q.2 commentary

8/8/2019 Q.2 Commentary

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2008 2009 2010

Fixed assets 39752 41539 45112

Current assets:

Inventory 11166 22333 44665

Accounts Receivable 22333 46899 107197

Cash at bank 0 0 0

Current Liabilities: due in less than 1 year

Trade accounts payable 25013 50025 74144

Bank overdraft 25450 32648 30021

Non-Current Liabilities: due in more than 1 year

Loan 0 0 44665

----------- ----------- -----------

73688 93393 108185

======== ======== ========

Equity Capital

Capital brought forward 44665 52705 62978

Add: profit for year 19196 26395 29127

Less: dividends 9826 14293 16080

----------- ----------- -----------

Capital carried forward 73688 93393 108185

INCOME STATEMENT

Profit and loss statement (P&L), operating statement, earnings statement, or statement of

operations, is an organization's financial statement that shows how the profits is

converted into the net income. It shows the incomes distinguished for a precise period,

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and the expenditure and costs incriminated against these profits, including write-offs. The

principle of the income statement is to demonstrate managers and investors to find out the

financial condition of organization whether it is going better or going diminish.

An income statement is that it symbolizes for a period of time with the combination of

balance sheet.

2008 2009 2010

Total sales 216314.703 340695.66 470484.5

Less: cost of sales 173051.762 283913.05 400182.2

----------- ----------- -----------

Gross profit 43,263 56,783 70,302

Less: expenses 21631.4703 27039.338 32447.21

Less: loan interest 0 0 404.4507

----------- ----------- -----------

Net profit 21,631 29,743 37,451

Overview Of RATIOS

Financial statement ratio can be divided into following heads

Balance sheet ratio

Activity Ratio

Profitability Ratio

Balance sheet ratio can be separated into two groups

Liquidity Ratio

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Liquidity ratio used to determine a firms capacity to meet short-term

obligations. We can analyze the present cash solvency of the firm by using

this ratio. Liquidity ratio can be divide into two categories

Current ratio

Quick ratio

Financial Leverage

Financial leverage tells about the total debt analysis in the firm against the assets

and equity. It will tell about the overall debt position in the company. Financial

leverage can be partitioned into following ratios

Debt-to-equity ratio

Debt-to-total assets ratio

CURRENT RATIO: -

Current ratio calculates a firms capability to disburse immediate obligations. It matches

up a firm's current assets to its current liabilities. The higher the current ratio the higher

will be the firms ability to pay its liabilities.

CURRENT ASSETSCURRENT RATIO =

CURRENT LIABILITIES

FY2008 FY2009 FY2010

Current Ratio 0.856581754 1.032360777 1.801560216

Current Assets 25063.92331 51798.77483 113623.119

Current Liabilities 29260.3983 50175.07057 63069.28738

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Current Ratio

0.006

0.008

0.01

0.012

0.014

0.016

0.018

0.02

2008 2009 2010

Year

Rati

The most favorable condition is 1 in this ratio. In FY2008 the value is less than 1 (i.e.

0.856581754) that means it has less ability to pay its liabilities. For each $ of obligation

there is 0.856581754 of assets. In 2008, firms ability to pay short-term liabilities against

current assets is less than its ability in FY2009 and FY2010. So, firms business is in

good condition in 2009. But in 2010 the current assets look in idle condition, but it not

could be true in all cases. Overall we can say that company is in good condition in paying

its obligation. We also can see in graph that company is in best condition in FY2009.

ACID-TEST/ QUICK RATIO: -

These ratios purify the current ratio. The Quick Ratio is more challenging measure than

the Current Ratio These ratios exclude the inventory in the business and then calculate

ratio. The acid test ratio consider best if its ratio is 1:1. Conversely quick ratio fluctuates

widely by industry to industry. In general higher the ratio will result in greater the

company's liquidity (i.e., the better able to meet current obligations using liquid assets).

Higher ratio shows company is in favorable condition.

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Current Assets - InventoryQuick Ratio =

Current Liabilities

FY2008 FY2009 FY2010

Quick Ratio 0.571054503 0.699341171 1.271689564

Current Assets-Inventory

16709.2822 35089.49263 80204.55458

Current Liabilities 29260.3983 50175.07057 63069.28738

Quick Ratio

0.004

0.006

0.008

0.01

0.012

0.014

0.016

2008 2009 2010

Year

Rati

In FY2010, the firms business is in good condition to pay its liabilities against current

assets after purify inventories. In FY2009 the company has a better condition than

FY2008. The table shows that company is doing well for its paying obligation. By

comparing previous current ratio chart we can see that there is not much difference in

FY2010. The graphical view of quick ratio is given above.

DEBT-TO-TOTAL-ASSETS RATIO: -

These ratios indicate a level of debt against overall investment in business. High level of

this ratio indicates high level of debt in business and low level of this ratio indicate low

level of debt and is favorable for the business. The debt to total assets ratio is an indicator

of financial leverage. It tells you the percentage of total assets that were financed by

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creditors, liabilities, debt. The debt to total assets ratio is calculated by dividing a

corporations total liabilities by its total assets.

Total Debt

Debt-To-Total-Assets Ratio =Total Assets

FY 2008 FY 2009 FY 2010

Debt-to-total Asset Ratio 53.38860778 60.54085103 65.47059055

Total Liabilities 29260.3983 50175.07057 96487.85179

Total Assets 54806.44563 82878.03973 147375.869

Debt-To-Total-Assets Ratio

50

52

54

56

58

60

62

64

66

68

2008 2009 2010

Year

Rati

In FY2008, firms business is in good condition as compared to FY2009 and FY2010, as

in 2008 the debt to total assets ratio is lesser which shows low level of debt against

overall investment. In the chart it is going high which indicate the lower capacity to pay

obligations.

DEBT-TO-EQUITY RATIO: -

These ratios indicate the extent of debt in the business and distinguish the risk related to

business. It compares the level of investment by owner with the level of debt. The Debt to

equity ratio can be computed by dividing a organizations liabilities by its equity

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Total Debt Debt-To-Equity Ratio =

Shareholders Equity

FY 2008 FY 2009 FY 2010

Debt to Equity Ratio 22.61244161 21.90250574 62.06858791

Total Debt 10546.00223 12746.27843 41013.03487

Equity share 46638.05179 58195.52602 66076.95818

Debt-To-Equity Ratio

18

22

26

30

34

38

42

46

50

54

58

62

2008 2009 2010Year

Ratio

The level of investment by owners w.r.t debt is less in FY2009 than in FY2008 and

FY2010. Low ratio will show the higher the rank of finance presented by shareholders

and lower rate will indicate the creditors defense in case of hammering. In this ratio

FY2010 is the most risky situation as also indicated in the chart where it goes high as

compare to other previous years.

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INVENTORY TURNOVER: -

Inventory turnover will show that how many times the inventory is frequently updated

and utilized.. A ratio showing how many times a company's inventory is sold and

replaced over a period The higher the turnover of inventory the more efficient is the

inventory management of the firm and the fresher the inventory of that firm.

Cost of Good SoldInventory Turnover =

Average Inventory

FY2008 FY2009 FY2010

Inventory Turnover 5.618341363 6.145060866 4.330804801

Cost Of Sales 46939.22568 77009.66713 108546.9594

Average Inventory 8354.641102 12531.96165 25063.92331

Inventory turnover is higher in FY2008 with compare to FY2009 and FY2010 so,

company is in good condition and more updated inventory is available. In FY2008 the

companys inventory turn into sale by 5.618341363 and FY2009 its ratio tend to high and

in FY2010 it again decline to 4.330804801 as shown in the chart. The best year is the

FY2009 in this situation.

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Inventory Turnover

3

3.5

4

4.5

5

5.5

6

6.5

7

2008 2009 2010

Year

Rati

INVENTORY TURNOVERDAYS: -

The inventory turnover days tells us number of days before the inventory is spin into

accounts receivables through sales. The higher the ratio the slower is the company in

turning its inventory.

Inventory * 365

Inventory turnover Days =

Cost of Good Sale

FY2008 FY2009 FY2010

Days of Inventory 129.9315853 166.3124292 269.6958311

Inventory*365 6098888.004 12807664.81 29274662.42

CGS 46939.22568 77009.66713 108546.9594

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Inventory Turnover Days

120

140

160

180

200

220

240

260

280

2008 2009 2010

Year

Rati

In FY2008, the firm is in less efficient in turning its inventory into accounts receivables

through sales. So, FY2010 is the favorable year for firm in terms that it takes lesser days

to turn the inventory into accounts receivables through sales. By analyzing the chart the

line continuously showing the better condition regarding to the inventory turnover

RRECEIABLEECEIABLE TTURNOVER: -URNOVER: -

This ratio tells us the number of times Accounts receivable can be converted into cash

during the year. The high turnover rate will show the shorter time period between sales

and cash assortment and is superlative for business.

Credit salesReceivable turnover =

Average Account Receivable

FY2008 FY2009 FY2010

Receivable Turnover 3.511463352 3.568099858 2.213748635

Net Credit Sales 58674.0321 92411.60056 127616.0198

Avg Account Receivable 16709.2822 25899.38742 57647.0236

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Recievable Turnover

1.5

1.75

2

2.25

2.5

2.75

3

3.25

3.5

3.75

4

2008 2009 2010

Year

Rati

By cunning the ratio we see that in FY2009 it is slightly better than FY2008 and more

recuperated than FY2010. Hazard from bad debt is high in FY2010 with 2.213748635

ratios. The best situation is in FY2008 where the ratio is low with 3.511463352. The best

situation also portrayed from the chart.

RRECEIABLEECEIABLE TTURNOVERURNOVERDDAYS: -AYS: -This ratio shows the average number of days that receivables are outstanding before

being collected. The higher the ratio the greater the number of days in which accounts

receivable remain uncollected and unfavorable for business.

Avg A/R * 365Receivable turnover Days =

Credit SalesFY 2008 FY 2009 FY 2010

Receivable turnover Days 103.9452682 138.593691 229.396454

Account Receivable*365 6098888.004 12807664.81 29274662.42

Credit Sales 58674.0321 92411.60056 127616.0198

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Recievable Turnover Days

90

105

120

135

150

165

180

195

210

225

240

2008 2009 2010

Year

Rati

The proportional ratio on receivable turnover days shows less competence of firm to

collecting its payments from the clients. In FY2009 and FY2010, the firm is less efficient

to gather its imbursements from the customers. So, FY2008 is the favorable year for firm

in terms that it takes lesser days to turn the sales into accounts receivables. The chart also

shows the less efficiency in FY2009 and FY2010.

TOTAL ASSETS TURNOVER: -

It shows the sales revenue per pound of asset investment. The higher the ratio the higher

is the sales revenue of an organization with regard to assets. This asset turnover ratio

evaluates the turnover with the assets that the industry has used to produce that turnover.

In simple words it could be say that for every 1 of assets, the turnover is x. The method

to calculate total asset turnover is:

Net sales

Total Assets Turnover =

Total Assets

FY 2008 FY 2009 FY 2010

Total Assets Turnover2.34097556

81.78404992

91.123151881

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Net Sale 58674.032192411.6005

6127616.0198

Total Assets25063.9233

151798.7748

3113623.119

Total Assets Turnover

0

0.5

1

1.5

2

2.5

3

3.5

4

2008 2009 2010

Year

Rati

High ratio will show the better condition in this ratio. So in FY2008, the firm is in good

condition as compared to FY2009 and FY2010 as the sales revenue with respect to asset

investment is higher than in FY2008. This also can be analyze in the graphical chart of

this ratio.

FIXED ASSET TURNOVER

This ratio is use to compute the efficiency of fixed assets to produce sales. Higher the

ratio betters the use of fixed assets. This ratio tells how efficiently the fixed assets are

being utilized.

Net salesFixed Assets Turnover =

Fixed Assets

FY2008 FY2009 FY2010

Fixed Assets Turnover 1.97273222 2.973416548 3.780907322

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Net Sale 58674.0321 92411.60056 127616.0198

Fixed Assets 29742.52232 31079.2649 33752.75005

Fixed Assets Turnover

0

0.5

1

1.5

2

2.5

3

3.5

4

2008 2009 2010

Year

Ratio

This ratio illustrates that the company is in well condition as every passing year the ratio

goes high. In FY2010 it is 3.780907322 which is the higher than in FY2008 and FY2009.

As the ratio goes high, company is constantly increasing its assets over sale and utilizing

its fixed assets more efficiently. Chart of fixed assets turnover is given above.

PROFITABILITY RATIOS:

PROFITABILITY IN RELATION TO SALES: -

The measurement of firms operation as well as sign that how products are cost. It is

measure to review a firm's financial strength by exposing the fraction of money excluding

from income after accounting for the cost of goods sold.

Net sales CGS

Gross Profit Margin = *100Net Sales

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FY 2008 FY 2009 FY 2010

Gross Profit Margin 20 16.66666667

14.94252874

Net sales -CGS 11734.80642

15401.93343

19069.06043

Net sales 58674.0321 92411.60056

127616.0198

Gross Profit Margin

12

13

14

15

16

17

18

19

20

21

22

2008 2009 2010

Year

Rati

In FY2010, the firm is less efficient in its operation as the gross profit margin is lower

than in FY2009 and FY2008, which show that cost of producing goods related to sales,has increase in FY2009 and FY2010. The graph also shows the high tendency of good

sold.

ORPERATING PROFIT MARGIN: -

This ratio illustrates the connection between earning before income taxes and sales of a

firm. Higher ratio indicates the huge expenses and taxes. With Higher operating margin

will show the lower fixed cost then and better gross margin, which give management

more elasticity in determining prices.

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EBIT

Operating Profit Margin = *100Net Sales

FY 2008 FY 2009 FY 2010

Operating Profit Margin Ratio 90 91.26984127

91.95402299

CGS + Operating Exp52806.6288

984343.9211

4117348.0642

Sales 58674.032192411.6005

6127616.0198

Operating Profit Margin

88

89

90

91

92

93

94

95

2008 2009 2010

Year

Rati

There is slightly difference in all three ratios. In FY2010, Firm is in good position as the

operating profit margin is lesser in FY2010 as compared to FY2008 and FY2009, which

shows low expenses. Chart of operating profit margin shows that operating expanses

going decrease.

PPROFITABILITYROFITABILITY IINN RRELATIONELATION TTOO IINVESTMENT: -NVESTMENT: -

The measurement of firms profitability of sales after excluding all the expenses and

income taxes is called net profit margin. It notifies the firms net profit per pound of

sales.

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Net Profit After TaxNet Profit Margin = *100

Net Sales

FY 2008 FY 2009 FY 2010

Net Profit Margin 10 8.73015873 5.42729603

Net profit 5867.403218067.67941

46926.099177

Net sales 58674.032192411.6005

6127616.0198

Net Profit Margin

4

5

6

7

8

9

10

11

12

2008 2009 2010

Year

Rati

By relative analyzing of the net profit margin ratio we depict that the company profitgoing less and its efficiency of profit is decreasing. However it is not bad if we see these

ratios as separate. In FY2008 the company is in good situation with ratio 10. However it

goes lower 8.73015873 in FY2009 and 5.42729603 in FY2010 as point out in the chart.

RRETURNETURN OON ASSETS OR RETURN ON INVESTMENTN ASSETS OR RETURN ON INVESTMENT

This ratio shows that how much earning a business get after investment. Higher ratio

shows higher earning. A performance measure used to assess the competence of assets

with return on assets. To calculate ROA, the net profit after tax is divided by the assets;

the result is expressed as a percentage or a ratio.

Net profit after tax

Return on Assets = *100Total assets

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FY 2008 FY 2009 FY 2010

Return on Investment 10.70568095 9.734399414 4.699615495

Net Profit after Tax 5867.40321 8067.679414 6926.099177

Total Assets 54806.44563 82878.03973 147375.869

Return On Assets

4

5

6

7

8

9

10

11

12

2008 2009 2010

Year

Rati

The ratios obviously show that the company is in good condition on this particular.

However comparison with preceding year the company is declining profit. In FY2010 the

ratio is lower as compare to FY2008 and FY2009. It shows that in FY2010 for each 1of assets there are 4.699615495 of profit. The graphical view can be seen in below

which clearly indicate the losing of profit by passing years.

RETURN ON EQUITY

This ratio demonstrates how much earning the business is getting from shareholders

investment.

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Net profit after tax

Return on Equity = *100Owners equity

FY 2008 FY 2009 FY 2010

Return on Equity12.5807210

713.8630578

1 10.48186746

Profit After Tax 5867.403218067.67941

46926.099177

Owner's Equity46638.0517

958195.5260

266076.95818

Return On Equity

9

9.75

10.5

11.25

12

12.75

13.5

14.25

15

2008 2009 2010

Year

Rati

In FY2010 the ratio of return on equity is lower than in FY2008 and FY2010 indicating

strong investment opportunities and effective expense management in FY2008. Return of

equity also seen from first to last the chart which is given in the next line.

Limitations:

The information provided in the financial statement, Income statement and Balance sheet

of MG Fabrication plc, during analysis of financial statement following limitation are:

Due to non availability of Net credit sale, the figure of sales assumed totally that

is credit sale.

Accounts payable turnover ratio can be calculated if the Purchases during the year

mentioned in the income statement. These ratios indicate the higher the ratio, the

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better it is, since it will indicate that the creditors are being paid more quickly

which increases the credit worthiness of the firm. Similarly Avg Payment Period

can also be calculated with the figure of purchases, which indicates shorter the

payment period better liabilities paid and good financial position

As the MG Fabrication plc is a manufacturing organization. So there should be

much more information regarding the manufacturing operations likes purchases,

direct expenditure, manufacturing overhead. These information are required for

decision making regarding best utilization of resources of company.

On the basis of above information we can applied breakeven analysis. They can

give the manager a good indication of how costs and prices are related and can be

best utilised, and how they are related to capacity. The concept of margin of

safety is a simple guide to how safe is the current or planned operating level, and

how safe is maximum operating capacity. For example if the break-even point

occurs at 90% of full capacity, in other words a 10% margin of safety, the firm is

in a much greater danger of operating at a loss than if the break-even point were at

50% of full capacity. The break-even chart works best with the single product

department or firm, though a series of charts can be created to apply to different

departments within a firm producing different products.

Similarly, Variance analysis can be done on the basis of above mentioned

information for the best utilization of resource (Material,Labour,Overhead) of

Company.

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