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Gulfa Company: Financial Ratio Analysis
Gulfa Company: Financial Ratio Analysis
Gulfa Company: Financial Ratio Analysis
Summary of report:
In this report, we shall analyze the financial standing of the Company based on the following
ratios:
1. Asset utilization ratios
2. Liquidity ratios
3. Debt utilization ratios
4. Profitability ratios
The above mentioned ratios are calculated in the excel sheet submitted along with this report.
Financial Analysis:
There has been a severe impact on the financial position of the Company due to the reason that
the Company has disposed of its business segment. This is the reason, why there are very limited
assets and liabilities that still exist on the Company’s balance sheet. The operations also
discontinued during the year 2202, that’s why no sales pertain to the year 2020.
Asset utilization ratios
It can be defined as the measurement of such revenue that an entity generates in return of every
AED invested in the assets of the entity [ CITATION IGI19 \l 1033 ].
1. Receivable turnover ratio:
There were no sales during the year 2020, therefore, no turnover ratio could be
calculated. However, for the year 2019, the ratio turns out to be 0.12 meaning that for
every one AED credit sale, the Company is able to generate cash amounting to 0.12
AED.
3. Inventory turnover:
No inventory or sales existed at the year-end 2020, however, we have analyzed that as at
the year 2019, for every AED of inventory, the Company has been able to generate 2.9
times revenue.
4. Fixed asset turnover:
While selling out its business segment in 2020, the Company has sold its liabilities and
assets, and hence, discontinued its operations. Therefore, no fixed asset turnover could be
calculated for 2020. However, during the year 2019, for every AED of Property, plant
and equipment, the Company was able to generate sales amounting to approximately
AED 1.47.
Liquidity Ratios
Liquidity ratios are basically used to calculate the financial capability of the Company to pay off
its debts and liabilities [ CITATION Ada211 \l 1033 ].
1. Current ratio:
With the current ratio, we interpret whether the Company shall be able to pay out its
current liabilities within one year. The current ratio for the year 2020 stands at 9.3, which
is very favorable as the Company has already disposed its major liabilities. However, for
the year 2019, the current ratio turns out to be 0.86, which is an indication that the
Company may not have sufficient funds to settle its current liabilities within one year.
2. Quick ratio:
Quick ratio is calculated by taking into account the most liquid assets of the Company,
meaning that it excludes the merchandise inventory. Since, the Company had no
inventory as at the year-end 2020, therefore, the quick ratio stays the same as 9.37.
Where, the quick ratio for the year 2019 falls as down as 0.30, which further reduces the
capability of the Company to pay off its current obligations within one year.
2. Return on assets:
The Company was in loss in both the years, 2020 and 2019. For every AED of asset held,
the Company has suffered a loss of 0.12 and 0.10, respecting in each year 2020 and 2019.
Conclusion
From the analysis with the help of ratios calculated, we have been able to conclude that since, the
Company has discontinued its operations, the financial conditions of the Company are not so
favorable. While scanning the Financial Statements of the Company, we found out that there
were severe material uncertainties relating to the going concern assumption of the Company.
Bibliography
Adam, H., 2021. Investopedia. [Online]
Available at: https://www.investopedia.com/terms/l/liquidityratios.asp
CFI, 2019. CFI. [Online]
Available at: https://corporatefinanceinstitute.com/resources/knowledge/finance/profitability-
ratios/
Gulfa Co., 2020. DFM. [Online]
Available at: https://feeds.dfm.ae/documents/2021/Mar/14/6f3f999d-7d73-4ba2-bd29-
86d2f5985128/GULFAINVEST_FS_ANN_E_14_03_2021_.pdf
Hayes, A., 2021. Investopedia. [Online]
Available at: https://www.investopedia.com/terms/t/totaldebttototalassets.asp
IGI, 2019. IGI Global. [Online]
Available at: https://www.igi-global.com/dictionary/asset-utilization-ratio/39192