ratio analysis on monno ceramics
DESCRIPTION
Assignment0NRatio AnalysisMonno Ceramic Industries Ltd.Course Name: Business Finance Course Code: FIN 201 Section: 03Submitted To Quazi Sagota Samina, Senior Lecturer, Department of Business Administration, East West University.Submitted By Muhammad Nazmul Amin ID# 2009-2-10-296Page 1 of 12LIQUIDITY RATIO Current RatioCurrent Ratio= For 2011 Current Ratio = = 0.95 timesMonno Ceramic can pay 0.95 times current liabilities with their current assets that means it has current asTRANSCRIPT
Assignment
0N
Ratio Analysis
Monno Ceramic Industries Ltd.
Course Name: Business Finance
Course Code: FIN 201
Section: 03
Submitted To
Quazi Sagota Samina,
Senior Lecturer,
Department of Business Administration,
East West University.
Submitted By
Muhammad Nazmul Amin
ID# 2009-2-10-296
Page 1 of 13
LIQUIDITY RATIO
Current Ratio
Current Ratio=
For 2011
Current Ratio = = 0.95 times
Monno Ceramic can pay 0.95 times current liabilities with their current assets that means it has current asset 0.95 times than current liabilities.
For 2010
Current Ratio = = 0.96 times
Monno Ceramic can pay 0.96 times current liabilities with their current assets that means it has current asset 0.96 times than current liabilities.
Interpretation
The current ratio of Monno Ceramics was slight higher in 2010 than 2011.There wass a slight
positive change in the company’s liquidity condition. Even then its current ratio was below than
the rule of thumb so it was a negative side. But still its profitability was high as is current ratio
was low.
Page 2 of 13
Quick Ratio
Quick ratio =
For 2011
Quick ratio = = 0.41 times
With current quick asset Monno Ceramic can meet its current liabilities 0.41 times.
For 2010
Quick ratio = = 0.36 times
With current quick asset Monno Ceramic can meet its current liabilities 0.36 times.
Interpretation
Company’s quick asset is increased in 2011 than 2010 so that company’s liquidity also increased
but its quite below than the rule of thumb (2 times). In spite of the increasing turn in quick ratio
Monno Ceramic might face troubles to pay off short term obligations without relying on the sale
of inventories in the event of liquidation.
Page 3 of 13
EFFICIENCY/ASSET UTILIZATION RATIO
Inventory Turnover Ratio
Inventory Turnover Ratio=
For 2011
Inventory Turnover Ratio= = 1.89 times
Monno Ceramic can produce 1.89 times in a year.
For 2010
Inventory Turnover Ratio= = 1.96 times
Monno Ceramic can produce 1.96 times in a year.
Interpretation
Page 4 of 13
Inventory Turnover Ratio reduced in 2011 which was not a good sign. This suggests that Monno
Ceramic was holding excessive stocks of inventory; excess stocks were, of course, unproductive
and represented an investment with a low or zero rate of return.
Day Sales Outstanding Ratio
Day Sales Outstanding Ratio=
For 2011
Day Sales Outstanding Ratio= = 34.23 = 34 days.
In case of sales on credit Monno Ceramic needs 34 days to collect the accounts receivables.
For 2010
Day Sales Outstanding Ratio= = 41.99 = 42 days.
In case of sales on credit Monno Ceramic needs 42 days to collect the accounts receivables.
Interpretation
Since Day Sales Outstanding ratio of Monno Ceramic was reduced in 2011 than 2010 so it can be said that company’s credit policy in 2011 was better than that of 2010.
Page 5 of 13
Fixed Asset Turnover Ratio
Fixed Asset Turnover Ratio=
For 2011
Fixed Asset Turnover Ratio= = tk 2.06
By using tk 1 of fixed asset the company can generate sales of tk 2.06
For 2010
Fixed Asset Turnover Ratio= = tk 2.09
By using tk 1 of fixed asset the company can generate sales of tk 2.09
Interpretation
Company’s decreasing Fixed Asset Turnover ratio was indicating a bad signal though it is a company of around 15 years old it might concentrate on its fixed asset.
Total Asset Turnover Ratio
Total Asset Turnover Ratio=
For 2011
Total Asset Turnover Ratio= = tk 0.82
By using tk 1 of total asset the company can generate sales of tk 0.82
For 2010
Page 6 of 13
Total Asset Turnover Ratio= = tk 0.88
By using tk 1 of total asset the company can generate sales of tk 0.88
Interpretation
Again decrease in Total Asset Turnover Ratio in 2011, indicating that the company is not
generating a sufficient volume of business given its investment in total asset. To become more
efficient, sales should be increased, some assets should be disposed of , or a combination of these
steps should be taken.
PROFITABILITY RATIO
Return On Assets (ROA)
Return on Assets (ROA) =
For 2011
Return on Assets (ROA) = = 2.98%
The company earns 2.98% profits by utilizing all the assets.
Page 7 of 13
For 2010
Return on Assets (ROA) = = .41%
The company earns .41% profits by utilizing all the assets.
Interpretation
This low return results from the company’s above average use of de
Return On Equity (ROE)
Return on Equity (ROE) =
For 2011
Return on Equity (ROE) = = 9.68%
Monno Cermic earns 9.68% profit for their shareholders.
For 2010
Return on Equity (ROE) = = 1.36%
Monno Cermic earns 1.36% profit for their shareholders.
Interpretation
As Monno Ceramic was more dependent on equity than asset so this increasing change in ROE in 2011 was expected. But in the long run Monno Ceramic might suffer a lot due to its poor liquidity position, poor asset management and its above average debt.
Net Profit Margin
Net Profit Margin =
Page 8 of 13
For 2011
Net Profit Margin = = 3.6%
Whatever the amount of sales, of that 3.6% company earns as profit or more specifically on sales the rate of profit is 3.6%.
For 2010
Net Profit Margin = = .47%
Whatever the amount of sales, of that .47% company earns as profit or more specifically on sales the rate of profit is .47%
Interpretation
Though slight upward change of Net Profit Margin, it is indicating that company sales are too
low, its costs are too high. But still in 2011 it was better than the 2010 sales.
LEVERAGE RATIOPage 9 of 13
Time Interest Earned
Time Interest Earned =
For 2011
Time Interest Earned = = 1.53 times
Monno Ceramic has operating profit 1.53 times than its interest expense. This means, the company can meet its interest expense 1.53 times with its existing operating profit.
For 2010
Time Interest Earned = = 1.05 times
Monno Ceramic has operating profit 1.05 times than its interest expense. This means, the company can meet its interest expense 1.05 times with its existing operating profit.
Interpretation
Company’s TIE ratio is not satisfactory though it slight increased in 2011 than 2010. This kind
of poor TIE ratio results in a conclusion that, Monno Ceramic would face difficulties if it
attempted to borrow additional funds.
Page 10 of 13
Debt Ratio
Debt Ratio =
For 2011
Debt Ratio = = 69.19%
69.19% of total fund is financed from debt sources and rest 30.81% is financed from equity sources.
For 2010
Debt Ratio = = 69.46%
69.46% of total fund is financed from debt sources and rest 30.54% is financed from equity sources.
Interpretation
Monno Ceramics Debt Ratio in 2011 was 69.19% (.27% less than 2010), indicating that its
creditors supplied about three fourth of the company’s total financing. Creditors might be
reluctant to lend the firm more money , and management would be subjecting the firm to a
greater chance of bankruptcy.
Page 11 of 13
MARKET RATIO
Price Earning Ratio (P/E Ratio)
Price Earning Ratio (P/E Ratio) =
For 2011
Price Earning Ratio (P/E Ratio) = = 48.54 times
For 2010
Price Earning Ratio (P/E Ratio) = = 188.82 times
Interpretation
P/E ratios are higher for firms with high growth prospects, but they are lower for riskier firms. From this prospect it can be said that Monno Ceramic was regarded as being somewhat riskier in 2011 as having poor growth
Market/ Book Value Ratio
Book Value Ratio =
Book Value Per Share =
For 2011
Book Value Per Share = = 192.44
Page 12 of 13
Book Value Ratio = = 4.70
For 2010
Book Value Per Share = = 208.56
Book Value Ratio = = 2.57
Interpretation Increases of Book Value ratio in 2011 shows investors are willing to pay more for Monno Ceramic’s book value.
Page 13 of 13