Cadbury Company

Ratio Analysis
A ratio analysis is an analysis of company information contained in a company’s financial
statements. Ratio analysis is based on financial statements like the balance sheet, income
statement and cash flow statement; the ratios of one item to another item. Ratio analysis is
used to evaluate various aspects of a company’s operating and financial performance such as
its efficiency, liquidity profitability.
Typed of Ratio Analysis
There are five major types of ratio analysis given as following:
(1) Liquidity Ratio
(2) Asset Management Ratio
(3) Debt Management Ratio
(4) Profitability Ratio
(5) Market Value Ratio

(1) Liquidity Ratio

Easily convertible into cash without loss of value.
Types of Liquidity Ratio
(i) Current Ratio
(ii) Quick Ratio/Acid Test Ratio

Current Ratio
The Current ratio is a liquidity ratio that measure whether or not a firm has enough resources
to meet it’s short term obligation/liabilities.
Current Ratio = Current Assets
Current liabilities

2017 2018 2019

Current Assets 14,240,363 14,029,119 15,174,042
Current liabilities 12,529,586 10,085,404 9,901,393
Current Ratio 1.14 1.39 1.53

Interpretation

The current ratio is a liquidity ratio that measures a company's ability to pay short-term
obligations or those due within one year. It tells investors and analysts how a company can
maximize the current assets on its balance sheet to satisfy its current debt and other payables.
The table above shows that Cadbury company in 2017 has more current assets as compare to
it's current liabilities with a current ratio of 1.39 and it increases in 2018 with a ratio of 1.39
and 2019 with a ratio of 1.53. It means that a ratio of 1 or more than 1 means that a company
can exactly pay off all its current liabilities with its current assets.

(ii) Quick Ratio / Acid Test Ratio

The quick ratio or acid test ratio is a liquidity ratio that measure the ability of a company to
pay it's current liabilities when they came due with only current assets.

Quick Ratio = Current Assets - Inventory

Current liabilities

2017 2018 2019

Current assets 14,240,363 14,029,119 15,174,042
Current liability 12,529,586 10,085,404 9,901,393
Inventory 6,252,367 5,865,105 6,062,631
Quick Ratio 0.638 0.809 0.92

Interpretation

The quick ratio is considered a more conservative measure than the current ratio, which
includes all current assets as coverage for current liabilities. The higher the ratio result, the
better a company’s liquidity and financial health; the lower the ratio, the more likely the
company will struggle with paying debts.
In 2017 Cadbury's quick ratio was 0.638 but increases in 2018 with a quick ratio of 0.81 and
still increases in 2019 with a quick ratio of 0.92 but this is still not a good value because this
means that the company that has a quick ratio of less than 1 may not be able to fully pay off
its current liabilities in the short term.
(2) Asset Management Ratio
Asset management ratios are the key to analyzing how effectively and efficiently your small
business is managing its assets to produce sales.

Types of Asset Management Ratio

(i) Inventory turn over
(ii) Fixed Asset Turnover
(iii) Total Asset Turnover
(iv) Day Sales of Outstanding
(v) Receivable Turnover

(i) Inventory turn over

2017 2018 2019
Inventory Turnover 4.1015x 4.7770x 5.1135x
Ratio
Day Sales of 89 days 76 days 71 days
Outstanding
Receivable 13.315x 15.05x 14.832x
Turnover

Interpretation
Inventory turnover means how many cycle of production company completed in a period of
one year. The company which has greater number of inventory turnover will perform better
as compare to the company which has less inventory turnover .
In 2017 Cadbury company inventory turnover was 4.1 it means that Cadbury company turns
over its inventory about 4.1 times in 2017 and turns its inventory about once every 89 days.
The inventory turnover of Cadbury company increases in 2018 and 2019 but shorter days of
turning it's inventory, with an inventory turnover of 4.8 times in 2018 turn its inventory once
every 76 days and 5.1 times in 2019 turn its inventory once every 71 days.

(ii) Fixed Asset Turnover

2017 2018 2019

Fixed Asset 2.9 2.95 3
Turnover

Interpretation
Based on the given figures, In 2017 Cadbury’s fixed asset turnover ratio for the year is 2.9
meaning that for every one dollar invested in fixed assets, a return of 2.9 dollar is earned.
Cadbury’s fixed asset turnover increases in 2018 with a ratio of 2.95 and still increases in
2019 with a ratio of 3.

(iii) Total Asset Turnover

2017 2018 2019

Total Asset 1.16 1.31 1.37
Turnover

Interpretation

In 2017 Cadbury's total asset turnover is 1.16. This means that for every dollar in assets,
Cadbury generates 1.16 dollar of sales for every dollar invested in assets. It's total asset
turnover increases in 2018 with a ratio of 1.31 and in 2019 is 1.37.

(iv) Day Sales of Outstanding

2017 2018 2019

Day Sales of 89 days 76 days 71 days
Outstanding

Interpretation

In 2017 Cadbury company inventory turnover was 4.1 it means that Cadbury company turns
over its inventory about 4.1 times in 2017 and turns its inventory about once every 89 days.
The inventory turnover of Cadbury company increases in 2018 and 2019 but shorter days of
turning it’s inventory, with an inventory turnover of 4.8 times in 2018 turn its inventory once
every 76 days and 5.1 times in 2019 turn its inventory once every 71 days.

(v) Receivable Turnover

2017 2018 2019

Receivable 13.315x 15.05x 14.832x
Turnover

Interpretation
A high receivables turnover ratio can indicate that a company's collection of accounts
receivable is efficient and that the company has a high proportion of quality customers that
pay their debts quickly. In 2017 Cadbury's receivable turnover is 13.3 increases in 2018 with
a value of 15.1 and decreases in 2019 with a receivable turnover ratio of 14.8.
(3) Debt Management Ratio

Types of Asset Management Ratio

(i) Debt Ratio
(ii) Time Interest Earning Ratio

(i)Debt Ratio
The debt ratio is defined as the ratio of total long term and short term debt to total assets
percentage.

2017 2018 2019

Debt ratio 58.69% 53.95% 52.90%

Interpretation
In 2017 Cadbury company the total debt to total assets ratio is 58.69 which shows that the
58.68% company assets are generated from the total debt which is good for the company . In
2018 and 2019 the ratio decreases which show that they generate less assets as compare to
2017.

(ii)Time Interest Earning Ratio

The time interest earning ratio is a measure of how well a company can meet its payable
obligations or liabilities.
Time interest earning ratio = EBIT (Operating profit)
Interest
2017 2018 2019
Times interest 3.81x 14.54x 7.31x
earning ratio

Interpretation
Times Interest Earned Ratio tells us that how many times the company earned on Interest. In
2017 , the Cadbury company earned 3.81 times against Interest which is not favorable for the
company and shows that company is under loss condition. Then in 2018 , Cadbury company
time interest earning ratio increases to 14.54. In other words, a ratio of 14.54 means that a
company makes enough income to pay for its total interest expense 14 times over. which is
favourable for the company, but in 2019 it decreases to 7.31.

(4) Profitability Ratio

Types of Profitability Ratio

(i) Gross Profit Margin
(ii) ROA
(iii) ROE

2017 2018 2019

Gross Profit Margin 22.48% 22.03% 21.17%
ROA 1.23% 4.44% 5.34%
ROE 2.98% 9.65% 11.34%

Interpretation
Cadbury’s gross profit margin in 2017 is 22.48%. This means that for every dollar
Cadbury generated in sales, the company generated 22 cents in gross profit before other
business expenses were paid. But in 2018 and 2019 Cadbury company gross profit margin
was decreasing 22.03% and 21.17% respectively. A higher ratio is usually preferred, as this
would indicate that the company is selling inventory for a higher profit.

ROA
Return on assets tell us that how much Company earn but using its assets. When its come to
return on assets more value is preferred as compare to less value. Cadbury company’s return
on assets in 2017 was 1.23% which is not good because it means that they suffer loss. In
2018 Cadburys company’s return on assets increases and become 4.44% and still increases
in 2019 with a percentage of 5.34 which is a good sign.

ROE
Return on equity refers that how much investor earn on equity. Equity is actually owners
investment in business. In 2017 Cadbury company return on equity was 2.98% which is not
good and not suitable for the company. In 2018 Cadbury's company return on equity
increases to 9.65 % and still increases in 2019 to 11.34% which is better.
(5) Market Value Ratio

Types of Market Value Ratio

(i) Earnings Per Share
(ii) Price Earning Ratio

2017 2018 2019

Earnings Per Share $43.66 $101.64 $102.49
Price Earning Ratio 19.77x 8.49x 8.42x

Interpretation

EPS
Cadbury's earnings per share in 2017 is $43.66 that means if the company distributes all of its
income to shareholders, each share receives $43.66 . It increases in 2018 to $101.64 and 2019
to $102.49

P/E Ratio
Cadbury’s price earning ratio in 2017 is 19.77 times. This means that investors are willing to
pay 19.77 dollars for every dollar of earnings. But in 2018 and 2019 Cadbury company price
earning ratio was decreasing to 8.49x and 8.42x respectively.