FINANCIAL

RATIO
ANALYSIS
PRESENTED BY
FAHAD RIAZ
Purpose of Financial Ratio

It is an important tool used to interpret the financial statements so that the strengths and
weakness of an organization, its historical performance and current financial condition can be
determined.

-Measure organization performance

-Compare over time

-Compare with other organizations

-Analyze ROE (Return of Equity)

-Project financial statement for future

Liquidity Ratios:
Liquidity ratios are financial ratios that measure a company’s ability to repay both short- and long-
term obligations. All numbers are taken from balance sheet statement.

Common liquidity ratios include the following

Current Current Assets / Current The current ratio measures a company’s ability to pay
= off short-term liabilities with current assets.
Ratio Liabilities

Current assets – Inventories / The current ratio measures a company’s ability to pay
Quick Ratio = Current liabilities off short-term liabilities with current assets.

Cash and Cash equivalents / The cash ratio measures a company’s ability to pay off
Cash Ratio = Current Liabilities short-term liabilities with cash and cash equivalents.
 The Company remains sufficiently liquid and has cash and cash
equivalents of 3.0 mn as at 31 December 2021 to meet its investment
and operational cash requirements.

Liquidity Ratio (2021 vs 2020)

1.60
1.46
1.40 1.32

1.20

1.00
0.89
0.80
0.80

0.60
0.45
0.40
0.28
0.20

0.00
Current Ratio Quick Ratio Cash Ratio

2021 2020

  2021
Current Assets 10,013,921
Current Liabilities 6,856,642
Cash & Cash Equivalents 3,087,785
Inventory 3,916,050
Profitability Ratios:
Measures organization use of its assets and control of its expenses to bring operating efficiency of
the organization and its ability to ensure adequate returns to its share holders. (Based upon Sales)
Common profitability ratios include the following

Compares the gross profit of a company to its net sales

Gross Profit Gross Profit/ Sales
Margin
= to show how much profit a company makes after paying
Revenue its cost of goods sold.

Operating Compares the operating income of a company to its net

margin Ratio
= Operating income / Net sales
sales to determine operating efficiency:.

Pretax Profit The cash ratio measures a company’s ability to pay off
Margin
= Profit Before Tax / Net Sales
short-term liabilities with cash and cash equivalents

Measures how much net income or profit is generated

Net Profit
Margin
= Net Profit / Net Sales as a percentage of revenue, ratio of net profits to
revenues for an organization
 Profitability ratios of the Company have improved
significantly versus last year.

Profitability Ratio (2021 vs 2020)

30.00
27.3826.85
25.00

20.00

15.00
12.55 12.50

10.00 9.23 8.94 8.83

6.35
5.00

0.00
Gross Profit Operating Pretax Profit Net Profit
margin

2021 2020
  2021
Gross Profit 6,615,075
Sales Revenue 25,222,462
Operating Income 3,033,237
Net Sales 24,163,150
Profit Before Tax 3,016,104
Net Profit 2,134,334
Return Ratios:
Measures the profitability of a business in relation to its total assets. This ratio indicates how well a
company is performing by comparing the net income it’s generating to the capital it’s invested in
assets. (Based upon Investments)
Common profitability ratios include the following

Return on It is used to evaluate the company’s level of efficiency in

Assets
= Net Income / Total Assets employing its assets to generate profit

Return on Net Income / Shares Holder It measures the return on the investment made in
Equity
= Equity shares of the company

Return on (EBIT) / Capital Employed

It helps to understand how well a company is generating
Capital = (Total Assets – Current
profits from its capital as it is put to use.
Employed Liabilities)
 Return Ratio (2021 vs 2020)
50%

45% 43%

40%

35% 33%
32%
30%

25% 24%

20%
15%
15%
12%
10%

5%

0%
ROA ROE ROCE

  2021 2021 2020

Net Profit 2,134,334
Total Assets 13,866,160
Shareholders Equity 6,715,172
EBIT 3,016,104
Capital Employed 7,009,518
Current Liabilities 6,856,642
Thank you