FINANCIAL STATEMENT ANALYSIS REPORT

Group Members : Zakiah Afifah binti Zainal Amilin 62050322084

Nur Rasyiqah binti Mohd Ramlan 62050322123

Nur Lyana Batrisyia binti Mohd Rizal 62050322115

Class : F20A
Course Code : KFP08504
Course Name : Fundamentals of Finance
Lecturer : Abd Aziz bin Ab Jalil
Table of Contents
Introduction ................................................................................................................................................... 3
Categories of Ratio ....................................................................................................................................... 4
Consolidated Financial Analysis Ratio for Sun Ltd .................................................................................... 15
Consolidated Financial Analysis Ratio for Star Ltd.................................................................................... 18
Evaluation of The Findings ......................................................................................................................... 21
Conclusion .................................................................................................................................................. 29
Appendix ..................................................................................................................................................... 30
Introduction
Financial analysis is an analysis that is done based on the firm’s financial statement to assess its
past, present, and probable future performance to assist the investor during the decision-making.
Whereas financial ratio analysis is a measurement and technique used to estimate the overall
financial condition of the firm as well as to make a fair comparison between different organizations
in a standardized mathematical form of financial information. Financial ratio analysis covers all
the necessary aspects needed by both internal and external users which includes liquidity ratios,
efficiency ratios, leverage ratios, profitability ratios, and market ratios. Financial ratio analysis is
an essential element in making investment decisions as it helps the investors to make an accurate
interpretation and better understand the company’s financial performance. These ratios will give
the investors a comprehensive view of the company from different perspectives and help to identify
potential risks. Furthermore, scrutiny of a company’s ratios can unveil which companies have the
rudimental strength to raise their stock value over time while exposing the weaker firms in the
market.
Categories of Ratio

a) Liquidity ratio
b) Efficiency ratio
c) Leverage ratio
d) Profitability ratio
e) Market ratio
LIQUIDITY RATIO

Liquidity ratio, a type of financial statistic, is used to evaluate a company's ability to pay back its
short-term borrowing obligations. The statistic helps determine whether a company has enough
liquid, or current, assets to cover its short-term obligations.

There are two commonly used liquidity ratios:

i) Current ratio
ii) Quick ratio or acid test

i) Current ratio

Current ratio=Current Asset/Current liability

How much current assets are used to offset current liabilities is indicated by the current ratio.

This ratio also commonly used as a measure of short-term solvency.

i) Quick ratio or acid test

Quick ratio=Current asset – Inventories – Prepayment / Current Liability

When a company's quick ratio is high enough, it can satisfy its short-term obligations without
having to sell any inventory.

Inventory is subtracted since it normally takes longer to convert inventory to cash. Because the
business paid for prepaid expenses in advance and they cannot be used to future commitments,
they are also deducted.

Companies with quick ratios of less than 1 must be carefully observed because they won't be
able to fulfil their immediate responsibilities. Serious action must also be taken immediately
away.
EFFICIENCY RATIO

Efficiency ratio is referred as asset management ratios or asset utilization ratios. Efficiency ratio
allows executives to assess how effectively a company uses its resources. It evaluates how
successfully a business manages its assets while generating sales. Additionally, it shows how
successfully the business recovers debts and sells its inventories.

Efficiency ratio consist of:

i) Inventory turnover ratio

ii) Average collection period
iii) Fixed asset turnover and total asset turnover

i) Inventory turnover ratio

Inventory turnover ratio = Cost of goods sold / average of closing stock

Inventory turnover ratio (ITR) shows how frequently the inventory is sold and restocked each year.
A greater ratio indicates that equities are selling quickly.

The number of days can be used to express the inventory conversion time. Divide the inventory
turnover by 360 days to get at this.

The inventory conversion period is 360 davs divided by six, or 60 davs, when an ITR is six times.
It suggests that the company can sell all of its inventory within 60 days.
 ii) Average collection period

Average collection period = Account receivable / Annual credit sales ÷ 360 days

It is also called as “Days Sales Outstanding”. This indicator displays the number of days it took a
business to collect its accounts receivable. Additionally, it illustrates the company's credit policy,
whether it is lax or tight.

ACP illustrates the effectiveness and success of the business in extending loans and collecting
debts. When the ACP is shorter, the firm is more successful at collecting debts. It might also imply
that the company is funded financially.

ACP of 40 days shows that it took the company 40 days to collect payment from their debtors. It
can be expressed as a number of times and is also referred to as a Receivable Turnover Ratio.

iii) Fixed asset turnover & total asset turnover

Fixed asset turnover = sales / net fixed assets

Total asset turnover = sales / total assets

Both of these metrics assess how well a business utilizes its real estate, machinery, and other assets
to increase sales at the existing level.

A higher ratio indicates that a business is generating more sales with the same amount of assets.

If the ratio is lower than the industry average, a company should increase sales or sell some assets.
LEVERAGE RATIO

The leverage ratio is a metric that may be used to analyze the breakdown of an organization's
operating expenses and predict how fluctuations in output will affect operating profitability. It is
also known as gearing ratios or debt management ratios. Leverage is the utilization of loans or
borrowed money. This ratio gauges a company's amount of debt or borrowings. This statistic also
emphasizes the company's capacity for making principle and interest payments.

Leverage Ratio consist of:

i) Debt ratio
ii) Debt to equity period
iii) Time interest earned

i) Debt ratio

Debt ratio = total debt / total assets

This ratio determines how much debt is used to finance the company's assets. Both current
liabilities and long-term debt make up the total amount of debt.

The owners seek to obtain greater or more leverage because it increases their earnings. On the
other hand, smaller debt ratios are probably preferred by creditors because they reduce the
likelihood of losses after liquidation.

A debt ratio of 55% indicates that more than half of the firm's total funding has been provided by
the creditors. A corporation may have trouble obtaining new borrowings if its debt ratio appears to
be higher than the industry average.
 ii) Debt to equity ratio
Debt to equity ratio = total debt / total equity

This ratio is used to calculate how much equity has been utilized in relation to borrowing.

iii) Times interest earned

Times interest earned = EBIT / interest expense

The term "Interest Coverage" refers to the multiple of interest earned. This ratio measures the
firm's capacity to make its yearly interest payments. The firm will be better able to meet its interest
commitments if the ratio is higher.
PROFITABILITY RATIO
This ratio measures the effectiveness with which a business utilizes its resources to produce profits.
It illustrates the overall effect on operating outcomes of managing debt, assets, and liquidity.

This percentage also demonstrates the company's ability to efficiently manage costs and its pricing
strategy. It shows the profits made for each RM of asset investments or the earnings made for each
RM of sales.

Profitability ratio consist of:

i) Gross profit margin

ii) Operating profit margin
iii) Net profit margin
iv) Return on assets
v) Return on equity

i) Gross profit margin

Gross profit margin = gross profit / sales

The gross profit from sales is determined by this ratio. GPM is the proportion of sales that remain
after deducting the cost of sales.

A GPM of 30% indicates that for every RM1 in sales, the business is producing a gross profit of
30 cents.

A high GPM indicates good earning potential. Additionally, it shows how well the company
controls its cost of products sold and pricing policy.
 ii) Operating profit margin
Operating profit margin = EBIT / sales

Operating profit is also known as before interest and tax. Percentage of sales that remain after all
costs and expenses, excluding interest and tax, have been deducted from sales. The business's
profitability rises directly proportionate to the operating profit margin of earnings.

iii) Net profit margin

Net profit margin = NI available to CS / sales

The term "Net Income," which is made available to common shareholders, is defined as "Net Profit
after Tax minus Preferred Dividend." If there are no preference shares, the net income available to
common shareholders is equal to the net income after taxes.

iv) Return on assets

Return on assets = NI available to CS / total assets

Return on Investment (ROI) is another name for return on assets. This demonstrates the
management's capacity to make money off the company's investment assets.
 v) Return on equity

Return on equity = NI available to CS / common equity

The return on equity (ROE) quantifies the return on the common shareholders' investment in the
business. Therefore, the better the return for shareholders or investors, the higher the ROE.
MARKET RATIO

The market ratio is another name for the "Investors" ratio. It links the share price of a firm to its
earnings and book value per share. Tell us what investors think of the business's potential and
current situation. It also measures how investors perceive and assess the firm's prospects for
growth.

Market ratio consist of:

i) Earnings per share

ii) Dividend per share
iii) Dividend payout ratio
iv) Price/earnings ratio
v) Dividend yield

i) Earnings per share

EPS = NI available to CS / no. Of ordinary shares issued

It shows the issued shares' profit per share. A higher EPS number translates into a higher profit
per share.

ii) Dividend per share

DPS = ordinary dividends / no of ordinary shares issued

It displays the dividend amount that ordinary shareholders received for each unit of held ordinary
shares.
iii) Dividend payout ratio

DPR = Dividend per share / Earnings per share

It displays the portion of profits that are distributed to shareholders as dividends. Strong growth
businesses often have lower dividend payment ratios since a sizable percentage of earnings
generated is used for reinvestment and expansion. Companies will work to maintain a consistent
dividend payout ratio.

iv) Price/Earnings ratio

Price or earnings ratio = market price per share / earnings per share

This ratio compares the market price to the most recent earnings to evaluate if a stock is overvalued
or undervalued. This ratio also shows how much investors are ready to pay for the company's
earnings. It also assesses the degree of investor confidence in the firm's future prospects.

v) Dividend yield

DY = Latest annual dividends / Current market share price

This formerly stood for the share return. It contrasts the current market price with the dividend
paid out per share to owners.
Consolidated Financial Analysis Ratio for Sun Ltd
LIQUIDITY RATIO

Year 5
Current ratio:
271
= 1.36 : 1
𝐶𝑢𝑟𝑟𝑒𝑛𝑡𝑠 𝐴𝑠𝑠𝑒𝑡𝑠 200
𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐿𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠

Quick ratio:

𝐶𝐴  −  𝐼𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑦  −  𝑃𝑟𝑒𝑝𝑎𝑦𝑚𝑒𝑛𝑡𝑠 271  −  96

= 0.875
𝐶𝐿 200

EFFICIENCY RATIO
2020
Inventory turnover ratio:
377
𝐶𝑂𝐺𝑆 96  +  92
( 2 )
𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝐶𝑙𝑜𝑠𝑖𝑛𝑔 𝑆𝑡𝑜𝑐𝑘
=4.01 times

Average collection period: 166

(570/360)
𝐴𝑐𝑐 𝑟𝑒𝑐𝑒𝑖𝑣𝑎𝑏𝑙𝑒 
𝐴𝑛𝑛𝑢𝑎𝑙 𝑐𝑟𝑒𝑑𝑖𝑡 𝑠𝑎𝑙𝑒𝑠/360 =104.84 days

Fixed assets turnover: 570

785
𝑆𝑎𝑙𝑒𝑠
𝑁𝑒𝑡 𝑓𝑖𝑥𝑒𝑑 𝑎𝑠𝑠𝑒𝑡𝑠 =0.73 times

Total assets turnover: 570

1056
𝑆𝑎𝑙𝑒𝑠
𝑇𝑜𝑡𝑎𝑙 𝑎𝑠𝑠𝑒𝑡𝑠 =0.54 times
LEVERAGE RATIO

2020
Debt ratio:
264
𝑇𝑜𝑡𝑎𝑙 𝑑𝑒𝑏𝑡 1056
𝑇𝑜𝑡𝑎𝑙 𝑎𝑠𝑠𝑒𝑡
= 0.25 : 1
Debt to equity ratio:
264
𝑇𝑜𝑡𝑎𝑙 𝑑𝑒𝑏𝑡 792
𝑇𝑜𝑡𝑎𝑙 𝑒𝑞𝑢𝑖𝑡𝑦
= 0.33 : 1

Time interest earned:

104
𝐸𝐵𝐼𝑇 8
𝐼𝑛𝑡𝑒𝑟𝑒𝑠𝑡 𝐸𝑥𝑝𝑒𝑛𝑠𝑒𝑠
=13
PROFITABILITY RATIOS

2020
Gross profit margin:
193
𝐺𝑟𝑜𝑠𝑠 𝑝𝑟𝑜𝑓𝑖𝑡  × 100
570
𝑆𝑎𝑙𝑒𝑠
=33.8%
Operating profit margin:
104
𝐸𝐵𝐼𝑇 × 100
570
𝑆𝑎𝑙𝑒𝑠
=18.25%
Net profit margin:
96 − 37
𝑁𝐼 𝑎𝑣𝑎𝑙𝑎𝑖𝑏𝑙𝑒 𝑡𝑜 𝐶𝑆 × 100
570
𝑆𝑎𝑙𝑒𝑠
=10.35%

Return on investment:
96 − 37
𝑁𝐼 𝐴𝑣𝑎𝑙𝑎𝑖𝑏𝑙𝑒 𝑡𝑜 𝐶𝑆 × 100
1056
𝑇𝑜𝑡𝑎𝑙 𝑎𝑠𝑠𝑒𝑡𝑠
=5.59%
Return on equity:
96 − 37 
𝑁𝐼 𝐴𝑣𝑎𝑙𝑎𝑖𝑏𝑙𝑒 𝑡𝑜 𝐶𝑆  × 100
792
𝐶𝑜𝑚𝑚𝑜𝑛 𝑒𝑞𝑢𝑖𝑡𝑦
=7.45%
Consolidated Financial Analysis Ratio for Star Ltd
LIQUIDITY RATIO

2020
Current ratio:
252
𝐶𝑢𝑟𝑟𝑒𝑛𝑡𝑠 𝐴𝑠𝑠𝑒𝑡𝑠 = 1.58 : 1
160
𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐿𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠

Quick ratio:

𝐶𝐴  −  𝐼𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑦  −  𝑃𝑟𝑒𝑝𝑎𝑦𝑚𝑒𝑛𝑡𝑠 252 − 122

𝐶𝐿
= 0.81 ∶ 1
160

EFFICIENCY RATIO
2020
Inventory turnover ratio:
598
𝐶𝑂𝐺𝑆 102  +  122
𝐴𝑉𝐸𝑅𝐴𝐺𝐸 𝐶𝐿𝑂𝑆𝐼𝑁𝐺 𝑆𝑇𝑂𝐶𝐾 2

=5.07 times
Average collection period: 124
(747/360)
𝐴𝑐𝑐 𝑟𝑒𝑐𝑒𝑖𝑣𝑎𝑏𝑙𝑒 
𝐴𝑛𝑛𝑢𝑎𝑙 𝑐𝑟𝑒𝑑𝑖𝑡 𝑠𝑎𝑙𝑒𝑠/360 = 59.76 days

Fixed assets turnover: 747

563
𝑆𝑎𝑙𝑒𝑠
𝑁𝑒𝑡 𝑓𝑖𝑥𝑒𝑑 𝑎𝑠𝑠𝑒𝑡𝑠 = 1.33 times

Total assets turnover: 747

815
𝑆𝑎𝑙𝑒𝑠
𝑇𝑜𝑡𝑎𝑙 𝑎𝑠𝑠𝑒𝑡𝑠 = 0.92 times

LEVERAGE RATIO

2020
Debt ratio:
215
𝑇𝑜𝑡𝑎𝑙 𝑑𝑒𝑏𝑡 815
𝑇𝑜𝑡𝑎𝑙 𝑎𝑠𝑠𝑒𝑡
= 0.26 : 1

Debt to equity ratio:

215
𝑇𝑜𝑡𝑎𝑙 𝑑𝑒𝑏𝑡 600
𝑇𝑜𝑡𝑎𝑙 𝑒𝑞𝑢𝑖𝑡𝑦
= 0.36 : 1

Time interest earned:

84
𝐸𝐵𝐼𝑇 9
𝐼𝑛𝑡𝑒𝑟𝑒𝑠𝑡 𝐸𝑥𝑝𝑒𝑛𝑠𝑒𝑠
=9.33 : 1
PROFITABILITY RATIOS

2020
Gross profit margin:
179
× 100
𝐺𝑟𝑜𝑠𝑠 𝑝𝑟𝑜𝑓𝑖𝑡  747
𝑆𝑎𝑙𝑒𝑠
=23.96%
Operating profit margin:
84
𝐸𝐵𝐼𝑇 × 100
747
𝑆𝑎𝑙𝑒𝑠
=11.24%
Net profit margin:
38
𝑁𝐼 𝑎𝑣𝑎𝑙𝑎𝑖𝑏𝑙𝑒 𝑡𝑜 𝐶𝑆 × 100
747
𝑆𝑎𝑙𝑒𝑠
=5.09%
Return on investment:
38
𝑁𝐼 𝐴𝑣𝑎𝑙𝑎𝑖𝑏𝑙𝑒 𝑡𝑜 𝐶𝑆 × 100
815
𝑇𝑜𝑡𝑎𝑙 𝑎𝑠𝑠𝑒𝑡𝑠
=4.66%
Return on equity:
38 
𝑁𝐼 𝐴𝑣𝑎𝑙𝑎𝑖𝑏𝑙𝑒 𝑡𝑜 𝐶𝑆  × 100
600
𝐶𝑜𝑚𝑚𝑜𝑛 𝑒𝑞𝑢𝑖𝑡𝑦
=6,33%
Evaluation of The Findings
LIQUIDITY RATIO

BAR GRAPH FOR LIQUIDITY RATIO

Current Ratio Quick Ratio

1.8
1.58
1.6
1.36
1.4
1.2
1.0 0.875
0.81
0.8
0.6
0.4
0.2
0.0
Sun Ltd Star Ltd

Star Ltd has a better current ratio than a Sun Ltd. This shows that Star Ltd has a better ability
to meet their short-term financial obligation which is the firm has a strong stand power. It indicates
Star Ltd has higher assets compared to Sun Ltd.

On the other hand, Sun Ltd will be having a difficult time when facing their financial obligation
in which they might take some time in paying its immediate debts and liabilities. However, there
are many alternatives for Sun Ltd to improve their current ratio such as paying off their current
liabilities and sell off unproductive assets.

Sun Ltd has a better quick ratio than a Star Ltd. This indicates that Sun Ltd has a better short-
term liquidity position and has a better ability to meet its short-term obligations with its most liquid
assets. This shows that Sun Ltd has higher liquidity of its assets compared to Star Ltd. While Star
Ltd did have higher current ratio, it shows that the firm invest more of its money to inventory and
the prepayments which is might caused concerns as both of them are difficult to liquidate.

Alternatively, Star Ltd need to do something to improve their quick ratio such as by discarding
unproductive assets, improving the collection period, and paying off current liabilities.
EFFICIENCY RATIO

BAR GRAPH FOR EFFICIENCY RATIO

104.84
120
Average Collection period
100

59.76
80
Inventory Turnover
60

40 Fixed Assets Turnover

5.07
4.01

1.33
20

0.97
0.73

0.54

Total Assets Turnover

0
Sun Ltd Star Ltd

Star Ltd has a better inventory turnover ratio than Sun Ltd. This determines that Star Ltd is
more frequently to purchase their inventory and sold the entire fiscal year. Generally, Star Ltd
product sales are faster and Sun Ltd low ratio signal bad sales and a surplus in inventory.

Due to that, Sun Ltd can improve their sales, reduce the product prices and improve order
management by doing these it can improve their inventory turnover ratio.

Sun Ltd has a better average collection period than Star Ltd. Average collection period is to
measure the amount of time it takes for a business to receive payments owed by its client in terms
of account receivable. The time taken by Sun Ltd to convert its credit sales to cash is shorter
compared to Star Ltd.

Star Ltd can improve their collection period by defined credit policy, reward timely payment and
discourage debtors late payments.

Star Ltd has a better fixed assets turnover ratio than Sun Ltd. This shows that Star Ltd has a
greater ability to generate sales from its existing fixed assets. Star Ltd higher number ratio
indicated its efficiency in utilizing their assets while Sun Ltd lower number ratio indicated the
inability to utilize their fixed assets efficiently.
Star Ltd has a better total assets turnover ratio than a Sun Ltd. This determines Star Ltd has
a better ability of a company to generate from its assets by comparing the net sales of the company
with total assets compared to Sun Ltd. A low ratio reflects the bad management of assets by the
company.

Alternatively, Sun Ltd can increase their revenue, improve efficiency in utilize assets and
accelerate accounts receivable to get a higher ratio and improve their total asset turnover.
LEVERAGE RATIO

Leverage Ratio

8.29
Star Ltd 0.36
0.26

13
Sun Ltd 0.33
0.25

0.0 2.0 4.0 6.0 8.0 10.0 12.0 14.0

Interest Coverage Ratio Debt to Equity Debt Ratio

Star Ltd has a better debt ratio than Sun Ltd. A debt ratio measures the amount of debt a
business has in relation to its total assets. It provides information on how much of a company's
finance asset is derived from debt, making it a useful tool for determining a company's long-term
viability. The debt ratio is reportedly determined by dividing entire liabilities by total assets.

It will be better if Sun Ltd can increase sales revenues and ideally, profits to lower its debt-to-
capital ratio. This can be accomplished by increasing costs, boosting sales, or raising pricing. The
additional funds can then be utilised to settle existing debt.

Star Ltd has a better Debt to Equity Ratio than Sun Ltd. Debt to equity ratio is a representation
of the amount of debt and equity used to finance a company's assets, and it serves as an indicator
of a company's financial leverage. When compared to other similar firms, a higher ratio means
greater risk, whereas a very low ratio could mean that a business is not using debt to fund
expansion. Investors may change the ratio to just take into account long-term debt because it carries
a larger risk than short-term obligations.

Sun Ltd are able to take actions to lower and enhance their debt-to-capital ratios. Among the tactics
that can be used include raising profitability, improving inventory management, and debt
restructuring. The techniques used to reduce the ratio work best when combined with one another
and, if the timing of the market is favourable, when used in conjunction with an increase in the
price of their products or services.
Sun Ltd has a better times interest earned than Star Ltd. Based on its present operational
income, a company's capacity to pay its debts in interest can be assessed using the Times Interest
Earned Ratio (TIE). As a rule, the ability of the corporation to pay off its interest expenses on
schedule increases with the times interest earned ratio. A company's ability to suffer
underperformance and creditworthiness as a borrower are both indicated by a high TIE ratio, which
is owing to the large cushion that the company's cash flows give (to pay off its debt obligations).
Companies with lower TIE ratios tend to have and/or have taken on more debt than their cash
flows could handle.

Star Ltd's times interest earned ratio is low, it can raise it by boosting profits or by eliminating
debt. Even if sales aren't growing, cost-cutting measures can nevertheless boost profits.
Refinancing current debt can lower debt service payments and increase the ratio of interest
generated to interest paid.
PROFITABILITY RATIO

6.26% 5.59%
ROI
Star Ltd ROI Sun Ltd 7.45%
11% 7% ROE
8.50% 10%
23.96% ROE 33.80%
Gross Profit 15% Gross Profit
Margin
Margin
42% 10.35%
45%
Net Profit
11.24% 6.83% 18.25% Margin
Operatin Net Profit Operatin 14%
g Profit Margin g Profit
Margin 12% Margin

Sun Ltd has a better gross profit margin than Star Ltd. By estimating the amount of money
left over from product sales after deducting the cost of goods sold (COGS), analysts can
determine the financial health of a company. The gross profit margin, also known as the gross
margin ratio, is typically represented as a percentage of sales. Sun Ltd has higher gross profit
margin indicates that the company generate more profit which means it has healthy financial
condition and would be more appealing to investors as it may mean that Sun Ltd would have
higher dividend.

In conclusion, Star Ltd must either lower its cost of manufacturing or raise sales revenue by selling
more products in order to enhance gross profit.

Sun Ltd has a better operating profit margin compared to Star Ltd. It indicates that there is a
significant operating profit margin for every dollar of revenue. This is a reliable sign of a company
with high-quality earnings. The operational margin calculates the profit an organisation makes on
each dollar of sales, after variable production costs, such as labour and raw materials, but before
interest or taxes. It is computed by dividing operating income by net sales for a business.

Reducing the price of the products and services Star Ltd sells can boost operating profit. This can
be accomplished by managing costs effectively and haggling with suppliers to get a better deal.

Sun Ltd has a better Net Profit Origin than Star Ltd. The net profit margin, or simply net
margin, calculates the amount of net income or profit as a proportion of revenue. For a firm or
industry sector, it is the proportion of net profits to revenues. Although, it is more frequently
expressed as a percentage, net profit margin can also be expressed in decimal form. The net profit
margin displays how much of each dollar in sales that a company receives is converted into profit.
Higher net profit margin also indicates the efficiency of Sun Ltd in cost management and
generating high profits from its business operations.

Star Ltd can enhance their net margin by raising pricing or other revenue-generating strategies like
selling more products or services. By lowering expenses (such as locating less expensive raw
material suppliers), businesses can raise their net margin.

Star Ltd has a better Return on Investment than Sun Ltd. A high return on investment is a sign
of efficiency and effectiveness for an organization's investment. The net profit (or loss) from an
investment is divided by its cost to calculate the return on investment, which is a straightforward
ratio. The efficacy or profitability of various investment options can be compared because it is
given as a percentage. This means Star Ltd made a good use of its investment and equity and
generate high profit relative to its investments The firm is more efficient in generating profit from
its investment rather than its revenue.

Sun Ltd has to either increase prices or create more money. They can boost your return if they can
raise sales and revenues while keeping expenses flat or only raise costs high enough to maintain a
net profit rise.

Star Ltd is better for Return on Equity than Sun Ltd. This is because a larger proportion shows
that a business is more successful at making a profit from its current assets. The income statement
and the balance sheet, where net income or profit is compared to shareholders' equity, are combined
to create the return on equity, which is a two-part ratio in its derivation. The figure demonstrates
the company's capacity to turn equity investments into profits by representing the total return on
equity capital. In other words, it calculates the amount of profit generated from each dollar of
shareholders' equity.

Sun Ltd should be increasing the volume of sales, profit margins, switching to less expensive
financing, and tax responsibilities. The overall return on equity will improve when earnings rise
as a result of increasing sales turnover, which should also enhance profits.
Conclusion
To conclude, Sun Ltd is more worth of investment. This is because while its true its has lower
current ratio, its quick ratio is higher compared to Star Ltd. This would suggest that most of its
assets are high liquidity. Quick is ratio is more liable metrics compared to current ratio to assess
the firm’s ability to meet short-term obligations. As for the efficiency ratio, though Star Ltd has
outperformed Sun Ltd in average collection period, inventory turnover, fixed assets turnover, and
total assets turnover, it doesn't determine that Sun Ltd is less profitable. This has been proven in
profitability ratio where its net profit margin, gross profit margin, and operating profit margin are
higher compared to Star Ltd. This means the firm is efficient in generating profit from its business
daily operation which also means it is good at managing the cost. It is more appealing as having
high profit would be beneficial for its shareholders too. Sun Ltd also has lower debt ratio and debt
to equity ratio as well as high interest coverage ratio. This shows that Sun Ltd is less risky and not
exposed to the potential for default or bankruptcy. It is better to choose less risky firm to invest in
order to not bear the future loss. It also shows that Sun Ltd has better financial performance
compared to Star Ltd. Though Star Ltd has higher returns which means it able to generate higher
profit from its investment and equity, the lower profit margins suggesting that Star Ltd is inefficient
in handling its business operation and managing its cost. In order to get high return, the investors
have to invest more, while it is good that it promised for high returns, the main source of the firm’s
earnings should be gained from its daily business operation. Overall, from the financial analysis
ratio that has been made, Sun Ltd is more attractive investment option compared to Star Ltd.

In reporting the analysis and the findings, there are some limitations that need to be addressed.
First, lack of available data. The given information did not provide the past information of the
companies, therefore, we are unable to keep track on their historical performance which may cause
inaccurate findings. There are also some items that can not be found in the given information which
become an obstacle to do complete analysis. Due to the limitation of sources of information we
anticipated the findings might not meet targets. There might be some other factors that could
potentially impact the findings of both companies that are not mentioned, however due to the limit
source of information, it is out of our control to assure the accuracy of the data.
Appendix
Ratio Analysis

Ratio Sun Ltd Star Ltd

Current Ratio 1.36 1.58
Quick Ratio 0.88 0.81
Inventory Turnover Ratio 4.01 5.07
Average Collection Period 104.84 59.76
Fixed Assets Turnover 0.73 1.33
Total Assets Turnover 0.54 0.92
Debt Ratio 0.25 0.26
Debt to Equity Ratio 0.33 0.36
Interest Coverage Ratio 13 9.33
Gross Profit Margin 33.8 23.96
Operating Profit Margin 18.25 11.24
Net Profit Margin 10.35 6.83
Return On Investment 5.59 6.26
Return On Equity 7.45 8.5
Earnings Per Share - -
Dividend Per Share - -
Dividend Payout Ratio - -
PE Ratio - -
Dividend Yield - -