Contents

Introduction .........................................................................................................2
Subpoint 1 Background ........................................................................................2
Subpoint 2 Review................................................................................................2
Stakeholders .....................................................................................................2-3
Methodalogy.........................................................................................................3
Subpoint 1 Data Collection....................................................................................3
Subpoint 2 Data analysis.......................................................................................3
Subpoint 3 Model..................................................................................................4
Formula For Ration Analysis..................................................................................5
Subpoint 1 Liquidity Ratios...................................................................................5
Subpoint 2 Profitability Ratios..............................................................................5
Subpoint 3 Investment Ratios...............................................................................6
Result and analysis................................................................................................7
Subpoint 1 Liquidity ratios analysis and recomendation ................................7-10
Subpoint 2 Profitability ratios analysis and recomendation...............................10
Subpoint 3 Investment ratios analysis and recomendation................................11
Comparison with competitors............................................................................12
Conclusion ..........................................................................................................12
Appendix A..........................................................................................................13
Subpoint 1 Mathematical calculations................................................................13

References.................................................................................................... 15
 Introduction
Background:
Salalah Mills Company has a confirmed policy of “buy and build” in extremely structured Flour
markets, a approach it has entitled “Pinpoint-Invest-Exit”. Company faces financial crisis and
different challenges that’s why business need to furthermost interpretation of the financial
statement and analyze the problems of the Company. Management cannot present clear financial
crisis report . (Anthony, 1975)
Company provide the data of 2019 and 2021 in the form of financial statements, Cash flows and
statement of changes in the equity.
Enactment valuation of a company is regularly associated toward in what way efficiently
company use the shareholder equity and liability and it assets revenue and expenses. One of the
best methods to measure performance of company is financial analysis ratio. We can determine
how can company utilize own profit and assets. Due to financial ratio analysis we can assess the
reputation of the company in the market. In the future decision making process will perform very
confidently by ratio analysis. (Batty, 2000)
Review:
(Thachappilly, 2009) According to his article we can analyze the company performance massively
by applying financial ratio analysis. By financial ratio shareholder easily decide to increase in
invest in more businesses. Ratio analysis completely tells about the company perforce in the
market. We can apply different analysis such as liquidity, profitability, asset turnover, inventory
turnover, account receivable and payable turnover etc.
(Clausen, 2009) He said that the profit of the company analysis by profit and loss account and all
financial reports with notes of the business. Profit and loss account and all financial reports with
notes are most important reports that show the company profit, revenue and expenses, equity and
liability and assets.
STAKEHOLDERS

There are following stakeholders in the market who are interested in the financial statements of
the Salalah Mills Company.

 Investors
 Supplier
  Customer
 Shareholders
 Creditors
 Receivable
 Shareholder
 Government

Investors analyze the position of the company by financial statements and take decision of the
investment in the company. Government collects taxes on the base of profit so that’s why
financial reports are very important. Distribution of the dividend in the shareholders of the
company is totally dependent on financial reports. Customers of the company make transactions
on the basis of trust and satisfaction. Customers of the company first fully analyze the financial
position of the company then they will decide to make transaction with company. In the financial
statements all detailed information mentioned about the company performance that’s why all
stakeholders are interested in it.

METHODOLOGY

Data collection:

In the report the data collect from the annual financial reports of the Salalah Mills Company
Oman. Without financial we cannot the measure the financial ratios. The main sources of the
data are profit and loss account and all financial reports of the company. (Finney, 1972)

Data analysis:

The data analysis performed step by step. These steps are mentioned below in the model of the
performance of both years’ data. It indicates the performance of the companies by annual
financial reports analysis and ratio analysis. By these steps we can easily identify that which one
is the company best in the market and business terms performance.
 Model for performance evaluation of Salalah Mills Company

Company performance
evaluation model Liquidity ratios

Selection of financial Trade receivable

report ratios

Analyze the financial

statements Profitability ratios

Ratio analysis Debt management

ratios

Mathematical
calculation Investment ratios

Reasons

Performance
Comparison

Select one of the best

year
Formula for ratio analysis:

For ratio analysis used different formula for calculation. But in this report few formulas collected
from the book of accounting by (Kieso, 2001). And other data collected from the accounting
principles by (kell, 1996). Formulas are playing major role in this report we cannot evaluate the
performance of the company if formulas are not available. These formulas are mentioned below:
(G., 1996)

Liquidity Ratios:

Current ratio:

Current ratio= Current Assets / Current Liabilities

Gearing ratio:

Gearing ratio= Total debt / Shareholders equity

Trade receivables collection period:

Trade receivables collection= Average sales / Accounts receivables * 360

Profitability Ratios:

Net profit margin:

Net profit margin = Net profit after tax / sales

Return on capital employed ratios:

Return on capital employed ratios = Earnings before tax / Capital employed

Investment Ratios:

Earnings per share:

Earnings per share = Net earnings / Total shares

Price to earnings ratio:

Price to earnings ratio = Share price / Earnings per share

Dividend pay-out ratio:

Dividend pay-out ratio= Total dividend / net income * 100

Result and analysis:

Salalah Mills Company:

Sohar Al Reef 2019 2021

FINANCIAL ANALYSIS Mills Mills Salalah Mills
A) PROFITABILITY RATIOS
Net profit margin 10% 6% 2.9% 5.2%
ROCE 8.2% 5.6% 3.4% 5.1%

B) LIQUIDITY AND ACTIVITY RATIOS

Current ratio 4.3 2.0 1.45 1.29
Days receivable 920 680 1513.5 1013.7
Gearing ratio 14% 23% 39% 95%
Total liabilities/ total assets 60% 53% 48.2% 48.7%

C) INVESTMENT RATIOS
Earnings per share 0.32 0.048 0.032 0.032
Price earnings ratio 6.12 4.2 3.125 3.125
Dividend payout ratio 210% 160% 157.8% -%

Liquidity ratio:

The asset of the company most readily converted in to the cash evaluate in the liquidity ratio. In
the short term period the assets of the company are converted into cash. Nevertheless, this ratio
shows the relation between cash and current liability. Liquidity ratio further divided into three
types of ratios. These ratios are as follows:

 Current ratio
 Account receivables period ratio
 Gearing ratio

Current Ratio:
In this report current ratio calculation identifies must. The current show the business situation if
the assets of the company less then liability of the company so company performed badly in the
market.

Analysis:

According to my research and report the current ratio of the Salalah Mills in the 2019 are 1.45. It
means that in 2019 the company works more efficiently than 2021.

Reason:

The liabilities of the company increase in 2021. Due to rise in the liability, current ratio of the
Salalah mills decrease in 2021.The ratio decrease from 1.45 to 1.29.If company liability
increases company performance decrease with the passage of time.

Gearing ratio:

Gearing ratio evaluate the company performance by in terms debt. This ratio analyze and
determine the capacity of the company that the company is able to pay own debts or not.

Analysis:

The gearing ratio of the Salalah Mills Company in 2019 is 0.39 it is greater than 25%. But in
2021 gearing increase from 50% and move upward to 50% till 90%. That’s mean company is in
highly risk in 2021.

Reason:

In 2021 the gearing ratio increases because management of the company took high debts in this
year. And company suffered more loss. Financially company is in more risk. The gearing ratio
less than 25% less risk between 25% to 50% show normal risk but at 75% high risk.

Account receivables collection period:

This ratio shows that the company in how many days collects money from debtors. This ratio
tells about the estimated number of days.

Analysis:
In my report in 2019 company collect money from debtors in 1513.5 days. But in the 2021 the
numbers of days become low from 1513.5 to 1013.7 days. This is favorable for the company
performance.

Reason:

If company increases the cash sales in terms of credit than company get favorable performance
in the next year. That’s why in 2021 company’s collection days decreases.

Profitability Ratios:

The company’s overall efficiency and performance evaluated in the profitability ratio. In this
ratio identifies that how to use assets and control on expenses in the company. This ratio also
generate the report of current performance of the company and compare with the past
performance and record of the company.

There are following two important profitability ratios discussed:

 Net profit margin

 Return on capital employed

Net Profit margin:

In this ratio evaluate the company performance by net profit after tax in terms of sales. Profit
margin shows the directly relation between sales and net profit. If the profit margin increases
then sales are also increased.

Analysis:

Salalah Mills Company bear financial crisis in current and past year. If we compare the profit
margin then company earn more profit in the current year. In 2021 profit percentage is 5.2% it is
greater than 2019 ratio.

Reason:

In 2021 the company sales increases but expenses of the company is not control able. This is the
main reason of the financial crisis.
Return on capital employed:

In this ratio argues that how much return on the capital invested by the company. This ratio
evaluates the performance of the company in terms of capital employed.

Analysis:

Financial report analysis shows that company is in the profit in both years but in the 2019
company’s profit ratio and percentage low in terms of current year.

Reason:

The profit ratio increase from 3.4% to 5.1% that means in 2021 company earn more profit.
Company performance unfavorable because company management do not control expenses and
increase sales.

Investment Ratios:

Investment ratio:

Investment ratio evaluates the company performance in term of investment. It shows the
company profit in term of shareholder's shares. It argues that company's position and reliability
against share capital.

There are following three important ratios discussed to evaluate company enactment.

 Earnings per share

 Price earnings ratio
 Dividend payout ratio

Earnings per share:

This ratio tells about company performance by checking profit per share if profit increases
than earning per share also increases.

Analysis:

According to my analysis the earning per share is same in 2019 to 2021.

Reasons:

The market value of share decreases by decrease in company performance. Management of

company will improve the performances in term of sale and expanses than company will survive.

Price earnings ratio:

In this ratio evaluate the price of the share who earned profit. Per share price easily
determined and analyzed. In this ratio company performance in term of share easily evaluated.

Analysis:

Price earnings ratio is same in the both years.

Reason:

Price of the share is not changed and earning on the share is also same.

Dividend payout ratio:

This ratio shows that how dividend paid by company in the financial. In this we can easily
and efficiently evaluate the performance of company in term of dividend. The dividend is the
profit on the share that received by shareholders at the end of financial or accounting year.

Analysis:

In 2021 company pays out same dividend in term of 2019. In 2019 the percentage of
dividend pays out is 157.8% above ratios are same so payout also same in both years.

Reason:

Dividend payout is same in both year but company performance is not efficient in the 2021
due to higher in debt and expenses.
 Comparisons with competitors

In the Oman market two flour mills exist as a competitor of Salalah Mills known as a Shour
Mills and Al Reef Mills. But the main competitor is Al Reef Mills. In the current year analyzes
Al Reef Mills have better performance rather than Salalah Mills. Al Reef Mills earn more profit
with the comparison of Salalah Mills. Salalah Mills move towards better performance but the
company management cannot control the expenses. Al Reef Mills increase the sales of the
company and control the expenses of the company. Shour Mills have outstanding performance in
the market than Salalah Mills and Al Reef Mills. Shour Mills have better opportunities in the
market to hold the market rather than other competitors. Shour mills will be increase own
customer. If management of the salalah mills will not change own policies then company will be
suffered more financial crises. Ratio analysis abstract mentioned above with full results of all
companies.

Conclusion:

Salalah Mills’ company increase revenues in the current year but expenses also increased. Due to
more expenses company performance has been decreased in the 2021. Salalah will change
financial position in the future then he will survive in the market and compete to the competitors.
Better policies will lead better performances. Al Reef Mills is the main competitor of the Salalah
Company.

Salalah Company motivates the management to compete in the market. In 2022 will earn more
profit and lead towards better performance. Salalah Mills will compete to shour mills as a main
competitor in the future. Management always enhance the performance of the company.
Appendix: A

Salalah Mills Company ratio mathematical calculations:

PARTICULARS 2019 2021

RO RO

Liquidity Ratios:

= 33,065,439 / 22,781,000 = 35,267,807 / 27,265,305

Current ratio:
= 1.45 = 1.29
Current ratio = Current Assets / Current
Liabilities

Gearing ratio: = 29,777,372 / 31,992,739 = 31,400,245 / 32,955,788

Gearing ratio = Total debt / Shareholders equity = 0.39 = 0.95

Trade receivables collection period: = 53,662,614 / 12,764,317 = 30,513,035 / 10,835,246

* 360 *360
Trade receivables collection =
=1513.5 =1013.7
Average sales / Accounts receivables * 360

Profitability Ratios:

= 1,582,367 / 53,662,614 = 1,608,506 / 30,513,035

Net profit margin:
=2.9% =5.2%
Net profit margin = Net profit after tax / sales

Return on capital employed ratios:

= 1,326,951 / 38,989,111 = 1,892,011 / 37,090,728
Return on capital employed ratios =
=3.4% =5.1%
Earnings before tax / Capital employed
Investment Ratios:

Earnings per share:

= 1,528,367 / 49,963,060 = 1,608,506 / 49,963,060
Earnings per share = Net earnings / Total
= 0.032 = 0.032
number of shares

Price to earnings ratio:

=0.100 / 0.032 =0.100 / 0.032
Price to earnings ratio = Share price / Earnings
=3.125 =3.125
per share

Dividend pay-out ratio:

= 2,498,152 / 1,582,367 -
*100
Dividend pay-out ratio = Total dividend / net
income * 100 = 157.8%
 References
Ambrose, J..a.J.S., 1988. “Best’s Ratings, Financial Ratios and Prior Probabilities in Insolvency Prediction.”
Journal of Risk and Insurance 55, no. 2, pp. 229–44. Annual Reports of Select Companies.

Anthony, R.N..a.J.S.R., 1975. Principles of Management Accounting. Homewood, IL: Richard Irwin Inc.

Batty, J., 2000. Management Accountancy. London, UK: MacDonald and Evans Ltd.

Clausen, J., 2009. Ratio analysis. Financial Inerpretation.

Finney, H.A..a.H.E.M., 1972. Principles of Accounting, Introductory. 7th ed. Englewood Cliffs, NJ:
Prentice-Hall.

G., W., 1996. Accounting principles.

kell, D.E., 1996. Accounting principles.

Kieso, W.W., 2001. Accounting.

Thachappilly, G., 2009. Financial Analysis and ratio analysis.