Assignment on:

Analysis of Financial Statement

Prepared for:

Dr. Sujit R.Saha

Sub: Financial Management

Code: Fin-501 Sec: 01

Prepared by:

Md. Mustafezur Rahaman

ID: 2018-3-95-005
Session: Fall- 2019
Submission Date: September 28, 2019
A.Calculations of ratios for Compsey Computer
Company:

Total Current Asset 655000

1. Current Ratio = Total Current Liability = 330000 =1.98׿

Industry Average: 2 times.

Account Recievables 336000

= =75 Days
2. Days Sales Outstanding = Annual Sales 1607500
360 360

Industry Average: 35 Days

COGS 1353000
3. Inventory Turnover = =
Inventory 241500
=5.60×.

Industry Average: 5.60 Times.

Sales 1607500
4. Total Assets Turnover = =
Total Assets 947500
=1.69×.

Industry Average: 3 times.

Net Profit 27300

5. Net Profit Margin = Sales = 1607500
×100=1.69 %

Industry Average: 1.2%

Net Income 27300

6. Return on Asset = =
Total Asset 947500
×100=2.88 %
Industry Average: 3.6%
NIACS 27300
7. Return on equity = =
Common Equity 361000
× 100=7.56 %

Industry Average: 9%

Total Liabilities 586500

8. Debt Ratio = Total Assets
=
947500
×100=61.89 %

Industry Average: 60%

C. Compsey’s Financial Analysis:

Ratio Wise Analysis:
 Current Ratio: Compsey’s current ratio is 1.98 times where the industry average is
2.0 times. So we can say that its liquidity position is a little low then other
competitors but the difference is very thin. The company can pay its bill in time but
they have to improve it. The Difference between current assets and current liabilities
are ok.
 Days Sales Outstanding Ratio: Compsey’s daily sales outstanding is 75.25 days or
75 days where the industry average is 35 days. This means after a daily credit sales it
takes 75 days for the firm to collect the payment which is a very alarming situation if
we compare it with the industry average. Compsey should take steps to improve their
credit policy.
 Inventory Turnover Ratio: Compsey’s inventory turnover ratio is 5.6 times and the
industry average is also 5.60 times. Which means the firm is not holding excess
stocks in their inventory. So we can say there position is good on inventory turnover.
 Total Assets Turnover Ratio: Compsey’s total asset turnover ratio is 1.69 times
where the industry average is 3 times. It is a very poor situation for the firm. It
indicates that the company is not generating a sufficient amount of business given its
investment in total assets. To become more efficient the firm should increase its sales,
dispose of some assets or pursue a combination of these steps.
 Net Profit Margin Ratio: Compsey’s Net profit margin ratio is higher (1.69%) then
the industry average (1.2%) which indicates that sales must be high and its cost must
be low or both. The firm’s position is good in net profit margin.
 Return on Assets Ratio: Compsey’s return on asset ratio is 2.88% and the industry
average is 3.6% which is way below. This low return results from the higher than
average use of debt.
 Return on Equity Ratio: Compsey’s 7.56% return is lower than the 9% industry
average. The result follows from the company’s greater use of debts.
 Debt Ratio: Compsey’s debt ratio is 61.89% or almost 62% which means the
creditors have supplied 62% of the company’s total financing. The industry average is
60%. So we can say that the firm’s position is low on debt ratio. They might find it
difficult to borrow additional funds without raising more equity capital through a
stock issue. And the company has greather chance of bankruptcy if the debt ratio
increases further by borrowing additional funds.

Segment Wise Analysis:

 Liquidity Analysis (F1): Because of we don’t have any industry average of quick
ratio we can say that Compsey’s liquidity position is fairly ok on the basis of
current ratio analysis. But they have to improve it or in the long run the firm’s
liquidity will fall.
 Asset Management Analysis (F2): Our examination of Compsey’s asset
management ratio shows that its inventory ratio is similar to the industry average
but its daily sales outstanding and total asset turnover situation is very poor. So
we can say that Compsey’s asset management situation is not good. They should
concentrate on their credit policy, sales amount and dispose some asset to
improve this situation.
 Debt Management Analysis (F3): Our examination of Compsey’s debt
management indicates that the firm has higher debt ratio then the industry
average. It suggests that the firm is in a weak position with respect to debt. The
firm might have face some difficulty in borrowing additional funds until its debt
 position improves. If the current situation goes on for long time the company may
face bankruptcy.
 Profitability Analysis(F4): Compsey’s profitability shows that it has a good net
profit margin but its return on asset and return on equity is very poor because of
its greater use of debt. Altogether we can say that the profitability of the company
is poor. To improve this situation the firm should concentrate on its debt
management.

Overall Summary:

Our analysis on Compsey’s ratio shows us that the liquidity of the company is almost
satisfactory but the asset management, debt management and the profitability situation of the
company is poor if we compare it with the industry average. To improve their situation they have
to concentrate on their money collection on credit sales, Increase their sales, and reduce
dependability on debt. Altogether we can say that the firm’s financial situation is not looking
good for the financial year of 2009. But this analysis does not tell us whether the company is in a
better or a worse financial position then it was in previous years because we don’t have the data
of previous years to compare.

D. The ratios we found represents the normal growth of the Compsey Computer Company’s
2009 financial year. If we double the sales, Receivables, Inventories and common equity it will
just show us the firm’s super growth. But it will be meaningless because we don’t have any
previous year’s data to compare these ratios. We can’t draw a proper picture of a company’s
financial position based on a single financial year. And if the potential investors somehow misled
by these ratios and take decisions on the basis of them it will be harmful for the company in 2010
financial year.