RATIO ANALYSIS

WITH
INTERPRETATIONS
PRESENTED TO
SIR HASSAN SHAHZAD

BY
NASEER AHMED - 4528
ABID BILAL – 4531
MBA
FINANCIAL
11.1.11
Overview

 Ratios : One Quantity Expressed in Terms of

Another Quantity
 The Financial Ratios are the tools for evaluation of
the company performance
 The Financial Ratios are also very powerful tool
from Investors point of view for investment in
better opportunities.
Companies Evaluated

In the present presentation two companies have

been evaluated through certain financial ratios
 Company A : D. G. Khan Cement Company
 Company B : Fauji Cement Company

Data has been collected from the Balance Sheet and

Income Statement for the year 2010
PROFITABILITY RATIOS

GROSS PROFIT RATIO

(2,705,367 / 16,275,354 ) x 100

= 16.62%

(515,584 / 3,808,455) x 100

= 13.53%

[Gross Profit Ratio = (Gross

profit / Net sales) × 100]
PROFITABILITY RATIOS

Profitability ratios are the measure of assessing

business’s performance of generating profits with
respect to its expenses and other relevant expenses in a
specific period of time say one year. The higher value
as compare to the competitors or industry average or
relative to previous period show the business is going
well. In the present case, Company A has generated
16.62% Gross Profit as compare to Company B whose
Gross Profit is 13.53% which shows that Company A
has better managed its COGS which resulted in
increase of the Gross Profit.
PROFITABILITY RATIOS

NET PROFIT RATIO

(2,261,163 / 16,275,354 ) x 100

= 13.89%

(366,117 / 3,808,455) x 100

= 09.61%

[Net Profit Ratio = (Net profit /

Net sales) × 100]
PROFITABILITY RATIOS

Company A has generated 13.89% Net Profit as

compare to Company B whose Net Profit is 09.61%.
We can drive result that Company A is performing well
in competition of Company B.
PROFITABILITY RATIOS

OPERATING EXP. RATIO

(1,355,869 / 16,275,354) x 100

= 08.33%

(176,687 / 3,808,455) x 100

= 04.64%

Operating Exp. Ratio = [(Operating

Expenses / Net sales] × 100
PROFITABILITY RATIOS

Although the Company A has shown better profits in

term of Gross Profit and Net Profit but the Expense
Ratio results show that Company A has further chances
to improve its operating expenses, as Company B has
managed its operating expenses very well which is
almost half of the Company B. With further
improvement in this area by Company A, it can
enhance its profits.
PROFITABILITY RATIOS

RETURN ON EQUITY

(233,022 / 3,650,993 ) x 100

= 06.38%

(250,179 / 7,419,887) x 100

= 03.37%

Return on Equity = {Net profit /

Ordinary Shares} × 100]
PROFITABILITY RATIOS

Company A has better paid to its shareholders. The

results are further supported by the EPS which is
higher as compared to Company B (EPS of Company
A is 0.64 and Company B is 0.33. The results are
further supported by Debt to Equity which show that
the Company B’s gearing position is worse than the
Company A (results are in Debt to Equity Slide)
although both the companies are highly geared.
PROFITABILITY RATIOS

RETURN ON CAPITAL EMP.

(2,261,163 / 33,256,854) x 100

= 06.80%

(366,117 / 22,795,084) x 100

= 01.47%

[Return on Capital Employed=(PBIT/Capital

employed)×100]
PROFITABILITY RATIOS

Company A is very strong in this area and proved that

the management is well employing it Capital
Employed (capital investment) generating almost 4.5
times more return than the Company B.

Stock or Shares and Long-term Liabilities.

PROFITABILITY RATIOS

ASSETS TURNOVER

(16,275,354 / 33,256,854)
= 0.49 times

(3,808,455 / 22,795,084)
= 0.17 times

[Assets Turn Over=(Net Sales / Capital

employed)×100]
PROFITABILITY RATIOS

Assets Turnover show that how much company has

generated by employing on unit of currency. Company
A is generating about Paisa 49 revenues against Re.1.0
assets whereas the Company B is generating paisas 17.
This reveals that although the return is not so
impressive but compared to Company B, Company A
is performing well.
EFFICIENCY RATIOS

A/P PAYMENT PERIOD

(1,679,749 / 13,569,994) x 365

= 45 days

(1,698,674 / 3,292,871) x 365

= 188 days

[(Accounts Payable Payment Period = Total

Accounts Payable / COGS) x 365]
EFFICIENCY RATIOS

A/R COLLECTION
PERIOD

303,949 / 16,275,354) x 365

= 6.81 days

(24,514 / 3,808,455) x 365

= 2.34 days

[(Accounts Receivable Collection Period = Total

Accounts Receivable / Net Sales) x 365]
EFFICIENCY RATIOS

INVENTORY TURNOVER PER.

4,054,618 / 13,569,994) x 365

= 109 days

(1,157,217 / 3,292,871) x 365

= 128 days

[(Inventory Turnover Period =

Inventory / COGS) x 365]
EFFICIENCY RATIOS

Ratios that are typically used to analyze how well a

company uses its assets and liabilities internally. These
ratios are meaningful when compared to
peers/competitors in the same industry and can
identify business that are better managed relative to the
others. Also, efficiency ratios are important because an
improvement in the ratios usually translate to
improved profitability.
EFFICIENCY RATIOS

The analysis shows that in all these areas, Company A

is well contributing towards its profitability by
managing Accounts Receivable, Accounts Payable and
Inventory Turnover periods. Company B is very week
in payment of its payables which is calculated to 188
days as compared to 45 days of Company A. However,
the accounts receivable are well managed by both the
companies which reflects that both the companies are
almost selling its products on cash payment basis.
LIQUIDITY RATIOS

CURRENT RATIO

16,417,492 / 13,786,189)
= 1:1.91

(2,070,718 / 3,984,915)
= 1:0.52

[(Current Ratio = Current Assets /

Current Liabilities]
LIQUIDITY RATIOS

QUICK/ACID TEST RATIO

((16,417,492 - 4,054,618) / 13,786,189)

= 1:0.89

((2,070,718 - 1,157,217) / 3,984,915)

= 1:0.22

[(Quick Ratio = (Current Assets –

Inventory) / Current Liabilities]
LIQUIDITY RATIOS

The purpose of using liquidity ratio is to determine the

ability of the company for paying off its short term
debts. The higher value of liquidity ratios reflects that
the company is well secured in performing its
obligations of short term debts. The calculation of
quick ratio shows that Company A is well secured in
this region. However the position of Company B is not
so secured. The Company A can easily meets its short
term liabilities. Even is position with respect to
Inventory Turnover is also better as shown in the
previous slides.
GEARING RATIOS

DEBT TO EQUITY RATIO

5,170,645 / 3,650,993)
= 1.42:1

(11,981,056 / 4,719,887)
= 2.54:1

[(Debt to Equity Ratio = Long-term

Debts / Equity)]
GEARING RATIOS

INTEREST COVER RATIO

(2,261,163 / 2,249,185)
= 1.01 times

(366,117 / 390,336)
= 0.98 times

[(Interest Cover Ratio =

PBIT / Interest)]
GEARING RATIOS

Gearing ratio is the measure to check the equity to

borrowed funds/long term financing. The best measure
is the gearing ration (Debt to equity). The results of
both the company shows that they are highly geared as
the portion of their borrowed money is very much
higher than the owners equity. The other best measure
is to check, how much the profit covers its interest.
The higher t he interest cover ratio value, the more
safe the company position is. In the present case, both
the companies are almost covering its interest through
its profit with the ratio of 1:1.
INVESTOR’S RATIOS

EARNING PER SHARE

233,022,000 / 365,099,300)
= 0.64

(250,179,000 / 741,988,700)
= 0.33

[Earnings per share Ratio = (Net profit after tax −

Preference dividend) / Total No. of shares)]
INVESTORS RATIOS

Most important is what the company is paying back to

its investors/owners. The greater value of EPS
maintain the investors and owners confidence on the
company. The Company A is paying almost double the
value of the Company B and building its better image
before the investors.
CONCLUSION - SUMMARY
Company A Company B
Profitability Ratios:
GP Ratio 16.62 13.53
NP Ratio 13.89 09.61
Operating Ratio 08.33 04.64
Return Equity 06.38 03.37
ROCE 06.80 01.47
Assets Turnover 00.49 T 00.17 T

Efficiency Ratios:
APPP 45 days 188 days
ARCP 7 days 2.5 days
Inventory Turnover 109 days 128 days

Liquidity Ratios:
Current Ratio 1:1.91 1:0.52
Quick Ratio 1:0.89 1:0.22

Gearing Ratios:
Debt to Equity Ratio 1.42:1 2.54:1
Interest Cover Ratio 1.01 T 0.89 T

Gearing Ratios:
EPS 0.64 0.33
CONCLUSION

After evaluating both the companies through Financial

Ratios we have reached to the conclusion that the
company A (D. G. Khan Cement Company is
Operating well as compared to the Company B (Fauji
Cement Company) in almost all the areas and the
Company A is the better investment opportunity
between these two companies.
Questions and Discussion

THAN