Ratio analysis

MARI PEROLUM COMPANY LIMITIED

FAHAD AKHTAR
01-112201-018
CLASS BS(A&F) 3C
Liquidity ratios

This ratio determine the companies’ ability to pay off short term debt obligation without having to
raise external capital.

Current ratio

This ratio determine whether a firm has enough resource to meet its short-term obligation.

For 2020 current ratio is for 2019 current ratio is

Current assets/ current liabilities Current assets/ current liabilities
239,912,114/178,586,058 183,654,952/146,397,515
1.34 1.25

Our ratio is favourable. This means that our company will not have problem when paying off short-
term obligation that is the obligation which are due in one year.

Reason

The reason being an 30% increase in the current assets. Mainly trade debts has significant share in
current assets. It was increased by 20.39% mainly on account of non-receipt of GIDC from the
customers. Also, short term investment was increased by 62% also cash and bank balances were
increased by 150% mainly due to retention of cash in business for financing further exploration and
development activities.

current asses amount in million

300
250
200
150
100
50
0
2020 2019

current asses amount in million

Maintain

We can maintain this ratio by controlling our cost of goods sold. Also try to control our operating
expense to maximize EBIT. We can also increase our retained earnings by issuing zero coupon bond.
Increase our sales by promotion and advertisement. So, we can increase our assets.

Quick ratio

This ratio is the same as current ratio but with one difference that it removes the inventory from
equation. Thus, the company can check their liquidity without having to rely on inventories.

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 Quick ratio 2020 Quick ratio 2019
Current assets-inventories/current liabilities Current assets-inventories/current liabilities
239,912,114-2,999,993/178,586,058 183,654,952-2,349391/146,397,515
1.33 1.24

Our ratio is favourable. This means that our company will not have problem when paying off short-
term obligation that is the obligation which are due in one year without having to rely on
inventories.

Reason

The reason being an 30% increase in the current assets. Mainly trade debts has significant share in
current assets. It was increased by 20.39% mainly on account of non-receipt of GIDC from the
customers. Also, short term investment was increased by 62% also cash and bank balances were
increased by 150% mainly due to retention of cash in business for financing further exploration and
development activities as mentioned in above ratio. Increase in assets are possible due increase in
sales. Gross profit and net profit.

Maintain

With the suggestion mentioned in current ratio the firm should decrease inventories by inventory
management system or should adopt just in time approach if possible. Should decrease inventories
by sales and promotion.

Cash to current liabilities

This ratio tells us the ability of the company to pay off its short-term obligation by using only cash
and highly liquid assets. Highly liquid assets are those assets that can be liquidated in 3 months.

Cash to current ratio in 2020 Cash to current ratio in 2019

Cash+ market investments/current liabilities Cash+ market investments/current liabilities
16,700,278+33,634,126/178,586,058 6,635,818+20,700,000/146,397,515
0.28 0.19

Our ratio is favourable which means that we have cash and highly liquid assets in fair amount.
Showing company strong ability to pay off short-term obligation.

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Reasons

Primary reason for increase in this ratio was retention of cash for financing other projects.

Maintain

The company has good cash to current liability ratio. But having a high ratio can also mean that
company is not properly investing in assets. Whereas MARI petroleum is increasing its assets as well
as cash. It can further improve by increasing sales, managing operating expenses.

Cash from operating to net sales.

This ratio is used to compare a company’s sales revenues with its cash flow from operations, thereby
revealing how well the company can generate cash flows from its sales.

Ratio in 2020 Ratio in 2019

Cash from operating activities /net sales Cash from operating activities /net sales
31,613.046/72,014.90 20,436.053/59,448.007
0.44 0.34

Our ratio is favourable describing that we are generating good cash from our sales. Indicating our
exceptional ability to turn sales to cash.

Reason

The reason for our favourable ratio is increased cash from operating activities. Internal cash
generation, ensured primarily through revenues from sale of hydrocarbons and income from
deposits adequately meet liquidity requirements of the Company. 31 million were generated at the

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end of this year as compared to 20 million rupees previous year.

Maintain

The company can maintain or improve this ratio by increasing our cash collection from our
customers. By changing their credit policy. Giving less sales on credit, but too much tight policy on
credit sales will cause sales to drop. The reason being that if you are not giving products on credit
your competitors will sell it.

Conclusion

Due to increase in cash and cash equivalents, the liquidity ratios have improved reflecting retention
of cash in business for future exploration and development activities. The company is showing
strong financial performance for the past six years. Which may be due to an increase in demand for
petroleum products in the recent years.