Major Assignment for Internals

Ratio Year 2005 Year 2004 Trend

Current Ratio 3.6 3.8 Unfavorable

Quick Ratio 1.5 1.9 Unfavorable

Inventory Turnover 4.56 5.88 Unfavorable

Days Sales Outstanding 43.2 days 40.14 days Unfavorable

Fixed Assets Turnover 3.9 4.1 Unfavorable

Total Assets Turnover 1.77 1.91 Unfavorable

Debt to Asset Ratio 48.5% 48% Unfavorable

Times Interest Earned Ratio 3.25 times 3.81 times Unfavorable

Net Profit Margin 3.6% 4.1% Unfavorable

Return on Total Assets 6.4% 7.9% Unfavorable

Return on Equity 1.24% 1.51% Unfavorable

Price/Earnings Ratio 10.648 9.746 Unfavorable

1) Significance of Ratio
Ratio Analysis is important for the company in order to analyze its financial position, liquidity,
profitability, risk, solvency, efficiency, and operations effectiveness and proper utilization of
funds which also indicates the trend or comparison of financial results that can be helpful for
decision making for investment by shareholders of the company.

This shows that Unilate’s financial position is worsened from year 2004 to 2005.
The Performance of 2004 was better than 2005, as evident from better liquidity, Asset
management, Profitability and Debt management ratios. Only weakness is the P/E ratio. The
P/E multiple is lesser in 2004 than in 2005 (9.746<10.648). This is inspite of better performance
in 2004, the market valued the company lesser in this year. However, companies that grow
faster than average typically have higher P/E, such as technology companies. A higher P/E ratio
shows that investors are willing to pay a higher share price today because of growth
expectations in the future
Company has lesser debt in 2004 and hence lesser leverage. In 2005, the value illiquid
inventories and Receivables constitute more in current assets, whereas in 2004, the cash and
cash equivalents are better, the financial position deteriorated in 2005.

How Can We Maintain or Improve Ratios?

 Faster collection of Accounts receivables
 Pay off current liabilities
 Sell off unproductive assets
 Reduce collection period of account receivables
 Increase sales and reduce costs to earn more profit
 The equity ratio is calculated by dividing total equity by total assets. The Company with
equity ratio of 0.50 or below is considered as a leveraged company and a company with
equity ratio of more than 0.50 is considered as a conservative company. From the view point
of investors, a company with higher equity ratio is considered as more safe. This can be
achieved by:
 Reducing debt

 Plough back of profits in the business.

Workings

Liquidity Ratios:

For 2005 For 2004

Current Ratio Current Assets/Current Liabilities 3.6 3.8

Quick Ratio (Current Assets - Inventory)/C.L 1.5 1.90

Asset Management

Inventory Turnover Cost of Goods Sold/ Inventory 4.56 5.88

Days Sales Outstanding Receivables/Sales Per Day* 43.2 40.14

Fixed Assets Turnover Sales/Net Fixed Assets 3.9 4.1

Total Assets Turnover Sales/ Total Assets 1.775 1.913

Debt Management

Debt to Asset Ratio Total Liabilities/Total Assets 0.485 0.480

Times Interest Earned Ratio EBIT/Interest Charge 3.25 3.81

Profitability Ratio

Net Profit Margin Net Income / Sales 0.036 0.041

Return on Total Assets Net Income / Total Assets 0.064 0.079

Return on Equity Net Income Available to common stockholder/ Equity 0.124 0.151

Market Value

Price/ Earnings Ratio Price Per Share / EPS 10.648 9.746