THE UNIVERSITY OF THE WEST INDIES

Department of Electrical and Computer Engineering

ECNG 6709 – Assignment 4

Financial Analysis

Jeremy Badal

813118035

November, 13th 2019

ELECTRICAL

& COMPUTER

ENGINEERING
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Contents
Liquidity Calculation ...................................................................................................................................... 3
Current Ratio ............................................................................................................................................. 3
Quick Ratio ................................................................................................................................................ 3
Profitability................................................................................................................................................ 4
Efficiency ....................................................................................................................................................... 4
Asset Turnover Ratio................................................................................................................................. 4
Investment Ratio ........................................................................................................................................... 5
Debt Ratio ................................................................................................................................................. 5
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Liquidity Calculation

Liquidity is described as a firm’s ability to meet its current obligations.

Current Ratio
Measures a company’s ability to re-pay short-term labilities with its short-term assets.

𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐴𝑠𝑠𝑒𝑡𝑠
𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝑅𝑎𝑡𝑖𝑜 =
𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐿𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠

500
𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝑅𝑎𝑡𝑖𝑜 2011 = = 6.25
80
1000
𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝑅𝑎𝑡𝑖𝑜 2012 = = 4.76
210

Quick Ratio
Measures the ability of a company to meet its current liabilities from assets that can be easily
sold.

𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐴𝑠𝑠𝑒𝑡𝑠 − 𝐼𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑖𝑒𝑠

𝑄𝑢𝑖𝑐𝑘 𝑅𝑎𝑡𝑖𝑜 =
𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐿𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠

500 − 100
𝑄𝑢𝑖𝑐𝑘 𝑅𝑎𝑡𝑖𝑜 2011 = =5
80
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1000 − 200
𝑄𝑢𝑖𝑐𝑘 𝑅𝑎𝑡𝑖𝑜 2012 = = 3.8
210

Profitability

𝑁𝑒𝑡 𝐼𝑛𝑐𝑜𝑚𝑒
𝑁𝑒𝑡 𝑃𝑟𝑜𝑓𝑖𝑡 𝑀𝑎𝑟𝑔𝑖𝑛 = ( ) ∗ 100
𝑆𝑎𝑙𝑒𝑠

105
𝑁𝑒𝑡 𝑃𝑟𝑜𝑓𝑖𝑡 𝑀𝑎𝑟𝑔𝑖𝑛 2011 = ( ) ∗ 100 = 7%
1500

105
𝑁𝑒𝑡 𝑃𝑟𝑜𝑓𝑖𝑡 𝑀𝑎𝑟𝑔𝑖𝑛 2012 = ( ) ∗ 100 = 5.5%
1900

Efficiency

Asset Turnover Ratio

This ratio measures how efficiently an organization uses its assets to generate sales.

𝑁𝑒𝑡 𝑆𝑎𝑙𝑒𝑠
𝐴𝑠𝑠𝑒𝑡 𝑇𝑢𝑟𝑛𝑜𝑣𝑒𝑟 𝑅𝑎𝑡𝑖𝑜 =
𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝑇𝑜𝑡𝑎𝑙 𝐴𝑠𝑠𝑒𝑡𝑠
1500
𝐴𝑠𝑠𝑒𝑡 𝑇𝑢𝑟𝑛𝑜𝑣𝑒𝑟 𝑅𝑎𝑡𝑖𝑜 2011 = = 1.96
685 + 80
1900
𝐴𝑠𝑠𝑒𝑡 𝑇𝑢𝑟𝑛𝑜𝑣𝑒𝑟 𝑅𝑎𝑡𝑖𝑜 2012 = = 1.34
1000 + 420
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Investment Ratio

Debt Ratio
𝑇𝑜𝑡𝑎𝑙 𝐿𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠
𝐷𝑒𝑏𝑡 𝑅𝑎𝑡𝑖𝑜 =
𝑇𝑜𝑡𝑎𝑙 𝐴𝑠𝑠𝑒𝑡𝑠

80
𝐷𝑒𝑏𝑡 𝑅𝑎𝑡𝑖𝑜 2011 = = 0.1
685 + 80

420
𝐷𝑒𝑏𝑡 𝑅𝑎𝑡𝑖𝑜 2012 = = 0.29
1000 + 420

Table 1: Calculated Ratios

Ratio 2011 2012

Current Ratio 6.25 4.76
Quick Ratio 5 3.8
Net Profit Margin 7 5.5
Asset Turnover 1.96 1.34
Debt 0.1 0.29
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Current Ratio Analysis

Based on the calculations, the Current Ratio was found to be 4.76. The current ratio is used to
estimate and understand the liquidity of a company. The calculated ratio of 4.76 means that a company
has 4.76 times more current assets than current liabilities. This is a favorable ratio. The CR gives insight
to the overall debt of a company. Currently, AGOS has no debt that cannot be comfortably paid.

Quick Ratio Analysis

Similar to the CR, Quick Ratio shows the ratio between quick assets and current liabilities. The calculated
CR was 3.8. This means that AGOS has 3.8 times more quick assets than current liabilities. This is
favorable and means that AGOS has no debt that cannot easily be paid using quick assets.

Net Profit Margin Analysis

This margin can be compared with that of 2011. A decreasing margin implies increased competition,
inefficient cost based or reduced bargaining power.

Asset Turnover Ratio Analysis

ATR relates to ow efficiently a firm utilizes its assets to generate sales. A ratio of 1.34 means that AGOS
generates 1.34 dollars for every dollar spent. Generally a ratio greater than 1 is favorable.

Debt Ratio

This ratio calculates total liabilities as a percentage of total assets. A ratio of 0.5 is considered as
reasonable. Values 0.5 and greater are more risky. A ratio of 1 means that AGOS would have to sell all of
its assets to pay off liabilities. The calculated ratio was found to be 0.29. This is an excellent investment
opportunity.
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Based on the calculations for AGOS for 2011 and 2012, the company is in a strong position however it
seems to be on the decline. Figures for 2011 are stronger and less risky than those of 2012. If AGOS
continues on this path, they will face financial issues within 5 years.

More detailed financial information can be made available to better investigate AGOS’ financial
strength. Many ratios could not be calculated with the information available