Mitchell’s Fruit Farms Ltd

Mitchell’s Fruit Farms Ltd was founded in 1933. It is situated at Renala Khurd , District Okara. The
Mitchell was famous for its rich citrus fruit farms. They are well known for their organic fruit farms
product.it consists of the area of 720 acres.

Liquidity Ratios
Liquidity ratios are a class of financial metrics used to determine a debtor's ability to pay off current debt
obligations without raising external capital.

Current Ratio:
Current ratio is used to determine whether current liquid assets are enough to pay company’s short
time liabilities.it is obtain by dividing current assets with current liabilities. Normal range for the current
ratio is between 1.2 – 2. If the current ratio is below than 1 which means that company do not have
enough liquid asset to sell out to pay it short term liabilities .

2015 2016 2017 2018 2019

1.24 1.01 0.96 0.68 0.651

In case of Mitchells Fruit Farms Limited, the current ratio for the year 2015 is reasonable. But after the
2015 the trend show that the ratio decreases after every financial year. At the end 2019 the current
ratio is at lowest point which is highly alarming situation or the company.

Quick Ratio:
Quick ratio is more rigorous than the quick ratio. It is obtained by subtracting inventory from current
assets than by dividing it by current liabilities. Its normal range is >1.

2015 2016 2017 2018 2019

0.65 0.49 0.50 0.29 0.39

In case of Mitchells Fruit Farms Limited. All the quick ratio for the last four year is less than 1 which not
good for the company. it indicates that the company have not enough current assets except inventory to
pay its short liabilities in case of any trouble.
Cash Ratio:
Cash ratio indicates that is that company had enough power to pay its liabilities (short term) with cash.
Usually different companies have different range of cash ratio. But it is at least to pay 50% of its current
liabilities with cash plus cash equivalent.

2015 2016 2017 2018 2019

1.66% 2.25% 1.43% 1.02% 1.54%

In Mitchells Fruit Farms Limited case the cash ratios are extremely alarming that the company from past
four years do not have enough cash or cash equivalent to pay it current liabilities. It could only able to
pay not more than 2.25% of its current liabilities.

Net working Capital:

Net working capital is used to determine whether a company has enough ability to pay out its current
liabilities by its current asset. Actually it is the basic form of current ratio. It is obtain by simply
subtracting current liabilities with current assets. The least net working capital is considered that its
answer should be in positive.

2015 2016 2017 2018 2019

127,628,50 8,693,5 (40,480,94 (367,264,7 (378,224,4

9 19 2) 14) 51)

In Mitchells Fruit Farms Limited, through analysis it is shown that for the financial of 2015 and 2016 it
quit good ( at least it is positive) . But after 2016 , the company have higher current liabilities than its
current asset . For the financing year of 2018-19 the company had most negative net working capital.

Operating Performance and Efficiency Ratios

Efficiency ratios measure a company's ability to use its assets and manage its liabilities effectively
in the current period or in the short-term

Inventory Turnover (Times):

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. It is obtain by simply dividing cost of goods sold
by Average inventory for a period.

2015 2016 2017 2018 2019

Days 88 107 104 123 65
Times 4 3 3.5 2.9 5.6
In Mitchells Fruit Farms Limited, the inventory turnover is quiet impressive as show that for the year
2015 it is 4 times per. And for the year 2019 it is 5.6 times per year which is highest turnover ratio which
means that the manager do great job for inventory, in addition the sale for this particular year is quiet
high that is good for the company performance.

Days Sales Outstanding:

Days sales outstanding calculation 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 .For any firm or a company it is very
important to collect cash from its customer as soon as possible. It is obtained by accounts receivable
over credit sales into 365.

2015 2016 2017 2018 2019

Days 24 26 40 14 24
In Mitchells Fruit Farms Limited analysis the days sales outstanding is ideal as it recover its sale price
within month( average). In 2017 it is rise up to 40 days but in 2018 company bring it to 14 days which is
the best sales outstanding. Overall Mitchells Fruit Farms Limited has best recovery time.

Fixed Turnover Ratio:

 The fixed asset turnover ratio is an efficiency ratio that measures a company’s return on their
investment in property, plant, and equipment by comparing net sales with fixed assets. In other words,
it calculates how efficiently a company is a producing sale with its machines and equipment. Basically
this ratio is used by investor to determine how well the company is utilizing its asset in order to generate
their sales.it is obtained by dividing net sales with the difference of fixed assets and Accumulated
depreciation.

2015 2016 2017 2018 2019

Times 2.44 2.51 2.81 2.52 3.34
In Mitchells Fruit Farms Limited analysis, the average Fixed Turnover Ratio is 2.72 for last four financial
years which means that the company has double sales as compared to their assets. In the year 2019 the
ratio is high 3.34 means that assets are being utilized efficiently and large amount of sales are generated
using a small amount of assets.

Total Assets Turnover (Times):

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. The asset turnover ratio is calculated
by dividing net sales by average total assets.

2015 2016 2017 2018 2019

1.24 1.19 1.21 1.09 1.48
In Mitchells Fruit Farms Limited analysis, the average asset turnover ratio is 1.30. Which means that the
company is generating 1.3 times sales as compared to its total assets. The situation become dangerous
when this ratio is >1. But Mitchells Fruit Farms Limited has stable turnover ratio..

Profitability Ratios
 Profitability ratios also show how well companies use their existing assets to generate profit and value
for shareholders

Gross Profit Margin (%) :

This ratio is used to determine how efficiently a company uses its materials and labor to produce and
sell products profitably. The gross profit ratio is important because it shows management and investors
how profitable the core business activities are without taking into consideration the indirect costs. In
other words, it shows how efficiently a company can produce and sell its products. This gives investors a
key insight into how healthy the company actually is. The gross profit percentage formula is calculated
by subtracting cost of goods sold from total revenues and dividing the difference by total revenues.

2015 2016 2017 2018 2019

23.80% 23.41% 23.71% 15.53% 21.86%
The gross profit margin for the Mitchells Fruit Farms Limited is low for the last four financial years. This
means that the profit margin is quite low. In addition for the year 2018 it is too low . Probably it is the
reason behind company loss for this year.

Operating 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. A higher operating margin is more favorable compared with a lower ratio because
this shows that the company is making enough money from its ongoing operations to pay for its variable
costs as well as its fixed costs. The operating margin formula is calculated by dividing the operating
income by the net sales during a period.

2015 2016 2017 2018 2019

4.38% 2.68% 1.64% -16.47% 1.35%
In Mitchells Fruit Farms Limited analysis, it is show that the operating margin for last 4 year is low which
means revenue generated by operating income is low. For the year 2018 the operating margin is in
negative which means company was is loss in year 2018. And in 2019 it stable again with a 1.35%.

Net Income Margin (%):

The net profit margin is equal to how much net income or profit is generated as a percentage of
revenue. Net profit margin is the ratio of net profits to revenues for a company or business segment. It is
obtain by dividing net income by revenue.

2015 2016 2017 2018 2019

1.60% -0.72% -1.63% -17.97% -4.03%
In Mitchells Fruit Farms Limited analysis, the net income margin for the year 2015 is 1.60 which low
because net income is low. But after 2015, it is gone in negative which means that the revenue is high
but net income is too low this is due to high operating expenses. Furthermore the reason behind this is
poor performance of managerial staff.

Return on Total Assets (%):

Return on total assets by net income by total assets. It shows that how much company has a return on
its total assets.

2015 2016 2017 2018 2019

1.98% -0.86% -1.97% -19.60% -5.96%
In Mitchells Fruit Farms Limited analysis the company has positive return on total assets. But from the
2016 company has the negative return on total assets because form 2016-19 the company was in loss
that’s why its ratio is negative.

Return on Total Equity (%):

ROE is a profitability ratio that measures the ability of a firm to generate profits from its shareholders
investments in the company. The return on equity ratio formula is calculated by dividing net income by
shareholder’s equity.

2015 2016 2017 2018 2019

4.73% -2.24% -6.16% -139.81% -63.27%
In Mitchells Fruit Farms Limited analysis for the year 2015, the company was in profit but after this year
company was in loss that’s why the return on total equity ratio is negative which indicates the poor
performance of the staff in order to reduce operating expense.
Return on Invested Capital (%):
Return on invested capital used by investor to determine how much percentage on its investment can
be obtained by the company. ROIC or return on invested capital is a financial ratio that calculates how
profitably a company invests the money it receives from its shareholders. In other words, it measures a
company’s management performance by looking at how it uses the money shareholders and
bondholders invest in the company to generate additional revenues.

2015 2016 2017 2018 2019

8.88% 6.52% 4.69% -81.50% 10.28%
In Mitchells Fruit Farms Limited analysis, all return on invested capital for the financial year is reasonable
except for the year 2018. It is highly negative because of great loss for the company.

Basic Earning Power:

Basic earning power (BEP) ratio is a measure that calculates the earning power of a business
before the effect of the business' income taxes and its financial leverage. It is calculated by
dividing earnings before interest and taxes (EBIT) by total assets.

2015 2016 2017 2018 2019

0.02 0.00 -0.01 -0.21 -0.04
In Mitchells Fruit Farms Limited analysis for the year 2017-19 the basic earning power is in negative
because company in was in loss it these three years.

Capital Structure And Long Term Solvency Ratio

Debt Ratio - Leverage (%):

Debt 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. The debt ratio
is calculated by dividing total liabilities by total assets.

High solvency ratios mean more risk for a company.

2015 2016 2017 2018 2019

58.14% 61.77% 67.95% 85.98% 90.59%

The debt ratio should be lesser than 50% of the current assets. In Case of Mitchells fruit farms the
overall ratio is above 50% which is alarming for the company. In the year 2018-19 the situation become
worse for the company due to low assets and high debts.
Debt to Equity Ratio (Times):
The debt to equity ratio is a financial, liquidity ratio that compares a company’s total debt to total
equity. The debt to equity ratio shows the percentage of company financing that comes from creditors
and investors. A higher debt to equity ratio indicates that more creditor financing (bank loans) is used
than investor financing (shareholders). The debt to equity ratio is calculated by dividing total liabilities
by total equity. The debt to equity ratio is considered a balance sheet ratio because all of the elements
are reported on the balance sheet.

2015 2016 2017 2018 2019

0.46 0.28 0.32 0.57 1.06
In Mitchells Fruit Farms Limited analysis the debt ratio is low except for the year 2019. Lower debt ratio
means that company has lower risk. If the debt ratio is equal to 1 which means that investors and
creditors have an equal stake in the business assets. For the year of 2019 the bet ratio is 1.06 which is
not for good company because of less equity as compared to liabilities.

Tie Ratio - Time interest (Times):

Time interest earned ratio (TIE), also known as interest coverage ratio, indicates how well
a company can cover its interest payments on a pretax basis. The larger the time interest earned, the
more capable the company is at paying the interest on its debt.

It is obtain by dividing EBIT with Total interest .

2015 2016 2017 2018 2019

0.46 0.28 0.32 0.57 1.06
In Mitchells Fruit Farms Limited analysis the debt ratio is low except for the year 2019 . In year 2019 the

which means that it has lower interest as compared to EBIT.

Conclusion:
I had applied all the above ratios to analyze the Mitchell’s Fruit Farms Ltd financial activates to ensure
either the company financial activities are doing good or not. And from these analyses I conclude that
from last three years 2016-19 they are suffer great loss. They do not have enough sales to meet their
basic operating cost. The company starts to face financial issue form the end of 2016 where they had a
loss of 30 million. But at the end of 2018 company declared the loss of 292.6 million. They had a loss per
share is 37 for this year. From the analyses the 2018 financial year was the worst for Mitchell’s Fruit
Farms Ltd. After this year company had reduce their expenses like marketing and operating cost. In
result, at the end of 2019 they the reduced their loss up to 80 million. The company had taken loan from
Director to pay out running expense.

There is reason behind their loss. First one is climate change. The company totally relies on their fresh
fruit farm. Due to climate change they do don’t get the desired yield that’s why they suffered 2016-
2018. The second reason is operating cost. Form the analyses it has seen that company increase their
operating cost and expenses by each passing year. That’s why they generate low revenue for these
years.

According to dawn news article Mitchell’s Fruit Farms Ltd prepares for sale. They had sale their farms
already now they are considering selling out production unit because they don’t have capacity bear
further loss.