LIQUIDITY RATIOS

 It is the overall measure of the firm’s ability to meet its maturing or short-term
obligations. It focuses on the availability of short-term assets such as cash and other
liquid assets to pay short-term obligations such as accounts payable, notes payable
and other current maturities. Under normal circumstances, higher liquidity is
preferred as it indicated higher ability to meet short-term obligations as they
come due.

CURRENT RATIO
The most commonly used measure of short-term solvency is current
Definition ratio. Current ratio provides an indication of the extent to the firm’s
liquidity; that is how far the claims of short-term creditors are covered
by current assets.

Formula CURRENT RATIOS = CURRENT ASSETS

CURRENT LIABILITIES

2017 2016 2015

Calculation = 123,076,110 = 111,307,527 = 104,523,169
61,402,848 58,783,765 55,602,311

= 2.0 times = 1.894 times = 1.879 times

Based on the calculations, it shows that the firm’s current ratio is
Explanation increasing moderately from 2015 to 2017. This can be implied that the
firm is able to meet its short-term obligation and paid its debt on a
timely manner.
Uses of ratio analysis: Trend analysis (Vertical analysis or time-series)
Uses of Ratio
Analysis trend analysis graph
2.05

1.95

1.9

1.85

1.8
2015 2016 2017

current ratio
 QUICK RATIO
Also known as Acid-test ratio. This is a measure of a firm’s ability to pay off
Definition its short-term obligations without having to rely on the sale of inventory and
prepaid, that ends to be the least liquid of the current assets. Ratio of less than
one is common

Formula QR = CA – I – PREPAYMENT
CL

2017 2016 2015

Calculation = 123,076,110 - 82,196 = 111,307,527 - 53,362 = 104, 523,169 – 78,588
61,402,848 58,783,765 55,602,311

= 2.0 times = 1.89 times = 1.878 times

Based on the calculations, it shows that the firm’s quick ratio is increasing
Explanation moderately from 2015 to 2017. This can be implied that the firm is able to
meet its short-term obligation and paid its debt on a timely manner without
rely on investments.
Uses of ratio analysis: Trend analysis (Vertical analysis or time-series)
Uses of Ratio
Analysis
trend analysis graph
2.05
2
1.95
1.9
1.85
1.8
2015 2016 2017

quick ratio
 NET WORKING CAPITAL
It is commonly accepted as the absolute measure of the firm’s liquidity. This is because
Definition it measures solvency in terms of Ringgit and not ratio. In addition, positive NWC
indicates the amount of current assets that are financed with long-term financing. On
the other hand, if the NWC is negative, it represents the amount of fixes assets that are
financed with current liabilities.

Formula NWC = CURRENT ASSET – CURRENT LIABILITIES

2017 2016 2015

Calculation =123,076,110- 61,402,848 =111,307,527-58,783,765 =104,523,169-55,602,311
= RM61,673,262 = RM52,523,762 = RM48,920,858
Based on the calculations, it shows that the firm’s net working capital is remains
Explanation positive from 2015 to 2017. This can be implied that the firm has sufficient fund.
Uses of ratio analysis: Trend analysis (Vertical analysis or time-series)
Uses of Ratio
Analysis
trend analysis graph
70,000,000
60,000,000
50,000,000
40,000,000
30,000,000
20,000,000
10,000,000
0
2015 2016 2017

net working capital

 PROFITABILITY RATIOS

 The profitability ratios measure the combined effects liquidity, asset management, and
debt management on overall operating results of the firm. It relates to the firm’s
ability to satisfy firm’s goal to maximize the owner’s wealth, to attract new capital
and to grow over time

GROSS PROFIT MARGIN

This measures the firm’s ability to control cost of goods sold relative to its
Definition sales revenue; the relative contribution margin from sales. Gross profit
margin also indicates that the variable cost component or cost of goods sold
in the firm cost structure.

Formula GPM = GROSS PROFIT x 100

SALES

2017 2016 2015

Calculation = 7,310,722 x 100 = 6,173,700 x 100 = 5,916,803 x 100
8,397,781 7,236,798 6,981,112

= 87.055% = 85.309% = 84.754%

Based on the calculations, it shows that the firm’s gross profit margin is
Explanation increasing moderately from 2015 to 2017. This can be implied that the firm
did well in managing its cost of sales. It also shows that the firm has more to
cover for operating, financing, and other costs.
Uses of ratio analysis: Trend analysis (Vertical analysis or time-series)
Uses of Ratio
Analysis
trend analysis graph
87.50%
87.00%
86.50%
86.00%
85.50%
85.00%
84.50%
84.00%
83.50%
2015 2016 2017

gross profit margin

 OPERATIONG PROFIT MARGIN
It is also known as basic earnings power ratio. Operating profit margin
Definition measures the productivity of assets in providing returns to both creditors
and stockholders. Higher ratio indicates better productivity. Another
method to calculate OPM is based on sales. It is a measure of operating
profit relative to sales; the firm’s ability to control all costs except
interest and taxes in operations. Higher ratio is preferred as it indicates a
lower cost structure and will result in higher profits.

Formula OPM = EARNING BEFORE INTEREST AND TAX (EBIT) x100

SALES

2017 2016 2015

Calculation = 3,829,168 x 100 = 2,286,331 x 100 = 3,461,414 x 100
8,397,781 7,236,798 6,981,112

= 45.597% = 31.593% = 49.583%

Based on the calculations, it shows that the firm’s operating profit
Explanation margin for 2015 to 2016 has drop. This can be implied that from 2015 to
2016 the firm’s has low in productivity. But from 2016 to 2017 it shows
that the firm’s operating profit margin has risen back. It means that the
firm’s get better productivity on 2017.
Uses of ratio analysis: Trend analysis (Vertical analysis or time-series)
Uses of Ratio
Analysis
trend analysis graph
60.00%

50.00%

40.00%

30.00%

20.00%

10.00%

0.00%
2015 2016 2017

operating profit margin

 RETURN ON ASSETS
This ratio measures a firm’s overall return on all of its assets investment.
Definition Return on assets indicates the productivity of assets in producing
revenues and the firm’s ability to control costs in its operation.
Therefore, higher ratio is better.

Formula ROA = EARNING AFTER TAX (EAT) x 100

TOTAL ASSETS

2017 2016 2015

Calculation
= 3,539,739 x 100 = 2,051,071 x 100 = 3,216,351 x 100
133,210,072 124,778,017 117,834,619

= 2.657% = 1.644% = 2.730%

Based on the calculations, it shows that the firm’s return on asset for
Explanation 2015 to 2016 has drop. This can be implied that from 2015 to 2016 the
firm’s has low in return on investments. But from 2016 to 2017 it shows
that the firm’s return on asset has risen back. It means that the firm’s get
higher return on investments on 2017.
Uses of ratio analysis: Trend analysis (Vertical analysis or time-series)
Uses of Ratio
Analysis
trend analysis graph
3.00%
2.50%
2.00%
1.50%
1.00%
0.50%
0.00%
2015 2016 2017

return on assets