Ratios

Ratio Analysis
Throughout the long term, financial backers and experts have fostered various logical instruments, ideas
and procedures to think about the overall qualities and shortcomings of organizations. Over the years,
financial backers and examiners have fostered various scientific devices, ideas and methods to look at
the general qualities and shortcomings of organizations. These instruments, ideas and methods
structure the premise of principal investigation.

Financial ratios set up a foundation of comparison between facts and figures found in fiscal summaries
of a firm. It is beneficial to compare the ratios of a firm with the rivals financial ratios to assess the
position of your own firm and take better decisions.

Kelani Cables
Kelani Cables Ltd. was established in 1969, as an import-substitute producer during the controlled-
economy time. At first, parts, for example, drawn wire were imported, yet over the long run, the
organization initiated the assembling of this item at its manufacturing plant. Thus, Kelani is the
trailblazer in Sri Lanka's wire drawing industry. In 1973, KCL was joined as a cited public restricted
obligation organization for the production of force links, broadcast communications links, and plated
twisting wires in Sri Lanka.45
At first, parts, for example, drawn wire were imported, yet over the long haul, the organization started
the assembling of this ware at its production line. Henceforth, Kelani is the trailblazer in Sri Lanka's wire
drawing industry. In 1973, KCL was consolidated as a cited public restricted obligation organization for
the assembling of force links, media communications links, and plated twisting wires in Sri Lanka.

In this assignment we shall asses the profitability, solvency, liquidity and efficiency level of the company
using below ratios
 Liquidity Ratio

Liquidity Ratios
These ratios measure a firm’s ability to meet its short-term obligations.
 1. Cash Ratio = Cash& cash equivalents
Current Liabilities

2020 Year 764,898,171

3,193,625,149
= 0.23

2021 YEAR 924,789,700

3,779,492,51
=2.4

In the event that the cash ratio is excessively high (significantly more than 2), the organization
may not be utilizing its present resources or its momentary financing offices productively. This
may likewise demonstrate issues in working capital administration as appread above in 2021
Kelani cables his means firm has no ability to pay off short term liabilities

2. CURRENT RATIO = Current Assets

Current Liabilities

The current proportion estimates an organization's present resources against its present liabilities. A low
current proportion shows that a firm might struggle paying their present liabilities in the short run and
merits further examination. A high proportion shows a significant degree of liquidity and less possibility
of a money crush. Kelani cables show a healthy current ratio which shows current assets are used
efficiently.

2020 year 6,108,622,013

3,193,625,149
= 1.9
2021 year 6,893,213,585
3,779,492,511
= 1.8
 3. QUICK RATIO = Cash&cash equivalents+other current financial assets+Trade Recievables

Current Liabilities

The quick ratio compares the cash, short-term marketable securities and accounts receivable to current
liabilities. Similarly how fast a firm can get rid of its current liabilities. Result of 1.1 considered as an ideal
quick ratio a company should maintain in the long run.

2020 year [764,898,171 +2,924,566,40] / 3,193,625,149

= 0.33
2021 year
[924,789,700+2,981,195,149] / 3,779,492,511

= 1.03

Profitability Ratios
Profitability Ratios
Profitability ratios are arguably the most widely used ratios in investment analysis to assess the
profitability of a firm. These ratios such as gross, operating and net profit margins.

1. Gross Profit Margin Ratio= Gross Profit

*100
Revenue/ Total Sales
Higher gross profit margin shows that a firm can make a
reasonable profit on sales, if a firm keeps overhead expenses in
charge. As shown below average gross profit margin is 10% which
means Kelani cables make average profits.
.

2020 YEAR 1,313,406,979

8,759,918,341 *100
= 14.9 %
2021 YEAR 1,283,987,315
9,650,437,531 *100
= 13.3%

1. Net Profit Margin= Profit after Tax

 Revenue *100
2020 YEAR 355,060,160
8,759,918,341 *100
= 4.0 %
2021 YEAR 620,849,864
9,650,437,531 *100
= 6.4%

Net profit margin compares a firm’s net income to its net sales. It calculates a firm’s ability to translate
sales into return for shareholders

Return on Capital Employed = Earnings before Interest&Tax

Total assets - Current Liabilities *100

This ratio shows the level of income credited to investors against the investment that the same
investors put into the firm for that particular year.

2020 YEAR 428,154,952

7,288,069,290 -3,193,625,149 *100
= 10.4 %
2021 YEAR 744,114,254
8,614,763,014 -3,779,492,511 *100
= 15.3%

Revenue Growth Ratio

An organization's income is how much cash it procures in light of its business exercises.
A healthy revenue growth rate is 10% even though a firm’s revenue growth varies on
different factors. In the year 2021 Kelani cables shows a healthy figure compared to year
2020

Revenue Growth Ratio= Current year revenue – Previous year revenue

Previous year revenue *100%

2020 YEAR 8,759,918,341 -8,492,482,278
8,492,482,278 *100
= 3.14%
 2021 YEAR 9,650,437,531 - 8,759,918,341
8,759,918,341 *100
= 10.1%

Return on Assets = Net Income after Tax

Total Assets *100%

Return on assets is calculated as net income divided by total assets. It is a measure of how
efficiently a firm utilizes its assets. A high ratio means that the company is able to efficiently
generate earnings using its assets.

2020 YEAR 355,512,195

7,288,069,290 *100
= 4.87%
2021 YEAR 766,763,175
8,614,763,014 *100
=8.9 %

Solvency Ratios
1. Debt to Asset Ratio = Total Liabilities
Total Assets
2020 YEAR 3,329,164,493
7,288,069,290
= 0.45
2021 YEAR 3,987,195,042
8,614,763,014
= 0.46
The debt-to-assets ratio is, figuring out the portion of a company’s overall assets that is financed
by short and long term debt. A high ratio means the firm is using a larger amount of financial
leverage.
1. 2. Debt to Equity Ratio = Total Debt
Total Equity
 The debt-to-equity ratio measures the amount of debt taken by the firm compared to the
capital it has invested

2020 YEAR 3,329,164,493

3,958,904,797
= 0.84
2021 YEAR 3,987,195,042
4,627,567,972
= 0.86

Efficiency Ratio
Efficiency ratios are used to show the efficiency of a firm in using its assets. Overall operational
performance will be indicated from these ratios

1. Recievable Turnover = Amount Recievable

Annual Revenue * 365 Days

The receivables turnover ratio is calculated by dividing net revenue by average receivables. This ratio is a
measure of how quickly and efficiently a company collects on its outstanding bills. The receivables
turnover indicates how many times per period the company collects and turns into cash its customers’
accounts receivable

Once again, a high turnover compared to that of peers means that cash is collected more quickly for use
in the company, but be sure to analyze the turnover ratio in relation to the firm’s competitors. A very
high receivables turnover ratio can also mean that a company’s credit policy is too stringent, causing the
firm to miss out on sales opportunities. Alternatively, a low or declining turnover can signal that
customers are struggling to pay their bills.

2020 YEAR 2,924,566,409

8,759,918,341 * 365 Days
= 121.8 days
2021 YEAR 2,981,195,149
9,650,437,531 * 365 Days
= 112.7 days

2. Payable turnover = Payable Amount

 Cost of Sales *365 Days

2020 YEAR 1,268,148,186

(7,446,511,362) * 365 Days
= 61.2 days

2021 YEAR 1,960,727,534

(8,366,450,216) * 365 Days
= 85.5 days

Benchmark- It is expected that a customer would pay a supplier for goods purchased
within 30days of the receipt of the invoice