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Liquidity Ratio

Current Ratio

The current ratio is a liquidity and efficiency ratio that that measures a company's capacity to pay
off its short-term liabilities with its current assets. The current ratio is an important measure of
liquidity because short-term liabilities are due within the next year.
This means that a company has a limited amount of time in order to raise the funds to pay for
these liabilities. Current assets like cash, cash equivalents, and marketable securities can easily
be converted into cash in the short term. This means that companies with larger amounts of
current assets will more easily be able to pay off current liabilities when they become due
without having to sell off long-term, revenue generating assets.
Equation (Current Asset / Current Liabilities)
The current ratio is calculated by dividing current assets by current liabilities.
Current Ratio of Aftab Automobile
Ratio

2008

2009 2010 2011 2012 2013

Company
Average

Industry
Average

Current
Ratio

1.20

1.33

2.73

1.86

4.73

3.37

2.96

2.81

Interpretation
In 2013, the company's current ratio was 2.8. Current ratio helps investors and creditors
understand the liquidity of a company and how easily that company will be able to pay off
its current liabilities. This ratio expresses a firm's current debt in terms of current assets. So
a current ratio of 2.8 would mean that the company has 2.8 times more current assets than
current liabilities. Current Ratio has dropped very slightly from the last year. But the
company avarage remains above Industry Average,which is highly satisfactory. Current
ratio in 2010 was way higher than industry standards suggesting inefficient use of the
resources tied up in working capital of the organization that may instead be put into more
profitable uses elsewhere,now its staying in a preferable position. Percentage changes in
Current Asset were higher than in Current Liabilities. That's why the ratio increased.

Acid test ratio

Acid test is a liquidity ratio that measures the ability of a company to pay its current liabilities
when they come due with only quick assets. Quick assets are current assets that can be converted
to cash within 90 days or in the short-term. Cash, cash equivalents, short-term investments or
marketable securities, and current accounts receivable are considered quick assets.
The acid test of finance shows how well a company can quickly convert its assets into cash in
order to pay off its current liabilities. It also shows the level of quick assets to current liabilities.
Equation (Current Asset - Inventory / Current Liabilities)
The quick ratio is calculated by current assets subtract inventory then dividing them by current
liabilities.
Acid test Ratio of Aftab Automobile
Ratio

2008

Acid Test
Ratio

0.144

2009
0.178

2010
2.666

2011
2.035

2012

2013

0.392

1.837

Company
Average
1.207

Industry
Average
1.1

Interpretation
In 2013, the company's Acid Test Ratio was 1.84. The acid test ratio measures the liquidity
of a company by showing its ability to pay off its current liabilities with quick assets. An
acid ratio of 1.84 shows that the company has 1.84 times quick assets than current liabilities.
This also shows that the company could pay off its current liabilities without selling any
long-term asset. Current Ratio has increased signaficantly from last year. The company Acid
test ratio is above Industry average, which is Very good. This is a good sign for investors,
but an even better sign to creditors because creditors want to know they will be paid back on
time. Percentage changes in Current Asset (excluding Inventory) still higher than the
Current Liabilities. That's why the ratio increased. Company's overall situation is very good.

Asset Management Ratio

Inventory Turnover Ratio

The inventory turnover ratio is an efficiency ratio that shows how effectively inventory is
managed by comparing cost of goods sold with average inventory for a period. This measures
how many times average inventory is "turned" or sold during a period. In other words, it
measures how many times a company sold its total average inventory during the year.
Equation (Sales / Inventory)
The inventory turnover ratio is calculated by dividing the total sells for a period by the inventory
for that period.
Aftab Automobile
Ratio

2008

2009

2010

2011

2012

2013

Inventory
Turnover
Ratio

1.172

1.226

1.229

1.292

1.212

1.273

Company
Average
1.234

Industry
Average
5.2

Interpretation
In 2013, the company had "Sold out and Restocked" Inventory 1.27 times than the last year.
Aftab Auto Mobiles inventory turnover shows how efficiently this company can control its
merchandise, so it is important to have a high turn. It was a very little high. It's increased
from the last year but the company was below Industry Average. Very Bad. A percentage
change in inventory was higher than the percentage changes in Sales. That's why the ratio
has dropped.

Total Asset Turnover Ratio

The asset turnover ratio is an efficiency ratio that measures a company's ability to generate sales
from its assets by comparing net sales with average total assets. In other words, this ratio shows
how efficiently a company can use its assets to generate sales.
Equation (Sales / Total Asset)
The asset turnover ratio is calculated by dividing net sales by average total assets.
Aftab Automobile
Ratio
Total Asset Turnover
Ratio

2008
1.03

2009 2010 2011 2012 2013 Company Industry


Average Average
0.87 0.37 0.34 0.43 0.30
0.56
1.41

Interpretation
In 2013, Aftab automobiles every taka worth of total Asset generated tk 0.30 worth of sales.
Like with most ratios, the asset turnover ratio is based on industry standards. So, to get a
true sense of how well a company's assets are being used, it must be compared to other
companies in its industry. From 2008 its dropping in s signaficant rate and company average
is below the industry average. The total asset turnover ratio is a general efficiency ratio that
measures how efficiently a company uses all of its assets. So, this industry below average is
giving investors and creditors an negative idea about Aftab automobiles way that they
managed and uses its assets to produce products and sales. A percentage change in total
asset is higher that perchantage change is sales, thats why Total asset turnover ratio had
dropped.

Fixed Asset Turnover Ratio

A financial ratio of net sales to fixed assets. The fixed-asset turnover ratio measures a company's
ability to generate net sales from fixed-asset investments - specifically property, plant and
equipment (PP&E) - net of depreciation. A higher fixed-asset turnover ratio shows that the
company has been more effective in using the investment in fixed assets to generate revenues.
Equation (Sales / Fixed Asset)

Aftab Automobile
Ratio
Fixed
Asset
Turnover
Ratio

2008

2009

2010

2011

2012

2013

Company Industry
Average Average
5.0325 5.2635 14.6073 4.6726 6.6055 4.7485 6.8216
3.42

Interpretation
In 2013, Aftab automobiles every taka worth of total Fixed Asset generated tk 4.75 worth of
sales.It is higher than industry average. Percentage change in total Fixed asset is higher that
perchantage change is sales, thats why the perchentage had dropped from previous year.

Days Sales Outstanding (DSO)

The days sales outstanding calculation, also called the average collection period or days' sales in
receivables, measures the number of days it takes a company to collect cash from its credit sales.
This calculation shows the liquidity and efficiency of a company's collections department.
In other words, it shows how well a company can collect cash from its customers. The sooner
cash can be collected, the sooner this cash can be used for other operations. Both liquidity and
cash flows increase with a lower days sales outstanding measurement.
Equation (Accounts Receivable / Sales / 360)
Aftab Automobile
Ratio
Days Sales
Outstanding
(DSO)

2008

2009

2010

2011

2012

2013

140

47

229

266

207

322

Company
Average
202

Industry
Average
34

Interpretation
In 2013, Aftab automobile takes on average 322 days to collect reveivables from the
customers. So It means that Aftab automobile takes 322 days to convert its sales into cash. A
lower ratio is more favorable because it means companies collect cash earlier from
customers and can use this cash for other operations. But Aftab automobiles having a higher
ratio indicates that this company currently deals with poor collection procedures and
customers who are unable or unwilling to pay for their purchases.

Average Payment Period

Average payment period means the average period taken by the company in making payments to
its creditors. It is computed by dividing the number of working days in a year by creditors
turnover ratio.
A shorter payment period indicates prompt payments to creditors. Like accounts payable
turnover ratio, average payment period also indicates the credit worthiness of the company. But a
very short payment period may be an indication that the company is not taking full advantage of
the credit terms allowed by suppliers.
Equation (Accounts Payable / (Cost of Goods Sold/Purchase) / 360)
Aftab Automobile
Ratio
Average Payment
Period

2008

2009

35

147

2010 2011 2012


69

142

71

2013
228

Company
Average
115

Industry
Average
60

Interpretation
In 2013, he average payment period of Aftab automobile is 228 days. It means, on average,
the company takes 228 days to pay its creditors. But industry average 60 days, which is very
poor. Managers try to make payments promptly to avail the discount offered by suppliers.
Where the discount is available for early payment, so get that discounts they have to pay
earlier.
So Afab automobiles have to pay the suppliers before they got paid from their customers.
They have to increase the Average Payment Period or have switch the suppliers.

Debt Management Ratio

Debt-to-Asset Ratio

Debt -to-Asset ratio is a solvency ratio that measures a firm's total liabilities as a percentage of
its total assets. In a sense, the debt ratio shows a company's ability to pay off its liabilities with
its assets. In other words, this shows how many assets the company must sell in order to pay off
all of its liabilities.
This ratio measures the financial leverage of a company. Companies with higher levels of
liabilities compared with assets are considered highly leveraged and more risky for lenders.
Equation (Total Debt / Total Asset * 100)
Aftab Automobile
Ratio

2008

2009

2010

2011

2012

2013

Debt-toAsset
Ratio

89.881

4.456

15.146

21.549

23.432

26.117

Company
Average
30.097

Industry
Average
146%

Interpretation
In 2013, The debt to equity ratio of Aftab automobile is 26.117 or 26.117: 1. It means the
creditors of Aftab automobile provide 26.117 cents of assets for each $1 of assets provided
by stockholders. The debt ratio is shown in decimal format because it calculates total
liabilities as a percentage of total assets. As with many solvency ratios, a lower ratio is more
favorable than a higher ratio.

Time Interest Earns (TIE)

The times interest earned ratio, sometimes called the interest coverage ratio, is a coverage ratio
that measures the proportionate amount of income that can be used to cover interest expenses in
the future.
Equation EBIT / Interest Expense
Aftab Automobile
Ratio
Time
Interest
Earns
(TIE)

2008

2009

2010

2011

2012

2013

Company Industry
Average Average
1.4569 3.6227 21.1832 21.5305 69.5358 2.2741 19.9339
15

Interpretation
In 2013, Aftab Automobiles EBIT was 2.2741 times higher than interest expense. TIE had
dropped significantly . The industry average is higher, which is disatisfactory. Perchentage
change in Interest expense is higher than perchentage change in EBIT, thats why percentage
dropped.

Profitability Ratio

Gross Profit Margin

Gross margin ratio is a profitability ratio that compares the gross margin of a business to the net
sales. This ratio measures how profitable a company sells its inventory or merchandise. In other
words, the gross profit ratio is essentially the percentage markup on merchandise from its cost.
This is the pure profit from the sale of inventory that can go to paying operating expenses.
Equation Gross Profit / Sales * 100
Aftab Automobile
Ratio
Gross Profit
Margin

2008

2009

2010

2011

2012

2013

Company Industry
Average Average
14.6402 18.4185 18.6119 22.6097 17.4761 21.4751 18.8719
17%

Interpretation

In 2013, Aftab Automobile had earned Gross Profit of 21.4751 taka for every 100 taka sales.
It had Increased from previous year. Company Gross Profit Margin is higher than industry
average,which is satisfactry. Perchentage change in Net profit is higher than perchentage
change in sales.

Net Profit Margin

The Net profit margin ratio, also called the return on sales ratio or gross profit ratio, is a profitability ratio
that measures the amount of net income earned with each dollar of sales generated by comparing the net
income and net sales of a company. In other words, the profit margin ratio shows what percentage of sales
are left over after all expenses are paid by the business.

Equation Net Profit / Sales * 100


Aftab Automobile
Ratio

Net Profit
Margin

2008

2009

2010

2011

2012

2013

3.1010 3.4854 5.4951 44.6281 11.4982 13.5887

Company Industry
Average Average

13.6327

12.73%

Interpretation

In 2013, Aftab Automobile had earned Net profit of 13. 5887 taka for every 100 taka sales.
It had sightly increased from previous year. It is higher than industry average,which is
satisfactry. Perchentage change in Net profit is higher than perchentage change in sales.

Operating Profit Margin

The operating margin ratio, also known as the operating profit margin, is a profitability ratio that
measures what percentage of total revenues is made up by operating income. In other words, the
operating margin ratio demonstrates how much revenues are left over after all the variable or
operating costs have been paid. Conversely, this ratio shows what proportion of revenues is
available to cover non-operating costs like interest expense.
Equation EBIT / Sales
Aftab Automobile
Ratio
Operating
Profit
Margin

2008

2009

2010

2011

2012

2013

Company Industry
Average Average
4.2773 0.1549 0.4796 0.4977 0.1528 0.1806 0.9571
6.20%

Interpretation
In 2013, Aftab Automobile had earned operating profit of 0.1806 taka for every 100 taka
sales. Though it had increased from previous year its still lower than industry average,
which means this is highly unsatisfactory. Perchentage change in EBIT was higher than
percentage change in sales, thats why it had increased from previous year.

Return on Equity (ROE)

The return on equity ratio or ROE is a profitability ratio that measures the ability of a firm to
generate profits from its shareholders investments in the company. In other words, the return on
equity ratio shows how much profit each dollar of common stockholders' equity generates.
So a return on 1 means that every dollar of common stockholders' equity generates 1 dollar of net
income. This is an important measurement for potential investors because they want to see how
efficiently a company will use their money to generate net income.
Equation (Net Profit / Total Common Equity * 100)
Aftab Automobile
Ratio
Return on
Equity
(ROE)

2008

2009

2010

2011

2012

2013

Company Industry
Average Average
9.2462 8.1778 2.3091 18.5773 6.4853 5.5571 8.3921
34.29%

Interpretation
In 2013, the common shareholders of Aftab automobiles have earned 5.5571 taka for every
100 taka investment. The ROI has decreased and below industry avarage, which is very poor
. This ratio calculates the money made based on the investors' investment in the company,
not the company's investment in assets or something else. Which is very low comparing to
related industry avarage. Percentage change in net profit was lower than perchentage change
in total common equity.

Stock Market Ratio

Earnings per Share (EPS)

Earnings per share, also called net income per share, is a market prospect ratio that measures the
amount of net income earned per share of stock outstanding. In other words, this is the amount of
money each share of stock would receive if all of the profits were distributed to the outstanding
shares at the end of the year.
Equation Net Profit after Tax / Total No. of Common Share
Aftab Automobile
Ratio
Earnings Per
Share (EPS)

2008

2009

2010

2011

2012

2013

Company Industry
Average Average
30.9451 31.9248 1.6894 13.8473 15.9059 3.1625 16.2458
4.00

Interpretation
In 2013, the common shareholders of Aftab automobiles have earned 3.1625 taka per share.
EPS has decreased from recent years. EPS is below industry average, which is poor. Net
profit has gone down thats why the ratio decreased.

Price to Earnings (P/E)

The price earnings ratio, often called the P/E ratio or price to earnings ratio, is a market prospect
ratio that calculates the market value of a stock relative to its earnings by comparing the market
price per share by the earnings per share. In other words, the price earnings ratio shows what the
market is willing to pay for a stock based on its current earnings.
Equation Market Price per Share / Earning Per Share
Aftab Automobile
Ratio
Price To
Earnings
(P/E)

2008

2009

2010

2011

2012

2013

Company Industry
Average Average
4.0388 12.2549 0.8217 0.6494 2.9240 3.1646 3.9755
4.5800

Interpretation
In 2013, the common shareholders of Aftab autimobiles were willing to pay 3.1646 taka fot
every taka of reported earnings.Compare to 4.58 industry avarage Aftab automobiles P/E
ratio is low . Lower ratio will give shareholders a lack of confidance with this share, is
usually an indication of poor current and future performance. This could prove to be a poor
investment.
But from recent years it is going up and expected it will catch up with industry avarage.