Analyzing the Financial Health of the Company to

Improve Growth & Profitability(Report)

Analyzing the activity ratios of the company
A.Asset turnover ratio:

Asset turnover ratio says that the higher increasing ratio the company is generating
more revenue per money spent on the asset. Asset turnover ratio is calculated by
Net Revenues divided by Average Total assets.

Asset turnover ratio= Net Revenues/Average Total assets.

Year Net Revenue Average Total Asset turnover

assets ratio=Net
revenue/Average
Total assets
2015 9167041 21642589.5 0.423
2016 11057323 22909165 0.482
2017 14102864 24316655 0.57

The asset turnover ratio of the company is not so good in the last 3years. In 2015 it
was 0.423,In 2016 it was 0.482,and in 2017 it was 0.57. This says that the
company is not using maximum of its assets to generate revenue. So This ratio
need to go up. It need to increase a lot. If the ratio is more than 1 it is good sign for
the company.
B.Inventory turnover ratio:Inventory turnover ratio says how well the company
inventory is used for making the profit in the company.And how many times the
inventory is rotated. The more times the inventory rotated the more profit and mor
liquid cash will be there in the company. Inventory turnover ratio is calculated by
Cost of goods sold divided by Average inventory.

Inventory turnover ratio=Cost of goods sold/Average inventory

Year Cost of goods sold Average Inventory Inventory turnover

ratio=COGS/Average
inventory
2015 5358464 706865.5 7.5
2016 6766209 940180.5 7.2
2017 8286712 1325260.5 6.25

The inventory turnover ratio is decreasing year by year, which is not a good sign
for company, In 2015 it was 7.5,in 2016 it is 7.1,in 2017 it is 6.25.As the
inventory turnover ratio is very less means less company resources are tied up in
inventory and it is sold at slower rate in the company. There is no rotation of cash
flow and no liquidity in the company year by year. Lower turnover ratio is making
profit to come down.

C.Receivable turnover ratio: it says how much the company is collecting cash its
receivables. It is calculated by Net revenues divided by Average receivables.
Receivable turnover ratio= Net revenues/Average Receivables

Year Net Revenue Average Receivable turnover

Receivables ratio=Net
revenue/Average
receivables
2015 9167041 2198690 4.16
2016 11057323 2528045.5 4.37
2017 14102864 3291928.5 4.28

The Receivable turnover ratio for the company for 3years is the same or constant.
In 2015 it is 4.16, in 2016 it is 4.37,in 2017 it is 4.28.This says that the company
collect very less times the cash from the receivables and which is not a good sign
in the few years.It need to be increase.

Graphical Representation Of Changes of Activity Ratios over the years.

 8

Asset turnover ratio

4
Inventory turnover ratio
Receivable turnover ratio
3

0
2015 2016 2017

The company has to improve using the inventory more,bring more

resources not make profits frequently by bringing more inventory which
also makes liquidity of cashflow in company and to collect the
receivables more times in the year.

2.Analyzing the liquidity ratios of the

A.Current ratio:current ratio measures the ability of a company to cover its short
term liabilities with its current assets. Current ratio is calculated by dividing
current assets with current liabilities.

Current Ratio= Current assets/Current liabilities

Year Current assets Current liabilities Current ratio=current

assets/current
liabilities
2015 5488769 4065515 1.350
2016 6453361 4208469 1.5334
2017 7910627 4061787 1.947

The current ratios of the company in the year 2015 is 1.350,in 2016 it is 1.5334,in
2017 it is 1.974.This indicates that the current ratio is increasing year by year.The
company is able to pay its current liabilities and creaditors with the help of current
assets

B.Quick ratio: quick ratio or acid test ratio is measuring the level of the most
liquid current assets available to cover current liabilities.quick ratio or acid test
ratio is calculated by dividing the quick assets by current liabilities.

Quick ratio=Quick assets/current liabilities

Year Quick assets Current liabilities Quick ratio=Quick

assets/Current
liabilities
2015 4457733 4065515 1.096
2016 5002726 4208469 1.188
2017 5965062 4061787 1.468

The quick ratio for the year 2015 is 1.096, in 2016 is 1.188,and 2017 is 1.468.It is
more than ‘1’.it indicates that the company has more liquid current position and as
quick assets exclude inventory and prepaid expenses.
Graphical Representation Of Changes of Liquidity Ratios over the years
2.5

1.5
Current ratio
.
1

0.5

0
2015 2016 2017

Overall the liquidity position of the company is good in the years.It has liquid cash
too.it can repay the current liabilities with the help of current assets and quick
assets. By analyzing the liquidity ratios of the company i.e current ratio and quick
ratio the company can repay its current liabilities with the help of current assets
and quick assets which is a good sign and the overall liquidity position of the
company of good in the years. It is increasing in the 3years in the company.It is a
good sign for the investors to invest as there is no risk.

3.Analyzing the profitability ratios of the company

A.Gross Profit ratio:Gross profit ratio reflects pricing decisions and product
costs.gross profit ratio is calculated by gross income divided by net revenue,then
multiply by 100 to get it into percentage.Gross income is calculated by Net
revenue less Cost of goods sold.

Gross Profit Ratio=Gross Income/Net revenue*100

Where Gross income=Revenue-Cost of goods sold.

Year Gross Income Net Revenue Gross profit

ratio=Gross
Income/Net
revenue*100
2015 3808577 9167041 41%
2016 4291113 11057323 38%
2017 5816152 14102864 41%

The gross profit of the company in the year 2015 is 41.1%,in 2016 is 38.1% and in
2017 is 41.1%.The ratio of the company is good.The company has a good profit
ratio which means it holds a competitive advantage in quality,perception or
branding.The percentage of gross income is very good.

B.Operating Profit is calculated by dividing operating income with net revenue.

Operating Profit Ratio=Opearting Income/Net Revenue*100

Year Operating Income Net Revenue Operating Profit
Ratio=Opearting
Income/Net
Revenue*100

2015 2706070 9167041 29%

2016 2988626 11057323 27%
2017 4449530 14102864 31%

Operating profit ratio of the company in the year 2015 is 29%,in year 2016 is
27%,in year 2017 it is 31%.The operating profit of the company is average.The
opearating profit ratio is increasing by the company.The operating margin
examines the relationship between sales and management controlled costs.

C.Net Profit ratio:Net profit ratio shows that a firm ability to translate sales into
earning for share holders.Net profit ratio is calculated by net income divided by net
revenue multiply by 100.
Net Profit ratio=Net Income/Net Revenue*100

Year Net Income Net Revenue Net Profit ratio=Net

Income/Net
Revenue*100

2015 1950249 9167041 21%

2016 2146638 11057323 19%
2017 3172071 14102864 22%

The net profit of the company for the year 2015 is 21%,in year 2016 is 19%,in
2017 is 22%.The net profit need to be increase more.The revenue is more but the
net income is average.we need to control our expenses,liabilities etc. so that we get
good net income that the earning will increase for share holders.

Graphical Representation Of Changes of Profitiability Ratios over the

years
 45%

40%

35%

30%

25%
Gross profit ratio
Operating Profit ratio
20%
Net Profit ratio
15%

10%

5%

0%
2015 2016 2017

D.Return on assets
Return on assets is calculated by net income divided by total assets multiplied by
100.

Return on assets=Net income/Total assets*100

Year Net Income Total assets Return on

assets=Net
income/Total
assets*100

2015 1950249 22389369 8%

2016 2146638 23428961 9%
2017 3172071 25204349 12.5%
Return on assets of the company in the year 2015 is 8%,2016 it is 9%,in 2017 it is
12.5%.The percentage is in increasing stage.The percentage says that the earning
using the assets is very less.

E.Return on equity

Return on equity is calculated by net income divided by equity share holders fund
multiplied by 100.

Return on equity=Net Income/Equity Share holders Fund*100

Year Net Income Equity share holders Return on

fund equity=Net
Income/Equity
Share holders
Fund*100
2015 1950249 13323854 14%
2016 2146638 15470492 13.8%
2017 3172071 18642563 17%
Return on equity in the year 2015 is 14.1%,in 2016 it is 13.8%,in 2017 it is 17%.it
is increasing from the year 2016 to 2017.the return on equity says that the company
is giving income less to the share holders on their investments.

F.Return on investment is calculated by dividing the net income by total

investment and then multiplying it with 100.

Return on investment=Net income/Total Investment*100

Year Net Income Total investment Return on

investment=Net
income/Total
Investment*100
2015 1950249 18323854 10.6%
2016 2146638 19220492 11%
2017 3172071 21142563 15%
Return on investment of the company in year 2015 is 10.6%,in 2016 it is 11.1%,in
2017 it is 15%.ROI means that the earnings or return what we get our investment
on the company.

By analyzing the return on assets,return on equity there is a large difference which

indicates that the company has large amount of debt.The company need to control
its debts and see that it pay back its debts according to its income.

Graphical Representation Of Return on assets, equity and investment.

18%

16%

14%

12%

10%
Return on assets
Return on equity
8%
Return on investment
6%

4%

2%

0%
2015 2016 2017

4.Summary
Analyzing Activity Ratios: overall we came to know that the asset turnover of
the company is not so good but it need to increase more by which the company
will generate more revenues by the help of asset.So the company need to lowdown
the spending value of the asset and increase the revenue.The inventory turnover
ratio is decreasing year by year in the company which means that there is no
rotation of cashflow i.e no liquidity.The company is not making good profit.it can
be increased by using inventory more times in a year.The receivable turnover ratio
is the constant in the company.the company need to have liquid cash in the
company by which it can rotate the cash in the company which makes us bring
more profit to the company.The company need to cutdown the rupee spent on
asse,rising its inventory more,collect cash more so that it is rotation of cashflow i.e
more liquidity and earn more profit to the company and generate more revenue.
The company has to improve using the inventory more,bring more resources not
make profits frequently by bringing more inventory which also makes liquidity of
cashflow in company and to collect the receivables more times in the year

Analyzing liquidity ratios: By analyzing the liquidity ratios of the company

i.e current ratio and quick ratio the company can repay its current liabilities with
the help of current assets and quick assets which is a good sign and the overall
liquidity position of the company of good in the years. It is increasing in the 3years
in the company. It is a good sign for the investors to invest as there is no risk.

Analyzing Profitability ratios: ByAnalyzing the profitability ratios of the

company i.e the gross profit ratio is good with a good percentage which means that
the company has a good profit ratios which means it holds a competitive advantage
in quality,perception or branding.The net profit is average compared to our gross
profit which means that the company need to control its operating expenses and
increase the net profit.The earning of the investors is average.Net profit need to
increase the earning will increase for shareholders so that the shareholders will
invest more in the company.The operating profit is also average in the company
but it is increasing in the last years.The operating profit says that the company is
unable to control the operating expenses while doing the sales. The company need
to control its operating expenses so the operating profit will be increasing.There is
less net income in the company,the return on assets,return on equity,return on
investments is in less percentage.The company has more debts and liabilities.

Overall report of the company: The company’s gross profit is good but the
operating profit and net profit is average.The company is unable to generate more
net profits or income to the shareholders because it is unable to control its
operating expenses.And the company has more amount of debt so that there is no
more return on assets,equity and investments.The company need to earn more
amount of revenue and control its opearating expenses,make usage of inventory
more times,and repay the debts.so that the company will have good expenses and
good net profit to its share holders.