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8/8/2019 Presentation Ratio Analysis
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RATIO ANALYSISWITH INTERPRETATIONS
FINANCIAL MANAGEMENT
PRESENTED TOSIR HASSAN SHAHZAD
BY
NASEER AHMED - 4528ABID BILAL 4531
MBA
11.1.11
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Overview
Ratios : One Quantity Expressed in Terms of
Another Quantity
The Financial Ratios are the tools for evaluation of
the company performance
The Financial Ratios are also very powerful tool
from Investors point of view for investment in betteropportunities.
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Companies Evaluated
In the present presentation two companies have been
evaluated through certain financial ratios
Company A : D. G. Khan Cement Company
Company B : Fauji Cement Company
Data has been collected from the Balance Sheet andIncome Statement for the year 2010
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PROFITABILITY RATIOS
[Gross Profit Ratio = (Gross profit
/ Net sales) 100]
GROSS PROFIT RATIO
(2,705,367 / 16,275,354 ) x 100
= 16.62%
(515,584 / 3,808,455) x 100= 13.53%
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PROFITABILITY RATIOS
Profitability ratios are the measure of assessing
businesss performance of generating profits with
respect to its expenses and other relevant expenses in
a specific period of time say one year. The higher
value as compare to the competitors or industry
average or relative to previous period show the
business is going well. In the present case, Company A
has generated 16.62% Gross Profit as compare toCompany B whose Gross Profit is 13.53% which shows
that Company A has better managed its COGS which
resulted in increase of the Gross Profit.
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PROFITABILITY RATIOS
[Net Profit Ratio = (Net profit / Net
sales) 100]
NET PROFIT RATIO
(2,261,163 / 16,275,354 ) x 100
= 13.89%
(366,117 / 3,808,455) x 100= 09.61%
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PROFITABILITY RATIOS
Company A has generated 13.89% Net Profit as
compare to Company B whose Net Profit is 09.61%.
We can drive result that Company A is performing wellin competition of Company B.
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PROFITABILITY RATIOS
Operating Exp. Ratio = [(Operating
Expenses / Net sales] 100
OPERATING EXP. RATIO
(1,355,869 / 16,275,354) x 100
= 08.33%
(176,687 / 3,808,455) x 100= 04.64%
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PROFITABILITY RATIOS
Although the Company A has shown better profits in
term of Gross Profit and Net Profit but the Expense
Ratio results show that Company A has further chancesto improve its operating expenses, as Company B has
managed its operating expenses very well which is
almost half of the Company B. With further
improvement in this area by Company A, it can enhance
its profits.
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PROFITABILITY RATIOS
Return on Equity = {Net profit /
Ordinary Shares} 100]
RETURN ON EQUITY
(233,022 / 3,650,993 ) x 100
= 06.38%
(250,179 / 7,419,887) x 100= 03.37%
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PROFITABILITY RATIOS
Company A has better paid to its shareholders. The
results are further supported by the EPS which is higher
as compared to Company B (EPS of Company A is 0.64and Company B is 0.33. The results are further
supported by Debt to Equity which show that the
Company Bs gearing position is worse than the
Company A (results are in Debt to Equity Slide)
although both the companies are highly geared.
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PROFITABILITY RATIOS
[Return on Capital Employed=(PBIT/Capital
employed)100]
RETURN ON CAPITAL EMP.
(2,261,163 / 33,256,854) x 100
= 06.80%
(366,117 / 22,795,084) x 100= 01.47%
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PROFITABILITY RATIOS
Company A is very strong in this area and proved that
the management is well employing it Capital Employed
(capital investment) generating almost 4.5 times morereturn than the Company B.
Stock or Shares and Long-term Liabilities.
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PROFITABILITY RATIOS
[Assets Turn Over=(Net Sales / Capital
employed)100]
ASSETS TURNOVER
(16,275,354 / 33,256,854)
= 0.49 times
(3,808,455 / 22,795,084)= 0.17 times
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PROFITABILITY RATIOS
Assets Turnover show that how much company has
generated by employing on unit of currency. Company
A is generating about Paisa 49 revenues against Re.1.0assets whereas the Company B is generating paisas 17.
This reveals that although the return is not so impressive
but compared to Company B, Company A is performing
well.
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EFFICIENCY RATIOS
[(Accounts Payable Payment Period = Total Accounts
Payable / COGS) x 365]
A/P PAYMENT PERIOD
(1,679,749 / 13,569,994) x 365
= 45 days
(1,698,674 / 3,292,871) x 365= 188 days
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EFFICIENCY RATIOS
[(Accounts Receivable Collection Period = Total
Accounts Receivable / Net Sales) x 365]
A/R COLLECTION PERIOD
303,949 / 16,275,354) x 365
= 6.81 days
(24,514 / 3,808,455) x 365= 2.34 days
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EFFICIENCY RATIOS
[(Inventory Turnover Period = Inventory /
COGS) x 365]
INVENTORY TURNOVER PER.
4,054,618 / 13,569,994) x 365
= 109 days
(1,157,217 / 3,292,871) x 365= 128 days
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EFFICIENCY RATIOS
The analysis shows that in all these areas, Company A
is well contributing towards its profitability by
managing Accounts Receivable, Accounts Payable andInventory Turnover periods. Company B is very week in
payment of its payables which is calculated to 188
days as compared to 45 days of Company A.
However, the accounts receivable are well managed by
both the companies which reflects that both the
companies are almost selling its products on cash
payment basis.
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LIQUIDITY RATIOS
[(Current Ratio = Current Assets /
Current Liabilities]
CURRENT RATIO
16,417,492 / 13,786,189)
= 1:1.91
(2,070,718 / 3,984,915)= 1:0.52
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LIQUIDITY RATIOS
[(Quick Ratio = (Current Assets
Inventory) / Current Liabilities]
QUICK/ACID TEST RATIO
((16,417,492 - 4,054,618) / 13,786,189)
= 1:0.89
((2,070,718 - 1,157,217) / 3,984,915)= 1:0.22
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LIQUIDITY RATIOS
The purpose of using liquidity ratio is to determine the
ability of the company for paying off its short term
debts. The higher value of liquidity ratios reflects thatthe company is well secured in performing its
obligations of short term debts. The calculation of quick
ratio shows that Company A is well secured in this
region. However the position of Company B is not so
secured. The Company A can easily meets its short termliabilities. Even is position with respect to Inventory
Turnover is also better as shown in the previous slides.
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GEARING RATIOS
[(Debt to Equity Ratio = Long-term Debts
/ Equity)]
DEBT TO EQUITY RATIO
5,170,645 / 3,650,993)
= 1.42:1
(11,981,056 / 4,719,887)= 2.54:1
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GEARING RATIOS
[(Interest Cover Ratio =
PBIT / Interest)]
INTEREST COVER RATIO
(2,261,163 / 2,249,185)
= 1.01 times
(366,117 / 390,336)= 0.98 times
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GEARING RATIOS
Gearing ratio is the measure to check the equity to
borrowed funds/long term financing. The best measure
is the gearing ration (Debt to equity). The results ofboth the company shows that they are highly geared as
the portion of their borrowed money is very much
higher than the owners equity. The other best measure
is to check, how much the profit covers its interest. The
higher t he interest cover ratio value, the more safe thecompany position is. In the present case, both the
companies are almost covering its interest through its
profit with the ratio of 1:1.
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INVESTORS RATIOS
[Earnings per share Ratio = (Net profit after tax
Preference dividend) / Total No. of shares)]
EARNING PER SHARE
233,022,000 / 365,099,300)
= 0.64
(250,179,000 / 741,988,700)= 0.33
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INVESTORS RATIOS
Most important is what the company is paying back to
its investors/owners. The greater value of EPS maintain
the investors and owners confidence on the company.The Company A is paying almost double the value of
the Company B and building its better image before
the investors.
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Company A Company BProfitability Ratios:
GP Ratio
NP Ratio
Operating Ratio
Return Equity
ROCE
Assets Turnover
16.62
13.89
08.33
06.38
06.80
00.49 T
13.53
09.61
04.64
03.37
01.47
00.17 T
Efficiency Ratios:
APPP
ARCP
Inventory Turnover
45 days
7 days
109 days
188 days
2.5 days
128 days
Liquidity Ratios:
Current Ratio
Quick Ratio
1:1.91
1:0.89
1:0.52
1:0.22
Gearing Ratios:
Debt to Equity Ratio
Interest Cover Ratio
1.42:1
1.01 T
2.54:1
0.89 T
Gearing Ratios:
EPS 0.64 0.33
CONCLUSION - SUMMARY
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CONCLUSION
After evaluating both the companies through Financial
Ratios we have reached to the conclusion that the
company A (D. G. Khan Cement Company is Operatingwell as compared to the Company B (Fauji Cement
Company) in almost all the areas and the Company A
is the better investment opportunity between these two
companies.
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Questions and Discussion
THAN