advances and loan         50137        110.50%          45369    100.0%
Total fix assets        18760622         444%         4225841    100.0%
Current assets                                                   100.0%
Stores and spares        1618373        131.62%        1229557    100.0%
Stock in trade          630808        122.64%         614327    100.0%
Trade debts           1400893          159%          880298    100.0%
Loans and adv.pre payments    1068419        104.22%        1025100    100.0%
Short term investments      2792279           75%         3726744    100.0%
Cash and bank balances      1894680         83.45%        2270358    100.0%
Total current assets       9405452         96.50%        9746384    100.0%
Total assets          28166144       201.58%       13972225    100.0%
Common Statement Analysis

(Horizontal Analysis)

BALANCE SHEET

FAUJI FERTILIZER COMPANY LIMITED

For the year ended December 31,2002.

LIABILITY SIDE

INDEX ANALYSIS                     2002        %AGE            2001     %AGE
Authorized capital             3000000        100%         3000000    100.0%
Issued,subscribed and paid up        2564959        100%         2564959    100.0%
Capital reserve               160000        100%          160000    100.0%
Revenue reserve               8038098       118.61%       6776673    100.0%
Total stock holder equity          10763057      113.27%       9501632    100.0%
Long term liabilities
Redeemable capital               4420014                        0      100.0%
Long term loans                1283481      573.32%        223867    100.0%
Deferred taxation               2690000      312.79%         86000    100.0%
Total long term liabilities         8393495       2708%         309867    100.0%
Current liabilities
Current maturities of redem.cap        379946                         0      100.0%
Current maturities of l.t loans       538045       106.93%         503151   100.0%
Short term running finance         3388897        424%           800000   100.0%
Creditors, accured. & Other liab.     2829008       187.34%        1561004   100.0%
Taxation                   975960       185.16%         527083   100.0%
Dividend payable                641240        125%           512992   100.0%
Proposed dividend               256496        100%           256496   100.0%
Total current liabilities         9009592       216.53%        4160726   100.0%
Total liabilities and SHE          28166144      201.58%       13972225   100.0%
FORMULAS OF RATIOS:

RATIO ANALYSIS:

Basically ratio analysis is the instruments used for evaluating and interpreting the financial
health/position of the company. Ratio analysis allows present and prospective investor and
lender along with the firm’s management to evaluate the firm’s financial position or
performance.

LIQUIDITY RATIOS:

Liquidity ratio’s refers the ability of firm to pay its short-term obligation on time.

Current ratio

Current assets

Current ratio          =     ------------------------

Current liabilities

Shrinkage Of Current Assets:

Current liabilities

Shrinkage Of Current Assets = 1-           --------------------------- x 100

Current assets

Quick Ratio:

Current assets- inventories

Quick ratio= ---------------------------------

Current liabilities

Cash Ratio:
Cash + Marketable Securities (M/S)

Cash ratio = -------------------------------------------------- x 100

Total assets
Net Working Capital:

N.W.C       = Current Assets – Current liabilities.

Working Capital Ratio:

Net working capital

Working Capital Ratio= --------------------------- x 100

Sale

Working capital to total assets:

NWC

Working capital to total assets = ----------------- x 100

Total Assets

Activity Ratio

Basically used to measured stream with which current account convert into cash/sale. That how
productivity management is utilizing the assets of business to generate the desired rate.

Inventory Turnover:

Cost of good sold

Inventory turnover = -----------------------

Ending stock

Average age of inventory:

No working days

Average age of inventory = --------------------------

Inventory turnover

Average Collection Period:
Total credit sale

Average credit sale per day      =      ------------------------------------

360

Account receivable

Average collection period = ------------------------------------

Average credit sale per day

Account Receivable Turnover:

No of working days

A.R.T.O = ---------------------------

ACP

Average payment period

Accounts payable

APP = --------------------------------------------

Average credit purchase per day

Accounts payable

APP = --------------------------------------------

Average credit purchase per day

Accounts Payable Turnover:
No of working days

Account Payable Turnover = ----------------------------

APP

Operating Cycle:

Operating Cycle = Average Age Of Inventory + Average Collection Period

OC = AAI + ACP

Cash Conversion cycle:

C.C.C = AAI + ACP – AAP

OR

C.C.C = O.C – AAP

EFFICIENCY OF THE FIRM

Net sale

Fixed Assets Turnover = ---------------------

Net fixed Assets

Total Asset Turn Over:

Net sale

TA.T.O= -------------------

Total assets
Debt Ratio’s

Debt ratios for the sake of two purposes

 Measure the degree of indebt ness (how much we are in lose).

 Ability to pay the debts (to check that the company will pay the interest or lease      payment
on time or not)

Debt Ratio:

Total debt

Debt ratio = --------------- x 100

Total assets

Debt Equity Ratio:

Total debt

D.E.R = ---------------------------x 100

Stockholder equity

Time Interest Ratio

Earning before interest taxation

T.I.R = -------------------------------------------

Interest

Profitability Ratio:

With the help of this ratio’s the analyst can evaluate the firm earning with respect to given level
of sale at certain level of assets, the owner’s investment or share value.

Gross Profit Ratio

G.P

Gross Profit Margin = ---------- x 100

Sale
Operating Profit Margin:

O.P

O.P. margin = ----------- x 100

Net sale

Net Profit Margin

Net profit after taxation

N.P margin = ------------------------------------ x 100

Sales

Return On Assets

N.P.A.T

R.O.A = -----------------

Total Assets

Return On Equity:

N.P.A.T

R.O.E =------------ x 100

S.H.E
Marketability Ratio’s :

These ratios refer to the market value of company’s stock towards profitability.

Earning per share :

N.P.A.T- dividend to P.S.H

EPS = --------------------------------------------- x 100

No of shares of common stock

Book value per share:

Assets – Liabilities

B.V = ------------------------------

Outstanding stock

Dividend Per Share :

Dividend

Dividend per share = -----------------------------------

Outstanding common stock

Dividend Pay Out Ratio:

Dividend per share

Dividend pay out ratio = --------------------------- x 100

Earning per share

Market to Book Ratio :

Market price of stock

M.B.R = -------------------------------

B .V per share

Dividend yield:

Dividend per share
Dividend yield = ------------------------------- x 100

Market price of share

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