The profit margin is mostly used for internal comparison. Individual businesses’ operating and financing arrangements vary so much that different entities are bound to have different levels of expenditure, so that comparison of one with another can have little meaning. Digi has a highest net profit margin ratio among the 3 company which is 21.03%, while Axiata and YTL have 14.26% and 7.87%. YTL with a lowest profit margin indicates a low margin of safety: higher risk that a decline in sales will erase profits and result in a net loss. Profit margin is an indicator of a company’s pricing strategies and how well it controls costs. Differences in competitive strategy and product mix cause the profit margin to vary among different companies.
Liquidity ratio (current ratio) The current ratio is an indication of a firm’s market liquidity and ability to meet creditor’s demands. Acceptable current ratios vary from industry to industry and are generally between 1.5 and 3 for healthy businesses. Axiata and YTL have a current ratio that is 1.1632 and 1.3149 is near to this range, it generally indicates moderate short-term financial strength. Digi has a current ratio that below 1, the current liabilities exceed current assets. Digi may have problems meeting its short-term obligations. Low values for the current ratios indicate that Digi may have difficulty meeting current obligations. But if inventory turns over much more rapidly than the accounts payable become due, then the current ratio will be less than one. This can allow Digi to operate with a low current ratio.
Leverage ratio (Debt ratio) YTL debt ratio is 0.7403 which is higher than Axiata and Digi which is 0.4826 and 0.7098. The higher the ratio means the greater risk will be associated with the firm’s operation. In addition, high debt to assets ratio may indicate low borrowing capacity of a firm, which in turn will lower the firm’s financial flexibility. The debt ratio shows the proportion of a company’s assets which are financed through debt. The ratio of Axiata is less than 0.5, most of the company’s assets are financed through equity. Companies with high debt ratios are said to be “highly leveraged,” not highly liquid as stated above. Digi and YTL with a high debt ratio could be in danger if creditors start to demand repayment of debt.
Activity Ratio (Total assets turn over) Asset turnover is a financial ratio that measures the efficiency of a company’s use of its assets in generating sales revenue or sales income to the company. Companies with low profit margins tend to have high asset turnover, while those with high profit margins have low asset turnover. Digi has a profit margins which is 1.193times is much higher than Axiata and YTL, 0.4182times and 0.3892times. These show that Digi has a high asset turnover while Axiata and YTL have low asset turnover. Companies in the retail industry tend to have a very high turnover ratio due mainly to cutthroat and competitive pricing.
Market Ratio (Earnings per Share ratio) Earnings per share are the amount of earnings per each outstanding share of a company’s stock. In the United States, the Financial Accounting Standards Board (FASB) requires companies’ income statements to report EPS for each of the major categories of the income statement: continuing operations, discontinued operations, extraordinary items, and net income. Axita has the highest market ratio which is 28sen out of every ordinary share. Digi and YTL have lower market ratio, 16.1sen and 11.53sen. Compare with Digi and YTL, Axiata has the highest market value. Axiata earn 28sen out of every ordinary share.
Days Sales Outstanding (DSO) Ratio Day sales outstanding are a calculation used by a company to estimate their average collection period. It is a financial ratio that illustrates how well a company’s accounts receivables are being managed. The day’s sales outstanding analysis provides general information about the number of days on average that customers take to pay invoices. YTL has higher DSO ratio, 72.72days can indicate a customer base with credit problems and is deficient in its collections activity. Digi and Axiata which have a lower ratio, 27.96days and 46.74days may indicate that firm’s credit policy is too rigorous, which may be hampering sales.