my Sample of Analysis of Financial ratios

Hai semua...nisa nak share my assignment of financial management. Contoh financial ratios between 2 company based on their annual report. Ini contoh lebih kurang cara nak buat laa...for this assignment nisa dapat 28/30 marks ok. Hopefully dapat membantu u all....enjoy..."sharing is caring"

ANALYSIS OF FINANCIAL RATIOS

Ratio	Formula	2005	2006	2007	2008	2009
		RM '000	RM '000	RM '000	RM '000	RM '000
NET WORKING CAPITAL	Current Assets - Current Liabilities	58,920	13,257	-58,189	1,004	71,672

1) Based on calculation of financial ratios, the net working capital of Company QSR Brand Berhad of the year 2005 is RM58,920,000. It’s dramatically drop to RM13,257,000 in 2006. Net working capital tremendously drop until became negative in 2007 amounted (RM58,189,000). Company manage to recover slightly and showing net working capital at RM1,004,000 and it’s continuously increase until company successfully gaining RM71,672,000 in year 2009.

In comparison, the net working capital is lowest in 2007 until negative balance showing that company experiencing fund deficit and unable to settle its short term debts. higher The higher the value of the working capital, the better as this show that company is able to settle its short term debts with surplus funds for its daily operating activities.

Ratio	Formula	2005	2006	2007	2008	2009
		RM '000	RM '000	RM '000	RM '000	RM '000
CURRENT RATIO	CURRENT ASSETS	1.98	1.2	0.6	1.01	1.16
	CURRENT LIABILITIES

2) The current ratios of year 2005 for QSR Brand Berhad are RM1.98 for every ringgit of current liabilities, its drop to RM1.20 in 2006. The current ratio badly decreases until RM0.60 of current assets for its payment. In year 2008, they slowly recover and increase to RM1.01. The current ratio slightly higher in 2009 of RM1.16 of his current assets for every ringgit of their current liabilities.

Based on the ratios above, year 2007 is the lowest at RM0.60 compare to the other years, this show that for every ringgit of current liability the company only has capability of RM0.60 for its payment. The higher ratios are in year 2005 at RM1.98 in other to settle their current liability.

Ratio	Formula	2005	2006	2007	2008	2009
		RM '000	RM '000	RM '000	RM '000	RM '000
QUICK RATIO	CURRENT ASSETS - (INVENTORY + PREPAYMENTS)	1.69 times	0.89 times	0.47 times	0.61 times	0.73 times
	CURRENT LIABILITY

3) The quick ratio of company QSR Brand Berhad is 1.69 times in 2005 measures the ability for them to pay its short-term loan quickly. Its decrease to 0.89 times in year 2006 and dropping until 0.47 times in 2007. In year 2008, the quick ratio slightly increases to 0.61 times and continuously recovers to 0.73 times in 2009.

The lowest ratio is 0.47 times in year 2007, which means that the liquidity level of the company is bad during this year. The higher quick ratio is 1.69 times in 2005, for every ringgit of current liability the company has RM1.69 cash and assets that can be easily converted into cash to pay its short-term debts immediately. This is the best quick ratio compared to other years.

Ratio	Formula	2005	2006	2007	2008	2009
		RM '000	RM '000	RM '000	RM '000	RM '000
ACCOUNT RECEIVABLE	CREDIT SALES	20.57 times	13.01 times	72.58 times	119.51 times	53.36 times
TURNOVER	ACCOUNT RECEIVABLE

4) Account receivable turnover measures the ability of the company to collect debts from its customers. In 2005, QSR Brand Berhad has account receivable turnover of 20.57 times, in 2006 its decrease to 13.01 times of account receivables collected throughout the year. During 2007, its increase tremendously to 72.58 times shown that the company can collect debts from its customer quickly. In 2009, they successfully in credit collection because the account receivable turnover reach to 119.51 times, but in year 2009 its drop to 53.36 times.

Comparison of each year shows that during year 2008, the company is satisfactory of 119.51 times turnover shown that company has very low bad debts and can use their fund for other investments. The lowest turnover is in year 2006 of 13.01 times because the company has a problem with inefficiency in credit collection of credit department.

Ratio	Formula	2005	2006	2007	2008	2009
		RM '000	RM '000	RM '000	RM '000	RM '000
AVERAGE COLLECTION	365 DAYS	17.74 days	28.05 days	0.50 days	0.31 days	0.69 days
PERIOD	ACCOUNT RECEIVABLE TURNOVER

5) Average collection period shows the average days taken by QSR Brand Berhad to collect the account receivable. In year 2005, average is 17.74 days which not satisfactory performance. Its increase to 28.05 days of collection in 2006 and during this year the company faced difficulties in collecting debts from customer. At last company manage to solve this problem in year 2007 that shows average collection period of 0.50 days. Company was very satisfactory in year 2008 with average of 0.31 days only taken for debts collection but in year 2009 it’s slightly increase to 0.69 days but still consider satisfactory.

Credit term or credit period for the company is 30 days, based on the calculation; year 2006 is the bad collection period of 28.05 days. This indicated that the credit department was inefficient and lack of debts management. The best average collection period is year 2008 of 0.31 days to collect its account receivables compare to 30 days of credit term.

Ratio	Formula	2005	2006	2007	2008	2009
		RM '000	RM '000	RM '000	RM '000	RM '000
INVENTORY TURNOVER	COST OF GOODS SOLD	8.08 times	8.13 times	9.76 times	5.68 times	6.14 times
	INVENTORY

6) Inventory turnover measures the efficiency of inventory management. In year 2005, its shows of 8.08 times of inventory that can be sold in a year. Slightly increase to 8.13 times in 2006 and then continuously increase to 9.76 times in year 2007, its shows that the company was satisfactory with ability of selling inventory quickly. Inventory turnover drop to 5.68 times in 2008 and then slowly increase to 6.14 times in year 2009.

The lowest turnover is 5.68 times in year 2008 which means company holds a bit high inventory, surplus inventory is not productive and it is an investment that does not provide any return. Moreover, the transportation and warehouse cost of the inventory will be high. The highest inventory turnover compare to other years is 9.76times in year 2007, this shown that the company can sell its inventory 9.76 times in a year. The higher inventory turnover, the better, as it is an indication company very efficient in selling their products and minimizes the risks of obsolete inventory.

Ratio	Formula	2005	2006	2007	2008	2009
		RM '000	RM '000	RM '000	RM '000	RM '000
FIXED ASSETS	SALES	4.30 times	4.02 times	3.74 times	3.65 times	3.19 times
TURNOVER	NET FIXED ASSETS

7) Fixed assets turnover shows how efficient a company in using its fixed assets to generate sales. In 2005, QSR Brand Berhad was very satisfaction with turnover of 4.3 times, slightly decrease to 4.02 times in year 2006. With additional purchase of fixed assets year by year, the company has lots of fixed assets that effects the fixed assets turnover dropping every years from 2007 of 3.74 times, in 2008 drop to 3.65 times and year 2009 at 3.19 times of turnover.

The higher fixed assets turnover is year 2005 of 4.30 times, shows the efficiency of company in assets management. The ratios were getting lower every year until 2009 at 3.19 times because the company has too many of fixed assets and not efficient in using fixed assets to generate sales.

Ratio	Formula	2005	2006	2007	2008	2009
		RM '000	RM '000	RM '000	RM '000	RM '000
TOTAL ASSETS	SALES	0.65 times	0.61 times	0.58 times	0.59 times	1.32 times
TURNOVER	TOTAL ASSETS

8) Total assets turnover shows the efficiency of the company in using all its assets to generate sales. In 2005 QSR Brands Berhad was satisfactory at 0.65 times of total assets turnover, then slightly drops to 0.61 times of turnover in year 2006. The total assets turnover decrease to 0.58 times in year 2007, then maintain at 0.59 times in 2008. The most satisfactory in year 2009 at total assets turnover of 1.32 times.

From the ratios, the higher ratio is year 2009 which means very satisfactory on the overall efficiency of the company’s operations. The lowest ratios is year 2007 where that time many new fixed assets bought by the company, therefore the differences in total assets turnover might be due to the cost of the assets and not the efficiency of management in operations.