AS S E S S M E N T TE S T 2 (P A R T I A L ) : FI N A N C I A L AN A L Y S I S

Su m m a r y inf o r m a t i o n fro m th e fin a n c i a l s ta t e m e n t s of P r e c i s i o n Co . du r i n g th e las t tw o ye a r s .

A s s u m e th a t th e ind u s t r y ra t i o s did no t ch a n g e in th e la s t th r e e ye a r s .

PR E C I S I O N CO .

CO M P A R A T I V E IN C O M E ST A T E M E N T

Fo r Ye a r s En d e d De c e m b e r 31 , 20 2 0 an d 20 1 9

20 2 0 20 1 9

Sa l e s $2 , 4 8 6 , 0 0 0 $2 , 0 7 5 , 0 0 0

Co s t of go o d s so ld 1,5 2 3 , 0 0 0 1,2 2 2 , 0 0 0

Gr o s s ma r g i n 96 3 , 0 0 0 85 3 , 0 0 0

Op e r a ti n g Ex p e n s e s

Ad v e r t is in g Ex p e n s e 14 5 , 0 0 0 10 0 , 0 0 0

Sa l e s sala r ie s ex p e n s e 24 0 , 0 0 0 28 0 , 0 0 0

Of f ic e sala r ie s ex p e n s e 16 5 , 0 0 0 20 0 , 0 0 0

In s u r a n c e ex p e n s e 10 0 , 0 0 0 45 , 0 0 0

Su p p l ie s ex p e n s e 26 , 0 0 0 35 , 0 0 0

De p r e c ia t io n ex p e n s e 85 , 0 0 0 75 , 0 0 0

M i s c e l l a n e o u s ex p e n s e 17 , 0 0 0 15 , 0 0 0

To t a l op e r a t i n g ex p e n s e s 77 8 , 0 0 0 75 0 , 0 0 0

Op e r a ti n g Pr o f i t 18 5 , 0 0 0 10 3 , 0 0 0

In t e r e s t ex p e n s e 44 , 0 0 0 46 , 0 0 0

P r o f i t be f o r e tax 14 1 , 0 0 0 57 , 0 0 0

In c o m e tax ex p e n s e 47 , 0 0 0 19 , 0 0 0

Ne t Pr o f i t $9 4 , 0 0 0 $3 8 , 0 0 0
 PR E C I S I O N CO .

CO M P A R A T I V E ST A T E M E N T S OF FI N A N C I A L PO S I T I O N

De c e m b e r 31 , 20 2 0 an d 20 1 9

20 2 0 20 1 9

As s e ts :

Cu r r e n t A s s e t s :

Ca s h an d eq u i v a l e n t s 79 , 0 0 0 42 , 0 0 0

Sh o r t - t e r m inv e s t m e n t s 65 , 0 0 0 96 , 0 0 0

Ac c o u n t s Re c e i v a b l e , ne t 12 0 , 0 0 0 10 0 , 0 0 0

In v e n t o r y 25 0 , 0 0 0 26 5 , 0 0 0

To t a l Cu r r e n t A s s e t s 51 4 , 0 0 0 50 3 , 0 0 0

P r o p e r t y , pla n t an d eq u i p m e n t

Sto r e Eq u i p m e n t , ne t 40 0 , 0 0 0 35 0 , 0 0 0

Of f ic e eq u i p m e n t , ne t 45 , 0 0 0 50 , 0 0 0

Bu i l d i n g s , ne t 62 5 , 0 0 0 67 5 , 0 0 0

La n d 10 0 , 0 0 0 10 0 , 0 0 0

To t a l pr o p e r t y , lan d an d eq u i p m e n t 1,1 7 0 , 0 0 0 1,1 7 5 , 0 0 0

To t a l as s e t s 1,6 8 4 , 0 0 0 1,6 7 8 , 0 0 0

Li a b i l i t i e s an d S h a r e h o l d e r s ' Eq u i t y :

Cu r r e n t Li a b i l i t i e s :

Ac c o u n t s Pay a b l e 16 4 , 0 0 0 19 0 , 0 0 0

Sh o r t - t e r m no t e s Pa y a b le 75 , 0 0 0 90 , 0 0 0

In c o m e Ta x e s Pa y a b le 26 , 0 0 0 12 , 0 0 0

To t a l Cu r r e n t Li a b i l i t i e s 26 5 , 0 0 0 29 2 , 0 0 0

Lo n g - T e r m Li a b i l i t i e s

No t e s Pa y a b l e (s e c u r e d by mo r t g a g e on bu i l d i n g ) 40 0 , 0 0 0 42 0 , 0 0 0

To t a l Li a b i l i t i e s 66 5 , 0 0 0 71 2 , 0 0 0

S h a r e h o l d e r s ' Eq u i t y :

Sh a r e ca p i t a l - o r d i n a r y 47 5 , 0 0 0 47 5 , 0 0 0

Re t a i n e d Ea r n i n g s 54 4 , 0 0 0 49 1 , 0 0 0

To t a l S h a r e h o l d e r s ' Eq u i t y 1,0 1 9 , 0 0 0 96 6 , 0 0 0

To t a l Li a b i l i t i e s an d S h a r e h o l d e r s ' Eq u i t y 1,6 8 4 , 0 0 0 1,6 7 8 , 0 0 0

 Pr e c i s i o n In d u s t r y

Ra t i o Un it 20 2 0 20 1 9 Ra t i o

Li q u i d i t y :

Cu r r e n t ra t i o tim e s 1.9 1.7 2 2.3 1

A c i d - t e s t ra t i o tim e s 1.0 0.8 2 1.3 5

As s e t Ma n a g e m e n t :

Ti m e s pe r
22 . 6 20 . 5 19 . 7 3
Ac c o u n t s rec e i v a b l e tur n o v e r ye a r

Ac c o u n t s rec e i v a b l e tur n o v e r in da y s Da y s 16 . 1 5 17 . 8 18 . 5

Ti m e s pe r
5.9 6.5 6 8.0 2
In v e n t o r y tur n o v e r ye a r

In v e n t o r y tur n o v e r in da y s Da y s 61 . 8 6 55 . 6 45 . 5

Ti m e s pe r
1.4 8 1.2 3 1.3 3
To t a l as s e t tu r n o v e r ye a r

So l v e n c y :
Ti m e s pe r
4.2 2.2 4 3.5 2
Ti m e s in t e r e s t ea r n e d ye a r

D e b t rat i o % 39 . 5 42 . 4 3 45 . 5 4

Pr o f i t a b i l i t y :

N e t pr o f i t m a r g i n % 3.8 1.8 3 4.2

Re t u r n on as s e t s % 5.6 4.5 6.5

Re t u r n on or d i n a r y sto c k h o l d e r ’ s
% 9.5 6.3 10 . 7 1
eq u i t y

a. A n a l y z e ea c h ra t i o in liq u i d i t y , as s e s s Pr e c i s io n ’ s liq u i d i t y po s i t i o n an d ex p l a i n ho w it
co m p a r e s wi th th e ind u s t r y av e r a g e . (3 ma r k s)
b. A n a l y z e ea c h ra t i o in as s e t s m a n a g e m e n t , as s e s s Pr e c is io n ’ s as s e t s ma n a g e m e n t po s i t i o n an d
ex p l a i n ho w it co m p a r e s wi t h the ind u s t r y av e r a g e . (6 m a r k s )
c. A n a l y z e ea c h ra t i o in s o l v e n c y , as s e s s Pr e c is i o n ’ s de b t m a n a g e m e n t po s i t i o n an d ex p l a i n ho w
it co m p a r e s wi th th e ind u s t r y av e r a g e . (3 ma r k s)
d. A n a l y z e ea c h ra t i o in pr o f i t a b i l i t y , A s s e s s P r e c i s i o n ’ s pr o f i t a b i l i t y p o s i t io n an d ex p l a i n ho w it
co m p a r e s wi th th e ind u s t r y av e r a g e . (4 ma r k s)

H in t : As s e s s ea c h ra t i o (tr e n d , co m p a r i s o n wit h in d u s t r y ra t i o , an d me a n i n g ) an d ma k e a
co n c l u s i o n in ea c h ar e a : liq u i d i t y , as s e t s m a n a g e m e n t , so lv e n c y an d pr o f i t a b i li t y . Av o i d
re p e a t i n g wo r d s .
a. Li q u i d i t y
Li q u i d y ra t i o ho w th e fir m pa y s or me e t s its sh o r t - te r m lia b i l i t i e s

1. Co m p a n y 's cu r r e n t rat i o (1 . 7 2 to 1.9 ) in d i c a t e s th a t th e co m p a n y ' s ra t i o is s ti l l be l o w

th e in d u s t r y av e r a g e (2 . 3 1 ) an d it in d i c a t e s th a t th e ind u s t r y av e r a g e is mo r e liq u i d
th a n th e co m p a n y .
2. Th e co m p a n y ' s ac i d tes t rat i o (0 . 8 2 to 1) is sti l l be l o w th e ind u s t r y av e r a g e (1. 5 ) an d
in d i c a t e s th a t th e co m p a n y is sti l l i n e f f i c i e n t in ma n a g i n g liq u i d as s e t s (ca s h , tra d e
re c e i v a b l e s , ma r k e t a b l e s ec u r i t i e s ) .

b. As s e t Ma n a g e m e n t
Ra t i o us e d to de t e r m i n e th e eff i c i e n c y of th e org a n i z a t i o n in ut i l i z i n g its as s e t s to
ge n e r a t e ca s h an d in c o m e .

1. Ac c o u n t s rec e i v a b l e tur n o v e r is hig h e r tha n th e ind u s t r y av e r a g e an d ac c o u n t

re c e i v a b l e tu r n o v e r in da y s is lo w e r tha n th e ind u s t r y av e r a g e . Th i s me a n s th a t th e
co m p a n y is alr e a d y ef f i c i e n t in inv o i c i n g its re c e i v a b l e s in on e pe r i o d (2 0 . 5 tim e s to
22 . 6 tim e s ) th a n th e ind u s t r y av e r a g e an d in da y s the co m p a n y co l l e c t s ca s h fro m
17 . 8 da y s to 16 . 1 6 da y s for s a l e s ma d e on cr e d i t co m p a r e d to th e av e r a g e . 18 . 5 da y s
in d u s t r y
2. In v e n t o r y tur n o v e r is sli g h t l y hig h e r tha n th e ind u s t r y av e r a g e an d in v e n t o r y tur n o v e r
da y s are als o hi g h e r th a n the in d u s t r y av e r a g e . Th i s m e a n s th e fir m is sli g h t l y mo r e
ef f i c i e n t at s e l l i n g its in v e n t o r y in on e pe r i o d (6 . 5 6 tim e s to 5.9 tim e s ) tha n it is in
in d u s t r y (8. 0 2 tim e s ) to be c o m e ca s h . M e a n w h i l e , s e e n fro m the in v e n t o r y tur n o v e r in
da y s , the co m p a n y ke p t inv e n t o r y lo n g e r fo r 55 . 6 - 6 1 . 8 6 da y s co m p a r e d to th e
in d u s t r y av e r a g e of 45 . 5 da y s .

c. So l v e n c y
Ra t i o us e d in ord e r to as s e s s th e ab i l i t y of a co m p a n y to pa y off de b t an d al l of its
lia b i l i t i e s by us i n g co l l a t e r a l fo r ca p i t a l an d as s e t s ow n e d b y th e co m p a n y

1. Co m p a n y ’ s tim e int e r e s t ea r n e d by the co m p a n y is hig h e r tha n th e ind u s t r y av e r a g e ,

wh i c h me a n s tha t the co m p a n y ca n pr o d u c e hig h e r ea r n i n g s be f o r e int e r e s t an d ta x
(E B I T ) in on e pe r i o d th a n int e r e s t pa y m e n t s .
2. Co m p a n y 's de b t rat i o is low e r th a n th e ind u s t r y av e r a g e wh i c h m e a n s th a t th e
co m p a n y ha s les s de b t to fu n d its a c t i v i t i e s an d as s e t s an d ha s be t t e r s o l v e n c y .

Co n c l u s i o n :

d. Pr o f i t a b i l i t y
Th i s rat i o is a co m p a r i s o n ma d e to fin d ou t ho w mu c h th e co m p a n y 's ab i l i t y to be n e f i t
fro m a ce r t a i n in c o m e

1. Fr o m th e s e th r e e ra t i o s , w e ca n s ee th a t th e co m p a n y is s ti l l be l o w th e ind u s t r y
av e r a g e in ge n e r a t i n g pr o f i ts s o th a t th e ra t e of re t u r n is al s o le s s th a n the in d u s t r y
av e r a g e .
Co n c l u s i o n Pr o f it a b i l it y : th e co m p a n y ca n pu t m o r e pr e s s u r e on its s al e s to ge t a hig h e r
in c o m e or it ca n al s o red u c e the ex p e n s e s ge n e r a t e d by th e co m p a n y s o as to inc r e a s e th e
co m p a n y ' s rev e n u e an d ne t pr o f i t .

Co n c l u s i o n Li q u i d i t y an d So l v e n c y : In ad d i t i o n to th e s o l v e n c y rat i o , a co m p a n y al s o
ne e d s to be as s e s s e d ba s e d on its liq u i d i t y rat i o wh ic h ex p l a i n s the ab i l i t y of a co m p a n y
to pa y its de b t s in th e s h o r t te r m . Th e lo w e r the so lv e n c y pe r c e n t a g e , the mo re vu l n e r a b l e
th e co m p a n y w i l l be ba n k r u p t . H o w e v e r , if th e no m i n a l s o l v e n c y is hig h wh il e the
liq u i d i t y va l u e is re l a t i v e l y low , the co m p a n y is sti l l at ris k of ba n k r u p t c y .

Th u s , it ca n be co n c l u d e d tha t co m p a n i e s wit h hig h so l v e n c y ra t i o va l u e s ar e no t

ne c e s s a r i l y sm o o t h in pa y i n g s ho r t - t e r m de b t ob l i g a t i o n s , an d vi c e ve r s a . Th e r e f o r e , it is
im p o r t a n t for us to le a r n to inv e s t fro m no w on , s o tha t the co m p a n i e s we ow n ar e no t
pr o n e to ba n k r u p t c y .

Co n c l u s i o n A s s e t M a n a g e m e n t : Th e co m p a n y 's ac t i v i t y ra t i o ca n be s a i d to be go o d .
When vie w e d fro m th e va l u e of inv e n t o r y tu r n o v e r th a t ha s inc r e a s e d fro m ye a r to ye a r .
When vie w e d fro m th e av e r a g e va l u e of the in v e n t o r y ag e , the co m p a n y ha s a ba d
ac t i v i t y rat i o du e to a de c r e a s e in th e av e r a g e ag e of in v e n t o r y wh i c h ten d s to de c r e a s e .
Ju d g in g fro m th e ac c o u n t s rec e i v a b l e tur n o v e r , th e co m p a n y ha s a ba d ra t i o va l u e
be c a u s e th e va l u e of thi s rat i o ha s de c r e a s e d ev e r y ye a r . J u d g i n g fro m the av e r a g e
co l l e c t i o n pe r i o d the co m p a n y ha s s u f f i c i e n t va l u e , th i s ind i c a t e s th a t the co m p a n y tak e s
a lon g tim e to co l l e c t rec e i v a b l e s . Th e av e r a g e pa y pe r i o d ha s a va l u e tha t ten d s to
in c r e a s e fro m ye a r to ye a r , thi s ind i c a t e s tha t the co m p a n y ne e d s a s ho r t e r tim e to co l l e c t
de b t .