FIN621 _ FINANCIAL STATEMENT ANALYSIS

ASSIGNMENT NO.2
SPRING:2022
STUDENT : I’D: MC210200188
SCENARIO
Haider Incorporation is in the business of manufacturing yarn and is operational for the last 10
years. Below are a few ratios calculated from the financial statements of the company.

FINANCIAL 2020 2021

STATEMENT
RETURN ON EQUITY 16.88% 15.32%
Interest Coverage Ratio 7 5
Dividend Coverage Rati 2.70 2.53
Gearing Ratio 38.46% 44.64
Current Ratio 2.5 3.33
Quick Ratio 1.25 1.83
Earnings Per Share 0.27 0.25
Price to earnings ratio 18.52 21.26
Return on Assets 11.25 10.09%
REQUIREMENT:
Using the ratios calculated above, write a report examining the performance and state of
the business for:

A potential shareholder

ii.potential lender

SOLUTION:

AS WE have already given

ratios calculation .so keeping
in mind the whole calculated
ratios above, a report
examining the performance
and state of the business for
potential shareholder. And
potential lender as under;
 A potential shareholder A potential lender

Return on equity The shareholder's profit It makes little difference to a

potential is shown by the potential lender whether the
ROE. This is not good news return on equity goes up or
for prospective shareholders down, as long as it is
since the earning capability positive.
of the shareholder falls by
1.56% in 2021 from 16.88%
to 15.32%.
Interest Coverage Ratio This ratio indicates a firm's The importance of interest
ability to make all loan coverage to a prospective
interest payments on time lender as an indicator of risk
and avoid bankruptcy. As encourages him to make
this ratio falls from 7 to 5, sure his investment is safe.
the company becomes more
risky, making it harder for
prospective investors to
protect their investment.
Dividend coverage ratio The ratio reveals how often The ability of the company
the corporation paid and to meet the needs of her
disclosed dividends to lender increases with larger
shareholders. This results in dividend coverage ratios.
a reduction in the dividend Therefore, the declining
coverage ratio from 2.70 to interest coverage ratio is a
2.53, which is concerning concerning development for
for the shareholders. the prospective lender.
Gearing Ratio The gearing shows us how For the possible lender, the
 the firm finances from debt opportunity time and the
to equity and also company's suggestion of a
demonstrates that it raises higher interest rate
more money via debt than
through equity.
Current Ratio This is an useful factor for The fast and current ratio
Quick Ratio
both prospective reveals the company's
shareholders since the quick liquidation ratio, with a
and current ratios reveal the greater ratio indicating a
firm's liquidation ratio; the lesser likelihood of
greater the ratio, the lower insolvency. This is
the company insolvency. advantageous for a possible
lender.
Earnings Per Share This moment is significant This location is also a focal
for prospective shareholders point for the prospective
to act and safeguard her lender. The more EPS a firm
investment since the earning has, the more interest and
per share indicates that the loan payments it must make.
EPS is decreasing from 27
to 25 percent. The greater
the EPS the more the
corporation pay dividend
Price to earnings ratio A higher number of price to The P/E does not matter to
earnings ratio often suggests the prospective lender
a larger expense for a lesser whether it rises or falls.
return . In light of this, it is
concerning that the P/E ratio
is rising for the firm and its
shareholders.
Return on Assets The focus for both The greater the company's
shareholders is to take return on assets, the better it
action and make efficient is able to repay its lender.
use of the company's assets,
as the higher the return on
assets, the more effectively
the business operates.