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Liquidity Ratios - Its Me
Liquidity Ratios - Its Me
Liquidity Ratios - Its Me
Current Assets 24678965 21588683 20683915 Current Liabilities 21128392 11339964 25537988 Current Ratio 1.16 1.90 0.80
Current ratio
ANALYSIS The current ratio decreased to 1.16 in the year 2006-2007 , and again it is increased to 1.90 in 2007-2008, later it is again fallen down to 0.80. This shows that there is no improvement in the short-term solvency of the company for the year 2008-2009.
2 1.8 1.6 1.4 1.2 1 0.8 0.6 0.4 0.2 0 Current Ratio
INTERPRETATION: Due to instability in the rate of ratios, it shows that there is no improvement in the short-term solvency of the company for the year 2008-2009.
ANALYSIS The liquid ratio is decreased to 1.10 in the year 2006-2007 , and again it is increased to 1.36 in the year 2007-2008. This further confirms that there are fluctuations in the short-term liquidity .
INTERPRETATION: This further confirms that there are fluctuations in the short-term liquidity of the company. This is mainly because of low realization of sundry debtors and an in increase in quick assets and decrease in cash and bank.
ANALYSIS Debt equity ratio is 0.87 in 2006-2007 and it is decreased to 0.56 in the year 20072008 though it was decreased to 0.47 in the year 2008-2009. This shows that there is improvement in the long-term solvency position of the company.
0.9 0.8 0.7 0.6 0.5 0.4 0.3 0.2 0.1 0 Debt-Equity Ratio
INTERPRETATION: It indicates the relative proportions of capital contribution by creditors and shareholders.
Proprietory Ratio =
ANALYSIS This ratio is decreased in the year 2006-2007 to 0.53 when compared to 2005-2006 and further increased to 0.67 in the year 2008-2009 when compared to 2007-2008. this shows that there is an increase in the long-term solvency of the business.
INTERPRETATION: This shows that there is an increase in the long-term solvency of the business. It shows proprietor have invested their portion to the growth and welfare of the company.
ANALYSIS The ratio of fixed assets to net worth ratio is found to be fluctuating in the year 2006-2007 and 2007-2008. But it is slightly increased in the year 2008-2009 to 0.25.
Year
Sales
Inventory
ANALYSIS Inventory turn over ratio has decreased to 2.15 in the year 2006-2007 when compared to 2005-2006 and again increased in the year 2007-2008 to 3.57 but in the year 2008-2009 it shows a fall that is 3.05.
INTERPRETATION: From the above table, its shown the adequacy of goods available to sell in comparison to the actual sale order. Running out of stock due to low inventory (high turnover) may indicate future shortages. It also identifies of poor management.
Year
ANALYSIS The debtors turn over ratio has decreased to 4.09 in the year 2006-2007 and again has increased to 15.15 in the year 2008-2009.
INTERPRETATION: This shows that the company is running out of cash shortage. Since credit facilities are provided to debtors, it has lead to less avoid of competitors.
ANALYSIS The debt collection period ratio remains constant in the 2007-2008 and 2008-2009 but has increased in the year 2006-2007 to 89 days .
2006-2007
INTERPRETATION: The debt collection period ratio has increased to 89 days in the year 2006-2007. but has remained constant in the future i.e,24 days. Hence it shows that the company has been extending its credit facilities to customer to avoid competition.
Year
Credit purchase
Creditors
ANALYSIS The creditors turnover ratio has decreased to 1.98 in 2006-2007 again it is increased to 4.42 in 2007-2008 but again there is slight fall in the year 2008-2009 to 3.48.
INTERPRETATION: There has been a decline in creditors turn over ratio in 2006-2007 but a rise in next year and again a decline in 2008-2009
ANALYSIS Fixed assets turnover ratio is 7.96 in the year 2006-2007 and more or less remains constant in the years 2007-2008 and 2008-2009 with slight variations standing at 11.64 and 11.59.
INTERPRETATIONS: There is a an increase in fixed asset turnover ratios from year 2006-2007 and it remains almost the same for two year 2007 to 2009.
GROSS PROFIT RATIO Gross profit Gross profit ratio = ------------------ * 100 Sales
Year Gross profit 2006-2007 2007-2008 2008-2009 ------------3711530 2736963 48397521 62649553 90124131 Sales Gross profit Ratio -------5.92% 3.03%
ANALYSIS Gross profit ratio has increased in the year 2007-2008 to 5.92% having no profits in the year 2006-2007 and shows a fall in 2008-2009 to 3.03%.
2006-2007
2007-2008 2008-2009
INTERPRETATION: This shows that the gross profit relate to sales is average and the profit standpoint is that the firm be able to generate adequate profit on each unit of sales.
ANALYSIS The net profit ratio has decreased in the year 2008-2009 to 0.02% having no profit in the immediate previous years . This shows there is decline in the profitability of the company
INTERPRETATION: It is shown that net profit ratio is low which would indicate some mismanagement in the areas ex cluding production. This shows there is decline in the profitable of the company.
Year
Operating cost
Sales
Operating Ratio
ANALYSIS The operating ratio in the year 2005-2006 increased to 32.33% . But it is increased in the year 2007-2008 to 23.38% when compared to that of 17.72% in the year 20062007. So this is the reason for decline in the net profit of the company
35.00% 30.00% 25.00% 20.00% 15.00% 10.00% 5.00% 0.00% Operating Ratio
INTERPRETATION: There was an increase in operating ratio in 2006-2007 and decline in 2007-2008 and a slight increase in 2008-2009.
RETURN ON CAPITAL EMPLOYED Net profit before tax Return on capital employed = ----------------------------capital employed
* 100
Year
ANALYSIS The return on capital employed ratio shows nil return on capital employed in the year 2006-2007 because of losses incurred by the company in that year. In the next year it reaches to 8.5% which is 6.1% more when compared to the one in the year 2008-2009 .
0.09 0.08 0.07 0.06 0.05 0.04 0.03 0.02 0.01 0 Return on capital employed
INTERPRETATION: Capital employed is strong in 2007 & 2008 and its decline in 2008 & 2009
Net profit after tax preference dividend Earning per share= ------------------------------------------------------------no. of equity shares
Year
ANALYSIS: The earnings per share have increased to 156 in the year 2008-2009 when compared to all the remaining previous years earnings per share.
INTERPRETATION: From the above table, it can easily understood that the company EPS is steadily progressed. The share capital of the company has increased without the proportionate increase in the net income.
1.In spite of incurring losses ,it has successfully managed to overcome this by making profits in future, which is a good sign of prosperity to the company. 2.The long-term solvency position of the company has shown a recurrent increase. 3.The sales of the company has increased in the year 2008-2009 which indicates that the foreign companies are well satisfied with the companys product, which is a good sign to companys prosperity. SUGGESTIONS 1.Modern Collections should make proper financial planning so that the available funds are utilized in more efficient and effective manner. 2.The company must try to maintain its short-term liquidity position, by investing only in those investments, which are easily convertable into cash The company should reduce the idle capacity in order to increase the efficiency in the operations. 3.Modern Collections must take immediate measures to reduce the length of the Operating cycle