Financial Analysis

and
 Group Members
Qurrat-ul-ain Khalil
BB-10-60

Zara Aqeel
BB-10-16

Sana Batool
BB-10-35

Mahida Irshad
BB-10-29
Table of Contents
Madiha Irshad BB-10-29
B
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 Short-term Debt Paying Ability

Important to all users of financial statements

Indicates:
- company’s financial position
- ability to financially survive
 Days’ Sales in Receivables

It shows how efficiently the company is managing its receivables

This ratio is also compared with the credit terms of company and materially
it should not exceed those credit terms.
 Days’ Sales in Receivables
40

35

30

25

20

15

10

0
2010 2011 2012

MEHT MQTM
 Accounts Receivables turnover

This ratio measures how many times a company converts its receivables into
cash each year.

Higher the ratio, higher the company’s liquidity and better the financial
position.
 Accounts Receivables turnover

35

30

25

20

15

10

0
2010 2011 2012

MEHT MQTM
Accounts Receivables Turnover in Days

It measures, on
average, how many
days it takes to collect
an account receivable.

Higher the ratio, In this ratio the

lower the turnover is
company’s calculated in
liquidity thus terms of days
making its position rather than times
unfavorable. per year.
 Accounts Receivables Turnover in Days

35

30

25

20

15

10

0
2010 2011 2012

MEHT MQTM
 Days’ Sales in Inventory

Days' sales in inventory are a way to

measure the average amount of time that
it takes for a company to convert its 
inventory into sales.
Small - efficient
Large - too much invested or obsolete
 Days’ Sales in Inventory

100

90

80

70

60

50

40

30

20

10

0
2010 2011 2012

MEHT MQTM
 Inventory Turnover

Inventory Turnover
Low ratio –
Ratio measures High ratio – better
inefficiency, poor
company's efficiency liquidity, or can even
sales, excess
in turning its be shortage
inventory
inventory into sales.
 Inventory Turnover

25

20

15

10

0
2010 2011 2012

MEHT MQTM
 Inventory Turnover in Days

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 Inventory Turnover in Days

90

80

70

60

50

40

30

20

10

0
2010 2011 2012

MEHT MQTM
 Working Capital

While this is not a ratio, it does give an

indication of a company’s liquidity.
 Working Capital

1,400,000,000

1,200,000,000

1,000,000,000

800,000,000

600,000,000

400,000,000

200,000,000

0
2010 2011 2012

-200,000,000 MEHT MQTM

 Current ratio

ItMeasures the ability of the company to

pay current debts as they become due.
 Higher this ratio, higher the company’s
ability to payback its short-term debts
 Current ratio

1.6

1.4

1.2

0.8

0.6

0.4

0.2

0
2010 2011 2012

MEHT MQTM
 Quick Ratio

This ratio relates the most liquid assets to

current liabilities.
This shows a more immediate position of
firm to pay its short-term debts as compared
to current assets.
 Quick Ratio

0.7

0.6

0.5

0.4

0.3

0.2

0.1

0
2010 2011 2012

MEHT MQTM
 Sana
Batool
BB-10-
35
Now lets discuss
the profitability
ratios
Profitability Ratios
Profitability is the ability to generate
earnings as compared to its expenses and
other relevant costs incurred during a
specific period of time.
Having a higher value relative to a
competitor's ratio or the same ratio from a
previous period is indicative that the
company is doing well.
Net Profit Margin

Gives a
measure of net Desirab
income rupees
generated by le to be
each rupee of
sales. high
Net Profit Margin
8%

7%

6%

5%

4% Mahmood
Maqbool
3%

2%

1%

0%
2010 2011 2012
Total Asset Turnover

This ratio measures the activity of

the assets and the ability of the
firm to generate sales through the
use of the assets.

A lower turnover ratio tells that the

company is not using its assets
optimally.
Total Assets Turnover
4

3.5

2.5

2 Mahmood
Maqbool
1.5

0.5

0
2010 2011 2012
 Return on Assets
 

Return on assets measures the
firm’s ability to utilize its
assets to create profits by
comparing profits with the
assets that generate the profits.
Higher return on assets A low return on assets
is, the better, because the compared with the industry
company is earning more average indicates inefficient
money on its assets. use of company's assets.
Return on Assets

20.00%
18.00%
16.00%
14.00%
12.00%
10.00% Mahmood
Maqbool
8.00%
6.00%
4.00%
2.00%
0.00%
2010 2011 2012
Operating Profit Margin

The Operating Income

Margin gives an idea of
how much a company
makes earning (before
interest and taxes) on
each rupee of sales.
Operating Profit Margin
12%

10%

8%

6%

4% Mahmood
2% Maqbool

0%
2010 2011 2012
-2%

-4%

-6%
Operating Asset Turnover

This ratio measures the ability of operating

assets to generate sales rupees.
Operating Asset Turnover
7

4
Mahmood
3 Maqbool

0
2010 2011 2012
Return on Operating Assets

The return on operating

It shows that how much
assets measurement
operating profits are
focuses attention on
contributing to generate
only those assets used
sales.
to generate revenue.
Return on Operating Assets

40.00%

30.00%

20.00%

10.00%
Mahmood
Maqbool
0.00%
2010 2011 2012
-10.00%

-20.00%

-30.00%
Sales to Fixed Assets
This ratio measures the firm‘s ability
to make productive use of its
property, plant and equipment by
generating sales rupee.
Sales to Fixed Assets
9

5
Mahmood
4 Maqbool
3

0
2010 2011 2012
Return on Investment
ROI applies to ratios measuring the income
earned on the invested capital.

This ratio measures the ability of the firm to

reward those who provide long term funds and
to attract providers of future funds.
Return on Investment
50%

40%

30%

20%
Mahmood
Maqbool
10%

0%
2010 2011 2012
-10%

-20%
Return on Equity 

The ROTE
measures the
return to both
common and
preferred
stockholders.
Return on Equity
50.00%
45.00%
40.00%
35.00%
30.00%
25.00% Mahmood
Maqbool
20.00%
15.00%
10.00%
5.00%
0.00%
2010 2011 2012
Return on Common Equity

This ratio measures the return to the

common to the common stockholders.
Gross Profit Margin

It is
Gross
a measurement
profit margin
of measures
how muchcompany's
from eachmanufacturing
rupee of a company's
and distribution
revenue is
available
efficiency
to cover during
overhead,
the production
other expenses
process.
and profits.
 Gross Profit Margin
20%
18%
16%
14%
12%
10% Mahmood
Maqbool
8%
6%
4%
2%
0%
2010 2011 2012
Key Findings
No more ratios, please!