FINANCIAL STATEMENT ANALYSIS1.0 LIQUIDITY RATIOSLiquidity ratios measure the extent to which a firm has adequate cash flows or liquid assets. 1.1 Current Ratio Current ratios is one seeks to look at the firm’s assets that are relatively liquid in nature and match them to the short-term liabilities of the firm. Current assetsCurrent ratio = Current liabilities Years 2016 (RM’000) 2017 (RM’000)Current ratio = 1 ,336 ,738690 ,909= 1.93 times = 1 ,251 ,356795 ,738= 1.57 times1.2 Quick RatioQuick ratios or acid test ratio measures the ratio of current assets less stock to current liabilities. Current assets – inventoryQuick ratio = Current liabilitiesYears 2016 (RM’000) 2017 (RM’000)Quick ratio = 1 ,336 ,738 – 263 ,679690 ,909= 1.
55 times = 1 ,251 ,356 – 315 ,775795 ,738= 1.18 times2.0 ASSET MANAGEMENTThis section shows four elements of asset management which is inventory turnover, days sales outstanding (DSO), fixed assets turnover and total asset turnover.2.1 Inventory Turnover RatioInventory turnover ratio or stock turnover ratio indicates the relative liquidity of stocks in a firm, as measured by the number of times a firm’s stock are sold that replaced during the year. It can be taken as a measure of a firm’s efficiency in turning its inventory into sales.
Sales Inventory turnover ratio = Inventories Years 2016 (RM’000) 2017 (RM’000)Inventory turnover ratio = 2 ,888 ,515263 ,679= 10.95 times = 3 ,409 ,176315 ,775= 10.80 times2.2 Days Sales Outstanding (DOS)The days sales outstanding (DOS) is known as the average collection period or days’ sales in receivables, it also measures the number of days that a company needs to collect cash from its credit sales. This calculation shows the liquidity and efficiency of the collection department of the company. Receivables Days sales outstanding = Average sales per day Years 2016 (RM’000) 2017 (RM’000)Days sales outstanding = 326 ,4827 ,913.74= 41.26 days = 393 ,4339 ,340.21= 42.12 days2.3 Fixed Assets Turnover RatioFixed asset turnover ratio is the efficiency ratio that measures the company to return its investment in assets, plants and equipment by comparing net sales to fixed assets. In other words, it calculates how efficiently a company produces sales with its machinery and equipment. Sales Fixed assets turnover ratio = Net fixed assets Years 2016 (RM’000) 2017 (RM’000)Fixed assets turnover ratio = 2 ,888 ,5151 ,312 ,404= 2.20 times = 3 ,409 ,1761 ,684 ,897= 2.02 times2.4 Total Assets turnover RatioTotal assets turnover ratio is a financial efficiency ratio measuring a company’s ability to use its assets to generate sales. The total asset turnover ratio is calculated by dividing net sales by the average total assets. Sales Total assets turnover ratio = Total assets Years 2016 (RM’000) 2017 (RM’000)Total assets turnover ratio = 2 ,888 ,5152 ,649 ,142= 1.09 times = 3 ,409 ,1762 ,936 ,253= 1.16 times3.0 DEBT MANAGEMENTThis section shows two elements of debt management which is total debt to total assets and times interest earned (TIE).3.1 Total Debt To Total Assets RatioTotal debt to total assets ratio is a leverage ratio that measures the total amount of assets funded by creditors and not investors. Total debt Total debt to total assets ratio = Total assets Years 2016 (RM’000) 2017 (RM’000)Total debt to total assets ratio = 823 ,3032 ,649 ,142= 31.08 % = 923 ,7722 ,936 ,253= 31.46 %3.2 Times Interest Earned Ratio (TIE)Times interest earned ratio (TIE) or interest cover ratio is measure the extent to which the firm’s EBIT can meet interest expenses. EBIT Times interest earned ratio = Interest charges Years 2016 (RM’000) 2017 (RM’000)Times interest earned ratio = 442 ,20279 ,763= 5.544 times = 383 ,10554 ,669= 7.008 times4.0 PROFITABILITY RATIOSProfitability ratios analyses the ability of management to generate adequate profits from use of the firm’s capital and assets. 4.1 Operating Margin RatioOperating margin or operating profit margin measures how much a firm earns from its revenue less its operating expenses. EBIT Operating margin ratio = Sales Years 2016 (RM’000) 2017 (RM’000)Times interest earned ratio = 442 ,2022 ,888 ,515= 15.31 % = 383 ,1053 ,409 ,176= 11.24 %4.2 Profit Margin RatioThe profit margin ratio shows what percentage of sales are left over after all expenses are paid by the business. Net income Profit margin ratio = Sales Years 2016 (RM’000) 2017 (RM’000) Profit margin ratio = 360 ,7292 ,888 ,515= 12.49 % = 328 ,5713 ,409 ,176= 9.64 %4.3 Return On Total Assets Ratio (ROA)Return on the asset ratio is a profit ratio that measures the net income generated by total assets over the period by comparing net income with the average amount of assets. Additionally, return on asset ratio or ROA measures how companies can manage their assets to generate profits over a certain period of time. Net income Return on total assets ratio = Total assets Years 2016 (RM’000) 2017 (RM’000) Return on total assets ratio = 360 ,7292 ,649 ,142= 13.62 % = 328 ,5712 ,936 ,253= 11.19 %4.4 Basic Earning Power Ratio (BEP)Basic earning power ratio (BEP) is a measure to calculate the power of business income before the effects on its corporate income tax and financial leverage. EBIT Basic earning power ratio = Total assets Years 2016 (RM’000) 2017 (RM’000) Basic earning power ratio = 442 ,2022 ,649 ,142= 16.69 % = 383 ,1052 ,936 ,253= 13.05 %4.5 Return On Common Equity Ratio (ROE)Return in common equity ratio (ROE) is the profit ratio that measures the firm’s ability to increase profits from the investment of shareholders in the company. Net income Return common equity ratio = Common equity Years 2016 (RM’000) 2017 (RM’000) Return common equity ratio = 360 ,7291 ,825 ,839= 19.76 % = 328 ,5712 ,102 ,481= 16.33 %
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FINANCIAL STATEMENT ANALYSIS10 LIQUIDITY RATIOSLiquidity ratios measure the extent to which a. (2019, Aug 20). Retrieved from https://studymoose.com/financial-statement-analysis10-liquidity-ratiosliquidity-ratios-measure-the-extent-to-which-a-essay
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