ANALYSIS

Financial ratios, also known as ratio analysis, have been shown to be used in calculating an
organization's profitability and financial situation. During the process of ratio analysis, the
organization concerned usually involves some parties that include the customers, the
management, owners of the firm, suppliers, competitors and other relevant parties. These
individuals are included in order to apply the financial statements of the company to their
evaluations.

PROFITABILITY RATIO

Firms generally apply profitability ratios to assess their capacity to turn a profit in relation to
their costs or any other expense over a specific time period. Gross profit margin, operating
profit margin, and net profit margin are all considered to be types of profitability ratios.

Year Gross Profit Margin Operating Profit Net Profit Margin

Margin
2021 35.26% 25.27% 25.10%
2022 26.54% 4.21% 4.047%

Gross profit margin is measured by dividing gross profit over revenue to analyse how much a
firm earns from its revenue less the cost of goods sold. As for Dutch Lady Milk Industries
Berhad, their gross profit margin in 2022, for every RM1 of revenue earned by the firm, it
costs of sales amounts to RM 0.7346. Dutch Lady Milk Industries Berhad has earned
sufficient revenue to more than cover the cost of sales, hence the positive gross profit margin,
RM0.2654 of gross profits for every RM1 of revenue made by them.

The operating profit margin is calculated by dividing operating income over revenue.
Operating profit margin measures how much profit a company makes on a ringgit of sales
after paying for variable costs of production, such as wages and raw materials. As for Dutch
Lady Milk Industries Berhad, for every RM1 of revenue earned by the firm, the revenue is
enough to cover up to RM0.9579 in 2021 and RM0.7473 in 2022 of the firm’s total operating
expenses. Management has been able to manage the forces that influence the amount of
operating income that a firm earns.
The net operating margin measures how much net income is generated as a percentage of a
revenue. It is calculated by dividing profit before tax over revenue. It determines net income
to sales in which it evaluates how good the firm is performing at handling their finances. In
2021 Dutch Lady earned 25.10% and had decreased in 2022 which is 4.07%. An organisation
that has a low net profit margin either has an inefficient cost structure or uses bad pricing
tactics.

LIQUIDITY RATIO

Liquidity ratios analysis gives a company its position on how it can efficiently meet its short-term
obligations. This ratio often determines if a firm can pay its liabilities should they arise at any given
point of time. Under this section, we analyse current ratio, acid test ratio, inventory turnover ratio,
accounts receivable turnover ratio, and accounts payables turnover ratio.

2021 2022
Current ratio 1.58 times 1.12 times
Acid test ratio 1.05 times 0.59 times
Inventory turnover ratio 4.56 times 4.30 times
Inventory turnover days 80.09 days 84.90 days
Accounts receivables turnover ratio 14.84 times 13.71 times
Accounts receivable turnover days 24.59 days 26.62 days
Accounts payables turnover ratio 2.60 times 2.38 times
Accounts payable turnover days 140.62 days 153.47 days

The current ratio is a measurement used to assess a company's capacity to cover short-term
liabilities and unforeseen cash needs. It is calculated by dividing current assets and current
liabilities. For the year 2022, Dutch Lady Milk Industries Berhad has managed a strong
current ratio which assumed its strong position to meet the unpredicted need of cash. The
high figure was achieved in 2021 represented that Dutch Lady Milk Industries Berhad was
able to meet its short-term obligations.

The acid test ratio measures how easily cash and other current assets may be converted into
cash and used to pay a company's immediate obligations. Acid test ratio measures the ratio of
current assets to currents liabilities. For the year 2021, it is reported 1.05 times of acid test
ratio. While in 2022, the acid test ratio shows only 0.59 times. It means that in 2022, Dutch
Lady Milk Industries Berhad does not have enough liquid assets to cover its currents
liabilities.

This is a measurement used to assess how a business sells its stock. An effective measure of
cash flow and the overall health of an organisation is inventory turnover. A higher inventory
turnover in comparison with the performance of the industry might be a reliable sign of the
general health of the company's sales and effective purchasing. 2021 reported higher figure
which is 4.56 times compared to 2022 which is 4.30 times, which 2021 implies that the
company is good at managing inventory investments and avoids overstocking.

The account receivable turnover ratio is used in business to quantify how long the firm takes
to collect the outstanding debt during the accounting period, organisations may gauge how
effectively they are managing the credit that they offer to their clients. The high turnover
achieve in 2021 implies that Dutch Lady Milk Industries derived a combination of an
aggressive collection team and conservative credit policy, even though the figure decreased
slightly in 2022, Dutch Lady Milk Industries Berhad has a high number of quality customers.

The accounts payable turnover ratio measures how quickly a business makes payments to
creditors and suppliers that extend lines of credit. It is calculated by dividing account payable
and credit purchase times 365 days. In 2021 it shows 2.60 times of account payable turnover
ratio while in 2022 shows 2.38 times. When compared to two years of operations with lower
ratios, those with higher ratios tend to pay their bills more quickly.