Liquidity Ratios

Current Ratio
Total current assets/ total current liabilities
Year 2016 = 112,225,717/128,939,602 = 0.87
Year 2017 = 157,105,429/163,310,619 = 0.96
Year 2018= 267,094,224/280,714,218 = 0.95

2016 2017 2018

0.87 0.96 0.95

Quick Ratio =
Current assets - Inventory/ current liabilities
Year 2016 = 112,225,717-967,110/128,939,602= 0.8628
Year 2017 = 157,105,429-10,270,890/163,310,619= 0.8991
Year 2018 = 267,094,224-31,404,569/280,714,218= 0.8396

2016 2017 2018

0.8628 0.8991 0.8396

Interest Coverage Ratio =

EBIT / Interest Payment
Year 2016= 4263133/4402741 = 0.9682
Year 2017= 17889719/5350520 = 3.343
Year 2018= 26281556/10806155 = 2.4320
2016 2017 2018
0.9682 3.343 2.4320

Debt to Asset =
Total liabilities / Total Assets
Year 2016= 248,016,184/251,713,515 = 0.9853
Year 2017= 313,591,015/324,186,806 = 0.9673
Year 2018= 442,480,562/461,157,243 = 0.9595
2016 2017 2018
0.9853 0.9673 0.9595

Debt to Equity =
Total liabilities / Total Equity
Year 2016= 248,016,184/3697331 = 67.07
Year 2017= 313,591,015/10595793 = 29.595
Year 2018= 442,480,562/18676681 = 23.69

2016 2017 2018

0.6707 0.2959 0.2369

ANALYSIS
Current ratio
In year 2016 company has current ratio of 0.87 and in year 2017 it is 0.96 which means sui
northern company liabilities are increasing which increases the current ratio but in year 2018
company quick ratio is 0.95 which means with high current ratio may not always be able to pay
its current liabilities as they become due if a large portion of its current assets consists of slow
moving inventories.
On the other hand, a company with low current ratio may be able to pay its current obligations
as they become due if a large portion of its current assets consists of highly liquid assets i.e.,
cash, bank balance, marketable securities and fast moving inventories.
Increase in current ratio over a period of time suggest improved liquidity of the company or a
more conservative approach to working capital management. A decreasing trend in the current
ratio may suggest a deteriorating liquidity position of the business or a leaner working capital

Quick ratio
In year 2016 companys quick ratio is 0.86 but in comparison to year 2017 it is 0.89 which
means it is higher in year 2017 but low in 2018 which is 0.83 low or decreasing quick ratios
shows that a company is over-leveraged, struggling to maintain or grow sales, paying bills too
quickly or collecting receivables too slowly. On the other hand, a high or increasing quick ratio
generally indicates that a company is experiencing solid growth, quickly converting receivables
into cash, and easily able to cover its financial obligations.
Sui northern company increases the quick ratio by Increasing sales which can improve inventory
turnover, which can increase a company’s cash on hand. And because cash is the most liquid
asset, the better the company is at increasing its sales or improving inventory turnover, and by
keeping the company’s liabilities under controlled is essential to improving the quick ratio, and
keeping them low will put company in a better position.

Interest coverage ratio

The interest coverage ratio is use to identify whether a company is able to support additional
debt. If the computation is less than 1, it means the company isn’t making enough money to pay
its interest payments. In year 2016 the coverage ratio was 0.96 but in 2017 it was 3.3 and in 2018
it was 2.4 which means if the coverage equation equals 1, it means the company makes just
enough money to pay its interest.
If the coverage measurement is above 1, it means that the company is making more than enough
money to pay its interest obligations with some extra earnings left over to make the principle
payments. If a company can’t afford to pay the interest on its debt, it certainly won’t be able to
afford to pay the principle payments. Thus, creditors use this formula to calculate the risk
involved in lending.

Debt to Asset ratio

In year 2016 the debt to asset ratio was 0.98 and it decreases in 2017 and 2018 it becomes 0.96
and 0.95 A ratio equal to one (=1) means that the company owns the same amount of liabilities
as its assets. It indicates that the company is highly leveraged. A ratio greater than one (>1)
means the company owns more liabilities than it does assets.
It indicates that the company is extremely leveraged and highly risky to invest in or lend to. A
ratio less than one (<1) means the company owns more assets than liabilities and can meet its
obligations by selling its assets if needed. The lower the debt to asset ratio, the less risky the
company.

Debt to Equity ratio

In the year 2016 debt to equity ratio was 0.67 but in year 2017 it was 0.29 and in 2018 it was
0.23. A low debt-to-equity ratio indicates a lower amount of financing by debt via lenders, versus
funding through equity via shareholders. A higher ratio indicates that the company is getting
more of its financing by borrowing money, which subjects the company to potential risk if debt
levels are too high, the more a company's operations rely on borrowed money, the greater the
risk of bankruptcy
Debt to equity ratio reflects the relationships between the stockholders' equity and total liabilities
of the company. Efficient usage of the debt (in case operating earnings are much higher than
charges associated with debt) leads to the situation, when shareholders receive their returns
through financial leverage effect.

PROFITABILITY RATIOS
Gross profit margin =
Net sales-COGS / Net Sales
2016 2017 2018
1.6 5.60 5.50

Operating margin =

Operating earnings / revenues

2016 2017 2018

0.017 0.05 0.05

Return on equity =

Net Income / Total equity

2016 2017 2018

0.031 1.18 0.82

Return on asset =

Net Income / Total assets

2016 2017 2018

0.0005 0.03 0.03

Working Capital =

Current assets – current liabilities

2016 2017 2018

 -16713885 -6205190 -13619994
Analysis on profitability ratios
In 2016 ratio decreases and in 2017 it increases again in 2018 ratio decreases. When a company
makes more money on each product it sells, it has a higher gross profit margin. If it starts to get
less per product sold, its gross profit margin decreases.
If increase in net working capital indicates that the business has either increased current assets
(that it has increased its receivables or other current assets) or has decreased current liabilities—
for example has paid off some short-term creditors, or a combination of both.

 Non Current liabilities

LONG TERM FINANCING
Secured and unsecured
Deffered credit
Employee benefit
2016 2017 2018
119,076,582 150,280,396 161,766,344

 Current liabilities
Trade and other payables
Interest and other payables
Short term borrowings
Current portion of long term financing
2016 2017 2018
128,939,602 163,310,619 280,714,218
If non current liabilities of a firm increasing then it means that company is not paying its debt on
time, and in case of sui northern, non-current liabilities are increasing that means company is not
paying its debt on time.

Profitability of a company decreases when current liabilities increases, Increases in accounts

payable means a company purchased goods on credit, conserving its cash. Company should
decrease their short term borrowings so that they can pay long term debt.
SECTORIAL ANALYSIS

sui northern
2018
0.95
0.83
2.43
0.95
0.23
0.05
0.05
0.82
0.03
-13,619,994

Sui Northern Gas Pipelines Limited (SNGPL) was incorporated as a private limited company in
1963 and converted into a public limited company in January 1964 under the Companies Act
1913, SNGPL is the largest integrated gas company serving more than 6.296 million consumers
in North Central Pakistan through an extensive network in Punjab, Khyber Pakhtunkhwa and
Azad Jamu & Kashmir. The Company has over 55 years of experience in operation and
maintenance of high-pressure gas transmission and distribution system.
A current ratio of less than 1 indicates that the company may have problems meeting its short-
term obligations.
In sui northern company current ratio is 0.95 and sector value is 2.9 which means that company
is not meeting its short term obligation
The higher the ratio, of the sector that is 2.9 the more financially secure a company is in the short
term. With a quick ratio of greater than 1.0 are sufficiently able to meet their short-term
liabilities. Sui northern company has quick ratio 0.83 that is less that 1 so company should pay
off its liabilities as early as possible.
Sui northern company has 0.95 signals a stable company with a lower proportion of debt. A
higher ratio i.e 3.3 of a sector means that a higher percentage of the assets can be claimed by the
company's creditors.
A low debt to equity ratio 0.23 indicates that a sector may not be able to generate enough cash to
satisfy its debt obligations. Lenders and investors usually prefer low debt-to-equity ratios
because their interests are better protected in the event of a business, it is 4.42 that is preferable.
Sector ratio is high 0.1 than the sui northern 0.03 A low percentage of return on assets indicates
that the company is not making enough income from the use of its asset. The machinery may not
be increasing production efficiency or lowering overall production costs enough to positively
impact the company's profit margin.
A higher gross profit margin indicates that a company can make a reasonable profit on sales, as
long as it keeps overhead costs in control. Sector gross profit margin is 4.7 i.e investors tend to
pay more for a company with higher gross profit because the company gross profit is very low
which is 0.05
Lenders and investors usually prefer low debt-to-equity ratios because their interests are better
protected in the event of a business decline and in case of sui northern it is 0.05 that is preferable,
while the sectors debt to equity is 13.1
SUBMITTED BY TUNGEENA WASEEM
SUBMITTED TO MA’AM ATIA ALAM
COURSE ANALYSIS OF FINANCIAL STATEMENTS
MAJOR ACCOUNTING AND FINANCE
SMESTER 7
DATE 11-09-2019