Name: Hammad Ali (180811)

Class: BSAF 4A
Submitted to: Sir Khalid
Subject: Financial Reporting 2

1|Page
 Liquidity ratios are the ratios that measure the
ability of a company to meet its short term debt obligations.
These ratios measure the ability of a company to pay off its
short-term liabilities when they fall due.

Current Ratio:
Current ratio indicates a company's ability to meet
short-term debt obligations. The current ratio measures whether
or not a firm has enough resources to pay its debts over the next
12 months.
Formula:
Current ratio= Current Assets/ Current Liabilities

2015 2016 2017 2018 2019

0.72 0.59 0.62 0.95 0.65

Quick Ratio:
It is also known as the acid-test ratio. It is a type of
liquidity ratio, which measures the ability of a company to use its
near cash or quick assets to extinguish or retire its current
liabilities immediately.
Formula:
Quick assets= current assets- inventory- prepaid expense
Quick ratio= quick assets/ current liabilities
2015 2016 2017 2018 2019
0.30 0.23 0.21 0.73 0.62

2|Page
Net working capital:
Net working capitals a liquidity calculation that
measures a company's ability to pay off its current liabilities with
current assets.
Formula:
Net working capital= current assets-current liabilities/ total
liabilities

2015 2016 2017 2018 2019

-0.14 -0.265 -0.25 -0.015 -0.032

Cash Ratio:
Cash ratio (also called cash asset ratio) is the ratio of a
company's cash and cash equivalent assets to its total liabilities
Formula:
Cash ratio= cash & cash equivalents/ current liabilities
2015 2016 2017 2018 2019
0.01 0.10 0.03 0.10 0.19

Current Ratio:
We can observe the similar pattern in every year’s
current ratio which means that there’s not much of a difference.
But in 2018, the current ratio increased to 0.95 which is a good
thing. Because current ratio should always be near or greater
than one. Others are less then 1 which means companies is in
difficulty.

Quick Ratio:
The company has bad quick ratio. Through the first 3
years it has remained drastically low. It started increasing in 2018
but again fell down in 2019. The company’s quick ratio should
always be greater than one.
3|Page
Net working Capital:
As we can see, company’s net working capital
is negative throughout 5 year period. It is because companies
current liabilities exceeds its current assets.

Cash Ratio:
A cash ratio lower than 1, indicates that a company is
at risk of having a financial difficulty. However, a low cash ratio
may also be an indicator of a company's specific strategy that
calls for maintaining low cash reserves because funds are being
used for expansion.

Activity ratios are financial metrics used to gauge how efficient a

company's operations are. The term can include several ratios
that can apply to how efficiently a company is employing its
capital or assets.

Inventory turnover Ratio:

The Inventory turnover is a measure of the
number of times inventory is sold or used in a time period such
as a year. It is calculated to see if a business has an excessive
inventory in comparison to its sales level.
Formula:
Inventory turnover ratio= cost of goods sold/ average
inventory

2015 2016 2017 2018 2019

7.15 7.02 5.83 4.75 7.8

No. of days inventory held:

4|Page
 The average number of days goods remain in
inventory before being sold.
Formula:
No. of days of inventory= no. of days in a period/
inventory turnover
2015 2016 2017 2018 2019
51.0 51.9 62.5 76.8 46.15

Receivables turnover ratio:

Receivable Turnover Ratio or Debtor's Turnover
Ratio is an accounting measure used to measure how effective a
company is in extending credit as well as collecting debts.
Formula:
Receivables turnover ratio= net credit sales/ average
receivables
2015 2016 2017 2018 2019
129.7 75.43 63.34 67.09 32.12

No. of days of sales outstanding:

Days sales outstanding (DSO) is the average
number of days that receivables remain outstanding before they
are collected.
Formula:
No. of days of sales = no. of days in a period/ receivables
turnover
2015 2016 2017 2018 2019
2.81 4.81 4.83 5.76 5.80

Payable Turnover ratio:

The accounts payable turnover ratio is a short-term
liquidity measure used to quantify the rate at which a company
pays off its suppliers. Accounts payable turnover shows how

5|Page
many times a company pays off its accounts payable during a
period. Formula:
Payables turnover ratio= net credit purchases / average
payables

2014 2015 2016 2017 2018

0.22 0.26 0.16 0.06 0.08

No. of days of purchases:

The accounts payable days formula measures the
number of days that a company takes to pay its suppliers.
Formula:
No. of days of sales = no. of days in a period/ payables
turnover

2014 2015 2016 2017 2018

1659 1407 2281 6083 4562

Asset Turnover Ratio:

Asset turnover or asset turns is a financial ratio that
measures the efficiency of a company's use of its assets in
generating sales revenue or sales income to the company.

Formula:
Asset turnover ratio= net sales/ average total assets

2014 2015 2016 2017 2018

321.2 350.7 255.6 181.6 63.8

Fixed asset turnover ratio:

6|Page
 Fixed-asset turnover is the ratio of sales to the value
of fixed assets. It indicates how well the business is using its fixed
assets to generate sales.
Formula:
Asset turnover ratio= net sales/ average total fixed assets
2014 2015 2016 2017 2018
3.11 3.40 3.87 4.30 4.42

Inventory turnover ratio:

A healthy turnover ratio is between 4 to 6. We can
clearly see that company’s turnover ratio is quite healthy one. In
the first 2 years the inventory turnover ratio is greater than 7, we
can call it as high inventory turnover ratio. The Inventory
turnover is a measure of the number of times inventory is sold or
used in a time period such as a year. It is calculated to see if a
business has an excessive inventory in comparison to its sales
level. It means that the company's product is in demand.

No. of days inventory held:

As we can see, the number of days keep on fluctuating
every year and there is no pattern of increase or decrease. So by
seeing the values, we can say that this is the healthy rate
because they are very few days to hold inventory and it is being
sold very soon. The number is gradually increasing every year but
is not out of limit.

Receivables turnover ratio:

A high ratio is desirable, as it indicates that the
company's collection of accounts receivable is efficient. A high
accounts receivable turnover also indicates that the company
enjoys a high-quality customer base that is able to pay their

7|Page
debts quickly. And we can see that this company’s receivables
ratio is high so it is going good.

No. of days of sales outstanding:

The low no. of days indicates that company has very
efficient accounts receivables system and gets paid quickly by
their debtors. This also tells us that company is very progressive
as most of its account receivables are not pending.

Payables turnover ratio:

The company has less than 1 payables ratio. This is not
the healthy rate as this indicated that the company is not paying
of its debts on time and is liable to other companies. It shows
that company is taking a lot of time in paying its debt and is slow
in this regard.

No. of days of purchases:

The high number of days indicates that company is
very slow in paying of its debts and takes a lot of days to pay off
its liabilities. The company should try to pay the liabilities as soon
as possible to convert this into a healthy rate.

Asset turnover ratio:

The company has high asset turnover ratio. This shows
that the company is efficiently utilising its assets to generate the
revenues. A higher ratio is favourable, as it indicates a more
efficient use of assets.The ratio has slightly decreased in 2018
but not at very unhealthy rate.

Fixed asset turnover ratio:

The company has good fixed asset turnover ratio
which means that company is correctly utilizing its fixed assets in
order to generate the profit which is a very good indicator for
the efficiency of the company as the fixed assets are being used
fully.
8|Page
Profitability Ratios measures ability of a company to earn profit
through sales revenues, assets etc.

Gross Profit Margin:

It measures how much sales income a company has left over
after it covers the cost of goods sold (COGS).
Formula: (Gross profit/ Net sale)* 100

2014 2015 2016 2017 2018

28 33 35 36 33

Net Profit:
Net profit margin shows the percentage of profit your
company keeps from its sales revenue after all expenses
(operating and non-operating) are paid.
Formula: Net profit (EBIT)/ (net sales)*100

2014 2015 2016 2017 2018

8 8 10 11 9

Cost of goods sold ratios:

It checks the efficiency of a business.
Formula: (CGS/sales) *100

2014 2015 2016 2017 2018

71 66 64 63 66

9|Page
Operating expense:
The operating expense ratio is a measurement of
how profitable a piece of income real estate is for an investor.
Formula: (operating expense/sales)*100

2014 2015 2016 2017 2018

13 17 18 17 17

Return on Assets:
It tells us how company efficiently turns its investment into profit.
Formula: (EBIT/T.A) *100

2014 2015 2016 2017 2018

14 15 17 19 15
use shareholder
Return on equity:
It shows how well a company
can investments to generate profits.
Formula: (EAT/T.EQUITY)*100

2014 2015 2016 2017 2018

15 17 25 25 17

Return on capital employed:

This ratio computes percentage return in the company on the
funds invested in the business by its owners.
Formula:
Net Operating Profit / Capital Employed × 100
2014 2015 2016 2017 2018
58 67 107 130 111

10 | P a g e
The solvency ratio indicates whether a company's cash flow is
sufficient to meet its short-and long-term liabilities or not.

Total-debt-to-total-asset ratios:
This refers to the ratio of long-term and short-term liabilities,
compared to total holdings.
Formula: TOTAL LONG TERM LOANS / TOTAL ASSETS
2014 2015 2016 2017 2018
13 16 11 15 13

Debt-to-equity ratios
This ratio is a measure of total debt, compared to shareholder equity.
Formula: TOTAL LONG TERM DEBT / T.EQUITY
2014 2015 2016 2017 2018
55 63 63 20 23

Interest-coverage ratios:
These ratios measure a company’s ability to keep up with interest
payments, which rise along with outstanding debt
Formula: EBIT / FIXED INTEREST CHARGES

2014 2015 2016 2017 2018

6 9 19 21 10

EQUITY TO TOTAL ASSETS:

It measures the amount of equity the business or farm has
when compared to the total assets owned by the business or farm.
Formula: T.E/T.ASSETS
2014 2015 2016 2017 2018
24 25 17 7 5

11 | P a g e
It tells us whether we should invest in particular company or not. It
includes following further types.
Earning per Share:
Earnings per share (EPS) are a figure describing a public
company's profit per outstanding share of stock, calculated on a
quarterly or annual basis.
Formula: profit after interest and tax/no. of common shares
outstanding
2014 2015 2016 2017 2018
174.85 193.18 261.23 322.86 254.5

Dividend per Share:

Dividend per share (DPS) is the sum of declared dividends
issued by a company for every ordinary share outstanding.
Formula: total dividend declared/ no. of outstanding common
shares
2014 2015 2016 2017 2018
89.9 49.9 184.9 79.9 75

Dividend pay-out ratio:

The dividend payout ratio is the fraction of net income a firm
pays to its stockholders in dividends: The part of earnings not paid to
investors is left for investment to provide for future earnings growth.
Formula: dividend per share/ profit after interest and tax
2014 2015 2016 2017 2018
0.0001 0.00006 0.000015 0.000054 0.00006

Price earnings ratio:

The price-earnings ratio, also known as P/E ratio, P/E, or PER, is
the ratio of a company's share price to the company's earnings per
share. The ratio is used for valuing companies and to find out
whether they are overvalued or undervalued
Formula: market price per share/ earning per share

12 | P a g e
2014 2015 2016 2017 2018
600 294 804 320 441

Market to book ratio:

The book-to-market ratio is used to find a company's value by
comparing its book value to its market value
Formula: market price per share/ book value per share
2014 2015 2016 2017 2018
9 5 18.6 8 7

Retention ratio:
The retention ratio refers to the percentage of net income that
is retained to grow the business, rather than being paid out as
dividends. It is the opposite of the payout ratio, which measures the
percentage of profit paid out to shareholders as dividends. Formula:
1- dividend payout ratio
2014 2015 2016 2017 2018
0.99999 0.999944 0.999985 0.999946 0.999936

EPS:
The high price earnings ratio means that the company has very
high profitability, and as shown, nestle’ has very high price earnings
ratio, which means that company is very profitable. The company
with high profits mean, all of their operations are running well.

DPS;
High dividend per share proves to be good for the company and
its shareholders. We can see that DPS is exceptionally high in 2016
which means that company was most profitable in 2016. However,
profitability is increasing with every passing year.

13 | P a g e
DIVIDEND PAYOUT RATIO:
The dividend payout ratio between 35-55% is considered
healthy for the company and from investor’s point of view. A
company that is likely to distribute roughly half of its earnings as
dividends means the company is well established. According to data,
company was doing best in 2017.

PRICE EARNING RATIO:

A company with high price earnings ratio usually indicates
positive future performance and investors are willing to pay more for
this company. According to data, the company was doing very well in
2016, as compared to rest of the years.

Market to book ratio:

It does not work well for companies with mostly intangible
assets. Any value under 1.0 is considered good market to book ratio.
The company has very high market to book ratio. This means that
company has a lot of intangible assets.

Retention ratio:
High retention rate will be good for the company. However the
companies retention ratio remain same.

14 | P a g e