An Assignment on “Ratio Analysis”

Prepared for
Sujit Saha
Adj. Faculty
Masters of Business Administration

Prepared by
Imam Mehedi Hasan
2023-1-95-087
Deadline: 8-July-2023
Camsey Computer: Balance Sheet

Particulars Amount in Dollar

Assets
Cash 77,500
Receivables 336,000
Inventories 241,500
Total current assets 655,000
Next fixed assets 292,500 Camsey Computer Industry Avg.
Total assets 947,500

Liabilities Ratio: Avg.

Account payable 129,000
Notes payable 84,000 Current Ratio --------------------------- 2.0x
Other current liabilities 117,000 DSO ------------------------------35 days
Total current liabilities 330,000
Long-term debt 256,500 Inventory turnover ---------------------5.6x
Common equity 361,000 Total asset turnover---------------------3x
Total liabilities & equity 947,500
Net profit margin ------------------------1.2%

Income statement: ROA------------------------------------------3.6%

ROE-------------------------------------------9%
Particulars Amount in Dollar
Debt ratio------------------------------------60%
Sales 1,607,500
COGS (1,353,000)
Gross Profit 254,500
Fixed Operating Expenses (143,000)
except Depreciation

EBITDA 111,500
Depreciation (41,500)
EBIT 70,000
Interest (24,500)
EBT 45,500
Taxes (40%) (18,200)
Net Income 27,300
 Q 2-13 Data for Campsey Computer Company and its industry averages follow.
a. Calculate the indicated ratios for Campsey.
b. Construct the DuPont equation for both Campsey and the industry.
c. Outline Campsey’s strengths and weaknesses as revealed by your analysis.
Suppose Campsey had doubled its sales as well as its inventories, accounts receivable, and
common equity during 2009. How would that information affect the validity of your ratio
analysis? (Hint: Think about averages and the effects of rapid growth on ratios if averagesare
not used. No calculations

Answer to the question number: A

Ratio Campsey Industry Average
𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝑎𝑠𝑠𝑒𝑡𝑠 1.98 2.0
Current ratio =
𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝑙𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠
𝐴𝑐𝑐𝑜𝑢𝑛𝑡𝑠 𝑟𝑒𝑐𝑒𝑖𝑣𝑒𝑎𝑏𝑙𝑒 75.2 days 35.0 days
Days sales outstanding =
𝑆𝑎𝑙𝑒𝑠 ÷ 360
𝐶𝑜𝑠𝑡 𝑜𝑓 𝑔𝑜𝑜𝑑𝑠 𝑠𝑜𝑙𝑑 5.60 5.60
𝐼𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑦 𝑡𝑢𝑟𝑛𝑜𝑣𝑒𝑟 =
𝐼𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑖𝑒𝑠
𝑠𝑎𝑙𝑒𝑠 1.70 3.0
𝑇𝑜𝑡𝑎𝑙 𝑎𝑠𝑠𝑒𝑡𝑠 𝑡𝑢𝑟𝑛𝑜𝑣𝑒𝑟 =
𝑇𝑜𝑡𝑎𝑙 𝐴𝑠𝑠𝑒𝑡𝑒𝑠
𝑁𝑒𝑡 𝑖𝑛𝑐𝑜𝑚𝑒 1.7% 1.2%
𝑁𝑒𝑡 𝑝𝑟𝑜𝑓𝑖𝑡 𝑚𝑎𝑟𝑔𝑖𝑛 = 𝑋 100
𝑆𝑎𝑙𝑒𝑠
𝑁𝑒𝑡 𝑖𝑛𝑐𝑜𝑚𝑒
𝑅𝑒𝑡𝑢𝑟𝑛 𝑜𝑛 𝑎𝑠𝑠𝑒𝑡𝑠 (𝑅𝑂𝐴) = X 100 2.9% 3.6%
𝑇𝑜𝑡𝑎𝑙 𝑎𝑠𝑠𝑒𝑡𝑠

𝑁𝑒𝑡 𝑖𝑛𝑐𝑜𝑚𝑒 7.6% 9.0%

𝑅𝑒𝑡𝑢𝑟𝑛 𝑜𝑛 𝑒𝑞𝑢𝑡𝑦 (𝑅𝑂𝐸) = X 100
𝐶𝑜𝑚𝑚𝑜𝑛 𝑒𝑞𝑢𝑖𝑡𝑦
𝑇𝑜𝑡𝑎𝑙 𝑑𝑒𝑏𝑡 61.9% 60.0%
𝐷𝑒𝑏𝑡 𝑟𝑎𝑡𝑖𝑜 = X 100
𝑇𝑜𝑡𝑎𝑙 𝑎𝑠𝑠𝑒𝑡𝑠
 Answer to the question number: C
1. Liquidity Ratio:
A ratio analysis that provides a quick, easy to-use measure of liquidity by relating the amount of
cash and other current assets to the firm’s current obligation.
1.1 Current Ratio:
𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝑎𝑠𝑠𝑒𝑡
Current Ratio =
𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝑙𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠

Current Ratio: Current ratio provides the best single indicator of the extent to which the claim
of short-term creditors is covered by assets that are expected to be converted into cash fairly
quickly.
Current asset: Cash & other assets that are expected to be converted to cash within a year.
Current asset includes short-term asset, cash & equivalent, inventories.
Current liabilities: Current liability includes accounts payable, short-term notes payable,
accrued taxes & expenses.
Math Solution:
𝟔𝟓𝟓,𝟎𝟎𝟎
Current ratio =
𝟑𝟑𝟎,𝟎𝟎𝟎
= 1.98 times
Interpretation: Campsey company current ratio is 1.98 times. That means campsey company’s
current asset is nearly twice its current liabilities. The ratio 1.98 indicates that the company has
relatively healthy liquidity position as it is suggested that it has sufficient current asset to cover
its current liabilities. It should be noted that this ratio analysis could be vary in terms industry
average.
The current ratio industry avg. for camsey computer is 2 times. That means campsey company
has almost same ratio & its managing its current asset more properly to meet its current
obligations. Without losing its assets stated value camsey can easily convert its assets into cash
or liquid form.

1.2 Quick Ratio:

𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝑎𝑠𝑠𝑒𝑡−𝐼𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑦
Quick ratio =
𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝑙𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠
it measures the proportion of a business's current liabilities that it can meet with cash and assets that can
be readily converted to cash.
Inventories: Inventory refers to all the items, goods, merchandise, and materials held by a business for
selling in the market to earn a profit.

Math solution:
655,000−241,500
Quick Ratio =
330,000
= 1.25 times
Interpretation: Camsey computer quick ratio is 1.25 times. That means without liquidate its
inventory it has enough account receivable & cash to meet its current obligation. Inventory is
considered to be as least liquid assets. Camsey will easily cover its obligations without relying
on its inventory.
Segment comment: Camsey company liquid position is better in this calculation. It can easily
convert its current asset to meet its current liabilities. As it has more current or short-term
assets than liabilities that means it holds a very strong liquidity position & it will be able to
satisfying its current liabilities with its current asset.
Summary Comment: After profitability it seems attractive for investors that firms can easily
fulfill its working capital, short-term bill and so forth. By meeting this requirements company
can sustain for its long term goal. Rather sourcing fund for short-term liabilities now the
company invest its long-term assets to maximizing the shareholders’ value.
Creditors will seem attractive to give loan. Because creditor prefer lower liabilities so that they
feel secure to provide their money as a loan. Because company with higher liability has the
chances to bankruptcy in future. Creditors wants to give their money in a safe company so that
in future they won’t lose their money.
Management is properly managing its current assets & liabilities. They also manage their
inventories very well which we are seeing in the quick ratio. Because they have less inventory in
liquid form & more accounts receivables & cash in hand to meet its obligations. As a result, they
don’t need for additional financing to cover its obligation.
2. Asset Management Ratio:

It measures how effectively the firm is managing its assets. Firms invest asset to generate
revenue both in the current period & future periods. To purchase this asset campsey
company must need to borrow or obtain funds from other sources. If campsey have too
many asset, then their interest expense will be too high as a result their profit will be
depressed. On the other hand, if the asset is very law then profitability will have affected.
 2.1 Inventory Turnover Ratio: Inventory turnover ratio measures the times that how
many times its inventory gets sold & again restocked.

𝐶𝑂𝐺𝑆
Inventory turnover ratio =
𝐼𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑦

COGS: Sum of all direct cost associated with the making a product.

Math Solution:
1,353,000
Inventory turnover ratio =
241,500
= 5.60 times

Interpretation: Campsey inventory turnover ratio is 5.60 times which is same as its industry avg.
Campsey inventories is sold out & restocked 5.60 times in every year. In terms of days after
every 64.28 days it restocked new inventory & its industry also holds the same position.
That means campsey management its managing its inventory very well. Because excess
inventory represents an investment with low or zero return.

2.2 Days Sales Outstanding

𝐴𝑐𝑐𝑜𝑢𝑛𝑡 𝑅𝑒𝑐𝑒𝑖𝑣𝑎𝑏𝑙𝑒
DSO =
𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝑑𝑎𝑖𝑙𝑦 𝑠𝑎𝑙𝑒𝑠

DSO: DSO is average collection period. The ability of a firms to collect its credit sales in timely
manner.
Account Receivable: Accounts receivable (AR) are the balance of money due to a firm for goods
or services delivered or used but not yet paid for by customers.
Average Daily Sales: Daily sales divided by 360 days.
Math Solution:
336,000
DSO =
4465.28
= 75.25 days
Interpretation: Campsey DSO is 75.25 days that means after a credit sale it needs 75.25 days to
collect its credit balance. That means camseys’s most sales are conduct on credit & due to huge
accounts receivable its face difficulty to managing it. If it compares with the monthly credit
terms its almost exceeds twice. Which indicates that customer are not paying their bill on time.
In comparison to industry avg. campsey holding very weak position. Because the industry avg.
of collection period is only 32 days. Camsey need to take actions to improve its collection time.
Otherwise it will face difficulties to meet its current obligations.

2.3 Fixed Asset turnover ratio

𝑆𝑎𝑙𝑒𝑠
Fixed asset turnover ratio =
𝑁𝑒𝑡 𝑓𝑖𝑥𝑒𝑑 𝑎𝑠𝑠𝑒𝑡

Sales: A transaction that includes an exchange of services or goods for a certain amount of
money is known as a sale.
Net fixed asset: Plant, machineries, equipment’s are the fixed assets which values depreciating
over time.
Math Solution:
1,607,500
Fixed asset turnover ratio =
292,500
= 5.50 times
Interpretation: Campsey fixed asset turnover ratio is 5.50 times. That meanse it is generating
more business from its fixed assets. The firm is using efficiently the fixed assets. It has sufficient
amount of plant, machineries to generate its sales.

2.4 Total asset turnover ratio:

𝑆𝑎𝑙𝑒𝑠
Total asset turnover ratio =
𝑇𝑜𝑡𝑎𝑙 𝑎𝑠𝑠𝑒𝑡𝑠
Total asset: Total asset is including both current & long-term assets.
Math solution:
1,607,500
Total asset turnover ratio =
947,500
= 1.70 times
Interpretation: Camsey total turnover ratio is 1.70 times which indicates that firm has too many
short-term assets. Campsey is not generating too much business interms of its total assets. So,
Camsey must need to increase its sales in-terms of total sales or dispose some assets. Because
more short-assets like inventories continuously increase cost & it loses its value.
The industry avg. for campsey is 3 times. Campsey ratio is somewhat lower than the industry
average. That means the competitors are managing its total assets, inventories more easily to
avoid loss & generating more business from its total assets.
Segment Comment: Camsey has more number of short-term assets like account receivable. The
average collection period is also worse than industry average. We can assume that camsey is
fail to managing its short-term assets which will leads to liquidity problem. For slow & tardy
collection of account receivable campsey will need to rely on external finance in future times.
Summary: Camsey managing its fixed asset very well which leads investor to invest in campsey.
But in terms of total asset it is fail to manage its collection & inventories which will creates
liquidity problems. Creditors will feel uninterested by seeing this.
Management need to sales its inventory as much possible time & also need to collect its credit
sales within 32 days.
3.Debt Management Ratio

3.1 Debt ratio

𝑇𝑜𝑡𝑎𝑙 𝑙𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠
Debt ratio =
𝑇𝑜𝑡𝑎𝑙 𝑎𝑠𝑠𝑒𝑡𝑠
Debt ratio: Measures the percentage of firm’s assets financed by its creditors.
Total liabilities: Total liabilities includes both short-term & long-term liabilities like; accounts
payable, accruals, bond issue etc.
Math solution:
586,500
Debt ratio =
947,500
= 0.62 x 100
= 62%
Interpretation: Campsey debt ratio is 62% which is more than 50%. The debt ratio is high for
campsey. Which is indicating that campsey most of the asset is financed by taking debt. Higher
debt ratio results high risk for firms to get bankruptcy.
The industry avg. is 60% for debt to asset ratio which indicating that campsey has higher debt
ratio than its competitors has. Creditors may view this as a potential risk factor as a higher debt
ratio suggests a higher financial risk and increased dependency on debt financing.
3.2 Times-Interest-Earning Ratio
𝐸𝐵𝐼𝑇
TIE =
𝐼𝑛𝑡𝑒𝑟𝑒𝑠𝑡 𝑐ℎ𝑎𝑟𝑔𝑒𝑠
TIE: The times interest earned ratio measures a company's ability to cover its interest expenses with its
earnings before interest and taxes (EBIT).

EBIT: Earnings before interest and taxes (EBIT) indicate a company's profitability.

Interest charges: Interest is the monetary charge for borrowing money.

Math solution:
70,000
TIE =
24,500
= 2.86 times
Interpretation: A higher times interest earned ratio indicates a stronger ability to cover interest
expenses, suggesting a lower risk of defaulting on debt payments.
The times interest earned ratio of 2.86 indicates that Campsey Computer Company's earnings
before interest and taxes (EBIT) are 2.86 times higher than its interest expenses. While the
industry average is not provided, creditors typically prefer a higher times interest earned ratio
as it indicates a greater ability to cover interest expenses.
3.3 Fixed charge coverage ratio
𝐸𝐵𝐼𝑇+𝐿𝑒𝑎𝑠𝑒 𝑝𝑎𝑦𝑚𝑒𝑛𝑡𝑠
Fixed charge coverage ratio = 𝑆𝑖𝑛𝑘𝑖𝑛𝑔 𝑓𝑢𝑛𝑑 𝑝𝑎𝑦𝑚𝑒𝑛𝑡𝑠
𝐼𝑛𝑡𝑒𝑟𝑒𝑠𝑡 𝑐ℎ𝑎𝑟𝑔𝑒𝑠+𝐿𝑒𝑎𝑠𝑒 𝑃𝑎𝑦𝑚𝑒𝑛𝑡𝑠 ( )
1−𝑇𝑎𝑥 𝑟𝑎𝑡𝑒

Fixed charge coverage ratio: The fixed-charge coverage ratio (FCCR) measures a firm's ability to cover its
fixed charges, such as debt payments, interest expense, and equipment lease expense.

Lease payments: A lease payment is the equivalent of the monthly rent, that is formally dictated under
a contract between two parties, granting one participant the legal right to use the other individual's real
estate holdings, manufacturing equipment, computers, software, or other fixed assets, for a specified
amount of time.

Sinking fund payments: A sinking fund is an account containing money set aside to pay off a debt or
bond.

Math Solution:

Fixed charge coverage ratio = 2.86 (Same as industry avg.)

Interpretation: As there’s no lease payment recorded in the Income statement of the Campsey
Computer Company).
A higher fixed charge coverage ratio indicates a stronger ability to cover all fixed charges,
suggesting a lower risk of default. It provides a broader perspective on the company's ability to
meet its financial obligations, including interest expenses and other fixed charges.

Segment Comment: Camsey holds high debt ratio which indicating its most asset is finance by
debt & it has the ability to repay the fixed charges against its debts.

Summary comment: In investors perspective though campsey has higher debt ratio but it has the ability
at the same time to repay its fixed charges. As a result, although it has higher debt ratio it has less
chance for bankruptcy. On the other hand, it will not create any significant impacts on return.

On the other hand, by seeing the interest charge coverage now creditors can think to change their
decision. But it would be ideal for campsey management to not taking any future debt & try to resolve
its current debt.

4.Profitability Ratio

4.1 Profit margin

𝑁𝑒𝑡 𝑝𝑟𝑜𝑓𝑖𝑡
Net profit margin =
𝑆𝑎𝑙𝑒𝑠
Net profit margin: The net profit margin measures how much net income or profit is generated as a
percentage of revenue.

Math solution:
27,300
Net profit margin = x 100
1,607,500
= 1.70 %

Interpretation: A higher net profit margin indicates better profitability, as the company retains
a larger percentage of revenue as profit.
Campsey Computer Company's net profit margin of 1.7% is higher than the industry average of
1.2%.
This value indicates that the company is retaining a relatively larger percentage of its revenue
as net profit. Investors may view this as a positive sign, suggesting better profitability and
efficiency in managing expenses.
Creditors may view Campsey Computer Company's higher net profit margin of 1.7% positively
due to its implications of improved profitability and the company's capability to generate
adequate funds to fulfill its financial responsibilities. A higher net profit margin signifies a
greater ability to handle interest expenses and repay debts.
From a management perspective, a higher net profit margin of 1.7% indicates better
profitability and efficiency in managing expenses. Management can consider this as a positive
aspect that contributes to the company's financial performance.
4.2 Return on Total Asset

𝑁𝑒𝑡 𝑖𝑛𝑐𝑜𝑚𝑒
ROA = x 100
𝑇𝑜𝑡𝑎𝑙 𝑎𝑠𝑠𝑒𝑡𝑠
ROA: The term return on assets (ROA) refers to a financial ratio that indicates how profitable a
company is in relation to its total assets.
Math solution:
27,300
ROA = x 100
947,500
= 2.88%
Interpretation: A higher return on assets (ROA) indicates superior profitability and efficiency in
utilizing assets to generate earnings. However, Campsey Computer Company's ROA of 2.9% is
lower than the industry average of 3.6%. This suggests that the company may not be as effective
as its industry peers in generating profits from its total assets, which could raise concerns for
investors regarding asset utilization efficiency.
Creditors may perceive Campsey Computer Company's lower ROA of 2.9% compared to the
industry average of 3.6% as a potential risk. A lower ROA implies a relatively diminished ability
to generate profits from its assets, which could impact the company's ability to fulfill its debt
obligations.
To address this situation, management should thoroughly analyze the lower ROA of 2.9% in
comparison to the industry average of 3.6%. This analysis will help identify opportunities for
improving asset utilization and operational efficiency. The company should focus on optimizing
processes, managing costs effectively, and allocating resources efficiently to enhance
profitability and enhance the return on assets.

4.3 Return on common equity

𝑁𝑒𝑡 𝑖𝑛𝑐𝑜𝑚𝑒 𝑎𝑣𝑎𝑖𝑙𝑎𝑏𝑙𝑒 𝑡𝑜 𝑐𝑜𝑚𝑚𝑜𝑛 𝑠𝑡𝑜𝑐𝑘ℎ𝑜𝑙𝑑𝑒𝑟𝑠
ROE =
𝐶𝑜𝑚𝑚𝑜𝑛 𝑒𝑞𝑢𝑖𝑡𝑦

ROE: The return on equity ratio measures the profitability of a company relative to its shareholders'
equity.

Math solution:
 27,300
ROE = x 100
361,000

= 7.56 %

Interpretation: A higher ROE indicates better profitability and efficiency in generating returns
for shareholders' investments.

Campsey Computer Company's ROE of 7.6% is lower than the industry average of 9.0%. This
indicates that the company's ability to generate returns for shareholders based on their equity
investment is relatively lower compared to the industry average.
Investors may view this as a potential drawback, as they seek higher returns on their investments.
Creditors may also consider Campsey Computer Company's lower ROE of 7.6% compared to
theindustry average of 9.0% as a potential concern. A lower ROE indicates a relatively lower
return on shareholders' equity investment, which may affect the company's financial stability
and abilityto fulfill its debt obligations.
Management should also assess the lower ROE of 7.6% compared to the industry average of
9.0%and identify strategies to improve profitability and shareholder value. They can explore
options such as increasing revenue, reducing costs, and optimizing capital structure to enhance
the company's return on equity.

4.4 Market Value Ratio:

Price/Earnings Ratio:

EPS:

Market price per share:

Math solution:

𝑁𝑒𝑡 𝑖𝑛𝑐𝑜𝑚𝑒 𝑎𝑣𝑎𝑖𝑎𝑏𝑙𝑒 𝑡𝑜 𝑐𝑜𝑚𝑚𝑜𝑛 𝑠𝑡𝑜𝑐𝑘ℎ𝑜𝑙𝑑𝑒𝑟𝑠

EPS =
𝑁𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 𝑐𝑜𝑚𝑚𝑜𝑛 𝑠ℎ𝑎𝑟𝑒 𝑜𝑢𝑡𝑠𝑡𝑎𝑛𝑑𝑖𝑛𝑔

𝑀𝑎𝑟𝑘𝑒𝑡 𝑝𝑟𝑖𝑐𝑒 𝑝𝑒𝑟 𝑠ℎ𝑎𝑟𝑒

P/E ratio =
𝐸𝑎𝑟𝑛𝑖𝑛𝑔 𝑝𝑒𝑟 𝑠ℎ𝑎𝑟𝑒
 Answer to the question number: d

Manipulating the inventories and accounts receivable by doubling their values can have
implications for various financial ratios.
Liquidity Ratios (e.g., Current Ratio, Quick Ratio): The increase in current assets due to
doubled inventories and accounts receivable can impact liquidity ratios. The current ratio, which
compares current assets to current liabilities, may still indicate an acceptable level of liquidity.
However, the quick ratio, which excludes inventory from current assets, may provide a more
immediate measure of liquidity. With higher inventories, the quick ratio may decrease,
potentially affecting the company's ability to meet short-term obligations.
Asset Management Ratios (e.g., Inventory Turnover, Asset Turnover): Doubling sales and
inventories will influence asset management ratios. The inventory turnover ratio, which
measures how quickly inventory is sold, would need to be reassessed considering the increased
inventory levels. Similarly, the asset turnover ratio would be impacted by higher accounts
receivable and inventory balances, as well as increased sales. It is crucial to analyze these ratios
in the context of the company's expanded sales and asset levels to ensure accuracy and
effectiveness in reflecting operational efficiency.
Debt Management Ratios (e.g., Debt Ratio, Times Interest Earned Ratio): Doubling
common equity can affect debt management ratios. The debt ratio, which compares total debt to
total assets, would likely decrease due to the increased common equity. This could indicate a
lower level of financial risk and improved solvency. However, the times interest earned ratio,
which assesses the company's ability to cover interest expenses, would be impacted as EBIT is
affected while interest expenses remain unchanged.
Profitability Ratios (e.g., Net Profit Margin, ROA, ROE): The profitability ratios would be
influenced by the doubling of sales and common equity. The net profit margin, which measures
the company's profitability, would need to be recalculated based on the adjusted revenue and
expenses. The return on assets (ROA) and return on equity (ROE) ratios would also be affected
by the changes in the asset and equity base. These ratios would require reassessment to
accurately reflect the company's profitability and returns in light of the increased sales and
common equity.
 Unilate Textile
Ratio Analysis Based on 2008 Balance sheet & Income statement data
Liquidity Ratio: Ability to repay current obligations.
𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝑎𝑠𝑠𝑒𝑡
Current Ratio =
𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝑙𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠
400
=
105
= 3.81 times
Here unilate debt is $105 mn & current asset is $400 mn. Its current asset is almost 4 times
greater that its debt.
In comparison with industry avg. unilate has less ration than its industry avg. which is 4.1 times.
As per industry avg. we can say that unilate current ratio is somewhat weak. But with a current
ratio of 3.81 times unilate still pay of its current obligation in full.
In comparison with 2009 current ratio unilate has greater current ratio in 2008. It is 0.21 times
greater than 2009. In 2008 unilate was more liquid than 2009 situation. Though current assets
were increased in 2009 but liabilities were not decreased. Its liability also increased along with
its assets.
Though in 2009 unilate will able to meet its obligation but in comparison to 2008 unilate liquid
position is weaker.

𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝑎𝑠𝑠𝑒𝑡−𝐼𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑦
Quick ratio =
𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝑙𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠
400−200
=
105
= 1.90 times
Unilate’s quick ratio is 1.90 times.
The textile industry avg is 2.1 times so unilate’s ratio value 1.90 is low in comparison with the
ratio of its competitors. This means unilates has higher inventory than its competitor has. As
inventory is the least liquid asset unilate need to have more sales of inventory in terms of cash or
credit. Rather relying on inventory as a short term asset unilate needs to increase its sales of
inventories to meet its current obligation quickly. Even though with a ratio value of 1.90 times if
unilate collects its accounts receivable properly then its current liabilities can be pay off without
having liquidate its inventory.
In comparison with 2009 quick ratio unilate has greater quick ratio in 2008. It is 0.4 times greater
than 2009. Though in 2008 it has less current assets than 2009 situation but its current liabilities
in 2008 is less than 2009 & also its inventory is less than that situation. As a result, with this
lower level of liabilities unilates 2008 current assets were enough to easily meet its current
obligation without liquid its inventories.
Unilate textile has a good liquid position in both the ratio analysis. Though it is not match its
industry avg. but it is able to pay its bills & other obligation without having any trouble.

Asset Management Ratio: How efficiently management is managing its assets.

𝐶𝑂𝐺𝑆
Inventory turnover ratio:
𝐼𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑦
1176.7
=
200
= 5.89 times
Unilate inventory turnover ratio is 5.89 times which is less than its industry avg. which is 7.4
times. Unilates inventories is sold out & restocked 5.89 times in every year. In terms of days
after every 61.12 days it restocked new inventory. Whether in industry avg. its 49 days. That
means unilates has excess inventory in comparison to its competitors. Unilates excess inventory
represents an investment with low or zero return.
In comparison with 2009 situation unilate inventory turnover ratio is better. In 2009 unilate had
more inventories than 2008. In 2009 it takes 79 days to restocked its inventory but in 2008 it
takes only 61.12 days.
𝐴𝑐𝑐𝑜𝑢𝑛𝑡 𝑅𝑒𝑐𝑒𝑖𝑣𝑎𝑏𝑙𝑒
Days sales outstanding =
𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝑑𝑎𝑖𝑙𝑦 𝑠𝑎𝑙𝑒𝑠
160
=
3.99
= 40.10 days
DSO is ability to collect its credit sales in timely manner. Here unilate DSO value is 40.10 days.
That means it takes 40.10 days’ time to receive cash after credit sales.
In comparison to industry avg. unilate takes more number of days to collect its account
receivables. That means unilate is too slow to collect its account receivables.
DSO also can be comparing it with its credit terms. Ex: Its sales term calls for payment within 30
days. Then we can see that unilate is performing very poorly to collect its credit sales amounts.
Or customer is not paying their bills on time.
In comparison with the 2009 DSO value, it held a very good position. In 2009, Unilate generated
almost the same sales, but its DSO rate was still higher because it held more accounts receivable.
 𝑆𝑎𝑙𝑒𝑠
Fixed asset turnover ratio =
𝑁𝑒𝑡 𝑓𝑖𝑥𝑒𝑑 𝑎𝑠𝑠𝑒𝑡
1435
=
350
= 4.1 times
Unilate fixed asset turnover ratio is 4.1 times which is better than its industry average. That
means unilate is managing its plant, equipment & other fixed assets more efficiently. Unilate has
sufficient amount of fixed asset to meets its sales.
In comparison with 2009 unilate was doing very well in 2008. Because in 2009 unilate fixed
asset value is higher than 2008 situation. As a result, in 2009 it had less ratio value than 2008.
𝑆𝑎𝑙𝑒𝑠
Total asset turnover ratio =
𝑇𝑜𝑡𝑎𝑙 𝑎𝑠𝑠𝑒𝑡𝑠
1435
=
750
= 1.91 times
Unilate total asset turnover ratio is 1.91 which is weaker than its industry average. Its industry
avg. is 2.1 times. That means from this investment in total assets unilate is not generating
sufficient volume of business. Either unilate have to increase its sales or dispose its investment
from its assets.
In comparison with the 2009 ratio we can see that it has slightly better position in 2008. As the
investment on total asset is less & in comparison with sales it is generating more sales than the
2008-time period. That means in 2008 the use of total asset is slightly better to generate the sales.
From asset management ratio if we look to the fixed asset turnover ratio then it was better in
comparison to industry avg. But when its calculate with the total asset it seems weaker position.
That means the amount of current asset is high. As previously we saw that in inventory turnover
ratio there is access inventory & in DSO the collection of account receivable is also very lengthy.
From this analysis we can state that in future the firm will face the liquidity problem & it will
need to borrow funds to meet its short-term obligations. So, unilate is failing to managing is
short-term assets.
Debt-management ratio
𝑇𝑜𝑡𝑎𝑙 𝑙𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠
Debt-to-total-asset ratio = X 100
𝑇𝑜𝑡𝑎𝑙 𝑎𝑠𝑠𝑒𝑡𝑠
360
= X 100
750
= 0.48 %
Unilate debt ratio is already half of its total financing. It indicates that the management is borrow
too much funds for higher expected return. On the other hand, creditors have already supplied
more funds in the company. Now for the new creditors it seems very risky to them. Because if
the management is fail to managing the debt then they will face bankruptcy.
In comparison to industry avg. it’s also very high. Because unilate others competitors had less
liabilities or they borrow less funds from creditors or they have sufficient assets to repay their
creditors.
In comparison to 2009 percentage it is slightly better because the amount of debt is higher in
2009.
So, unilate has to take further care of their debt & for further financing they need to issue stock.
Because unilate is seems unattractive for creditors to take credit decisions.

𝐸𝐵𝐼𝑇
Times-interest-earned ratio =
𝐼𝑛𝑡𝑒𝑟𝑒𝑠𝑡 𝑐ℎ𝑎𝑟𝑔𝑒𝑠
133.3
=
35

= 3.81 times
TIE measures the ability to pay its interest charges against its borrowing. Here the TIE ratio is
3.81 times which is lower than its industry avg. As a consequence, unilate will face bankruptcy if
its fail to meet its obligation. Unilate will unable to borrow additional fund also.
In comparison to 2009 TIE ratio 2008 had the slightly better position. Because in 2009 Net
operating income is not that much to pay its high interest charges. But still in 2009 & 2008 the
firm stands in the same position.
𝐸𝐵𝐼𝑇+𝐿𝑒𝑎𝑠𝑒 𝑝𝑎𝑦𝑚𝑒𝑛𝑡𝑠
Fixed charges coverage ratio = 𝑆𝑖𝑛𝑘𝑖𝑛𝑔 𝑓𝑢𝑛𝑑 𝑝𝑎𝑦𝑚𝑒𝑛𝑡𝑠
𝐼𝑛𝑡𝑒𝑟𝑒𝑠𝑡 𝑐ℎ𝑎𝑟𝑔𝑒𝑠+𝐿𝑒𝑎𝑠𝑒 𝑃𝑎𝑦𝑚𝑒𝑛𝑡𝑠 ( )
1−𝑇𝑎𝑥 𝑟𝑎𝑡𝑒

133.3+10
=
10+40+13.33

= 2.3 times
Unilate fixed charge coverage ratio is lower than its industry avg. Unilate had a higher debt ratio
than its industry avg. & lower TIE ratio to cover its huge debt. As a result, fixed charges
coverage ratio in also low because lease payments is also a fixed asset which need to cover by
the firm. At this moment of time the firm was in very risky position. Without covering this
charges firm will be unable to finance additional fund from debt because it will push firm
towards the bankruptcy.
In comparison to 2009 unilate had also lower coverage. But 2008 was slightly in better position.
Because net operating income is high at the time of 2008.

Profitability ratio
𝑁𝑒𝑡 𝑝𝑟𝑜𝑓𝑖𝑡
Net profit margin = X 100
𝑆𝑎𝑙𝑒𝑠
59
= X 100
1435
= 0.041
= 4.11 %
Unilate net profit margin ratio is 4.11 % which is below its industry avg. It indicating that either
unilate had lower sales or cost of good is too high.
In comparison to 2009 net profit margin ratio percentage is greater in 2008. Though in 2009
sales was more but we can’t conclude by seeing the sales. The cost of goods might be more in
2009 that’s why in 2009 it shows less profitability ratio.
In previous analysis as it has also greater debt to asset ratio & also it faces difficulties to cover its
annual interest charges so we can assume that these things are also affecting the firm’s
profitability ratio.

To ensure that it is just because of interest payment we need to find out operating profit margin.
For that,
𝐸𝐵𝐼𝑇
Operating profit margin = X 100
𝑆𝑎𝑙𝑒𝑠
133.3
= X 100
1435
= 9.29 %
By this calculation we conclude that Net profit margin is almost half of its net profit margin just
because it had greater annual interest payment against its debt.

𝑁𝑒𝑡 𝑖𝑛𝑐𝑜𝑚𝑒
Return on asset = x 100
𝑇𝑜𝑡𝑎𝑙 𝑎𝑠𝑠𝑒𝑡𝑠
59
= x 100
750
 = 7.87 %
Unilate 7.87% return is low below of its industry avg. It’s just because the company has higher
debt. We know company borrow fund to invest in asset so that it increases the shareholders’
value & return from asset is cover the cost of borrowing. But here for high debt ratio unilate
can’t cover its interest charges which creates impacts on its return on assets.
On the other hand, if we compare it with 2009 then unilate had lower ROA. Though the total
asset is more but the return from asset is less. Because most of the money need to give borrower
as an interest charges. As a result, the net income gets lower & it contains lower avg.

𝑁𝑒𝑡 𝑖𝑛𝑐𝑜𝑚𝑒 𝑎𝑣𝑎𝑖𝑙𝑎𝑏𝑙𝑒 𝑡𝑜 𝑐𝑜𝑚𝑚𝑜𝑛 𝑠𝑡𝑜𝑐𝑘ℎ𝑜𝑙𝑑𝑒𝑟𝑠

Return on equity = X 100
𝐶𝑜𝑚𝑚𝑜𝑛 𝑒𝑞𝑢𝑖𝑡𝑦

59
= x 100
390

= 15.13%
Unilate ROE is 15.13 % which is lower than its industry average. Which also reflect that the
company is using greater debt for financing than equity at a point of time.
Its high debt to asset ratio, interest coverage etc. all creates impacts on its liquidity position
which also creates impacts on its profitability as interest charges creates impact on net income
available for common shareholders.
In 2009 unilate had only 13 % ROE which is less than the 2008 ratio. That means it has less net
income in terms of its common shareholders.
Market value ratio
𝑁𝑒𝑡 𝑖𝑛𝑐𝑜𝑚𝑒 𝑎𝑣𝑎𝑖𝑎𝑏𝑙𝑒 𝑡𝑜 𝑐𝑜𝑚𝑚𝑜𝑛 𝑠𝑡𝑜𝑐𝑘ℎ𝑜𝑙𝑑𝑒𝑟𝑠
EPS =
𝑁𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 𝑐𝑜𝑚𝑚𝑜𝑛 𝑠ℎ𝑎𝑟𝑒 𝑜𝑢𝑡𝑠𝑡𝑎𝑛𝑑𝑖𝑛𝑔
59
=
25
= 2.36
Unilate eps in 2008 is 2.36 where in 2008 it is 2.16 dollar. Because the net income for number of
share was higher in 2018.
𝑀𝑎𝑟𝑘𝑒𝑡 𝑝𝑟𝑖𝑐𝑒 𝑝𝑒𝑟 𝑠ℎ𝑎𝑟𝑒
Price/Earnings ratio =
𝐸𝑃𝑆
25
=
2.36
= 10.6 times
P/E ratio is being used for stock relative valuation. It shows that how much investors are willing
to pay per dollar against its profits. A high P/E shows that either the company stock is
overvalued or its investors are hoping higher growth in future.
As unilates P/E shows that it had lower value than industry avg. that means its stocks were
devalued or it was riskier for its investor.
In comparison to 2009 the ratio value was remaining same because market price is constant.