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FINANCIAL RATIO

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Year: 2017 and 2016

1. Liquidity Ratios

Current ratio: - Liquidity and efficiency ratio that measures a company can pay off the short term liability

by using the current assets that owns by company.

- Large amount of current assets can easily convert into cash and pay off the liabilites.

- A higher current ratio is better than lower current ratio.

Current liabilites

1,596,977 1,509,921

1,111,499 1,284,097

Analysis: Year 2017 has greater current ratio compared to year 2016. Therefore, 2017 is more liquid than

year 2016.

Quick ratio: - Measures the company ability to pay off the current liabilities by using quick

current assets, which can be easily convert into cash within 90 days.

- Often called as acid test ratio.

-excluded the inventory because may not easily convert into cash.

- High quick ratio is more favorable to companies compare to lower.

Current liabilites

1,111,499 1,284,097

Analysis: The quick ratio also behalf like the current ratio. Year 2017 is more liquid than year 2016.

Cash ratio: - Measure the company ability to pay off the current liabilities by using

the cash and market securities of the company.

- High cash ratio is more favorable to companies compare to lower.

Formula: Cash

Current liabilites

119,614 171,640

1,111,499 1,284,097

Analysis: Year 2016 has high cash ratio compared to year 2017.

Working Capital: - Determines the company can meet the obiligation with the current assets.

- To determine of how much of deficiency and excess there is.

- When the current assets exceed the current liabilities its means, the company

has enough capital their day to day operations.

RM485,478 RM225,824

Analysis: Year 2017 has higher working capital compared to year 2016.

2. Solvency Ratios

Debt ratio: - Measure a company total liabilities as a percentage of its total assets.

- The debt ratio shows the ability of company assets to pay off the liabilities.

- How many assets the company must sell of in order to pay off the liabilities.

- lower ratio is more favorable then higher ratio.

Total Assets

Solution: 2017 (RM'000) 2016 (RM'000)

1,211,237 1,482,370

2.723,214 2,646,267

44% 56%

Analysis: Year 2016 has higher debt portion related to assets compared to year 2017.It seems using

more debt and might put the firm under risk pressure but indicate high leverage.

Debt to equity ratio: - liqudity ratio that compare a company total debt to total equity.

- A higher debt to equity ratio indicates that more creditor financing than investor

financing.

- Higher debt to equity ratio are more risky considered to lower ratio.

Total Equity

1,211,237 1,482,370

1,511,977 1,163,897

0.80 1.27

Analysis: Year 2016 has higher debt portion compared to year 2017. It might not be normal and might

put the firm under risk but indicate high leverage.

Equity ratio: - Measures amounts of assets that financed by company or owner investments

by comparing total equity with total assets.

To shows how much of the total assets are owned outright by the investors, after

all the liabilities are paid off.

- To shows how leveraged the company is with the debt.

- Higher equity ratios are typically favorable for companies.

Total Assets

1,511,977 1,163,897

2,723,214 2,646,267

56% 44%

Analysis: Year 2017 has higher equity ratios compared to year 2016.

Equity multiplier: - Measured the amounts of assets that financed by shareholders by comparing total

assets with total shareholders equity.

- Indication of company risk to creditors.

- lower multiplier ratio are always considered more conservative and favorable than

higher ratio.

= 1 + Debt to equity ratio

Total Equity

1 + 0.80 1 + 1.27

1.8 2.27

Analysis: Year 2017 has lower multiplier ratio compared to year 2016.

3. Turnover ratios

Inventory turnover: - Efficiency ratio that shows how efficiency inventory is managed by comparing

cost of good solds.

- This measured how much of turnover or sales of inventory in a year.

- two important components which are purchasing of inventory and sales have to

match the inventory that bought.

- High turnover is better than lower.

Inventory

9,678,216 7,038,504

678,138 710,081

Analysis: Year 2017 has higher turnover compared to year 2016. The higher turnover indicates the

maximum utilization of inventory efficiently.

- Measure number of days takes in order a company to sell off the inventory.

Days sales in inventory:

- Measure value, liqudity and cash flows.

- Shorter days is better compare longer days.

Formula: 365

Inventory turnover

365 365

14.27 9.91

26 days 37 days

Analysis: Year 2017 has lower turnover in days compared to year 2016. The lower turnover in days

indicates the maximum utilization of inventory efficiently.

- Efficiency ratio that measures how many times a business can convert receivables

Receivables turnover: into cash.

- Hows fast can collect the debt from receivables.

- High ratio will be favorable.

Formula: Sales

Trade receivables

10,363,058 7,602,477

238,306 191,407

Analysis: Year 2017 has higher receivable turnover compared to year 2016. The higher the receivable

turnover indicates quicker chance of receivable collection.

Days sales in - Measure number of days takes to collect the receivables.

receivables: - Shorter days is better compare longer days.

Formula: 365

Receivables turnover

365 365

43.49 39.72

8 days 9 days

Analysis: Year 2017 has shorter days compared to year 2016. The lower the collection period indicates

quicker receivable collection.

4. Profitability ratios

- percentage of sales left over after paid all the expenses that paid by business

- Efficient of a company to convert all the sales into net income.

- Higher ratio is better.

Sales

684,842 563,973

10,363,058 7,602,477

7% 7%

Return on Assets (ROA) - To shows how much profits can produce by the assets own by a company.

- Convert money that used to purchase assets into profits.

- Higher ratio is more favorable.

Total Assets

684,842 563,973

2.723,214 2,646,267

25% 21%

Analysis: Year 2017 has higher percentage compared to year 2016. The higher the percentage, the better

the firm’s asset utilization to earn, because that means the company is doing a good job using

its assets to generate sales.

- Ability of a firm to generate profits from its shareholders investments in the company.

Return on Equity (ROE) - Important measurement for potential investors because they want to see

how efficiently a company will use their money to generate net income.

- Higher ratio is more favorable.

- Can’t be used to compare companies outside of their industries very effectively.

Total Equity

684,842 563,973

1,511,977 1,163,897

45% 48%

Analysis: Year 2016 has higher percentage compared to year 2017. In general, the higher the percentage,

the better earning capability against its equity, with some exceptions, as it shows that the

company is doing a good job using the investors' money.

- Efficiency ratio that measures a company’s ability to generate sales from its

Total Asset Turnover: assets by comparing net sales with average total assets.

- Higher ratio is more favorable.

Formula: Sales

Total Assets

10,363,058 7,602,477

2,723,214 2,646,267

Analysis: Year 2017 has higher ratio on total asset turnover compared to year 2016.

EBITDA Margin: - Compare big companies that either have significant amounts of debt or large

investments in fixed assets because this measurement excludes the accounting effects

of non-operating expenses like interest and paper expenses like depreciation.

Formula: EBITDA

Sales

588,317 384,698

10,363,058 7,602,477

6% 5%

Du Pont Identity The Dupont analysis also called the Dupont model is a financial ratio

based on the return on equity ratio that is used to analyze a company’s ability

to increase its return on equity.

45% 48%

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