Ratio Analysis - Current

Table of Contents

Internal Variance Analysis of Fauji fertilizer ....................................................................................................1

Internal Variance Analysis of Fatima fertilizer .................................................................................................4

External Variance Analysis for 2010.................................................................................................................7

External Varience Analysis for 2009.................................................................................................................8

Working Capital.................................................................................................................................................9

Current Ratio....................................................................................................................................................10

Quick Ratio (Acid Test Ratio) .........................................................................................................................11

Cash Ratio........................................................................................................................................................12

Gross Profit Margin .........................................................................................................................................13

Operating Profit Margin (return on sales)........................................................................................................14

Net profit margin (net return on sale) ..............................................................................................................15

Return on Total Assets.....................................................................................................................................16

Return on Stockholder’s Equity.......................................................................................................................17

Debt to Assets Ratio.........................................................................................................................................18

Debt to Equity Ratio ........................................................................................................................................19

Long term Debt to Equity ratio........................................................................................................................20

Times interest earned (coverage ratio).............................................................................................................21

Days of Inventory ............................................................................................................................................22

Inventory turnover ...........................................................................................................................................23

Average collection period ................................................................................................................................24

Conclusion .......................................................................................................................................................25

Financial Analysis Page 1 Fauji fertilizer vs Fatima fertilizer

Variance AnalysisFauji Fertilizer Company

Balance Sheet for the year ended December 31, 2010

Benchmark Year 2010 (Rupees ‘000)

EQUITY AND LIABILITIES 2010 2009 Variance Variance %

EQUITY

Share capital 6,785,271 6,785,271 0 -Capital reserves 160,000 160,000 0 -Revenue reserves 8,502,276 6,137,171 2,365,105 27.817

15,447,547 13,082,442 2,365,105 15.311NON – CURRENT LIABILITIES

Long term borrowings 3,819,405 4,578,809 (759,404) (19.883)Deferred taxation 3,215,821 3,035,757 180,064 5.599

7,035,226 7,614,566 (579,340) (8.235)CURRENT LIABILITIES

Trade and other payables 9,614,026 8,002,897 1,611,129 16.758Interest and mark – up accrued 137,968 147,329 (9,361) (6.785)Short term borrowings 5,640,420 6,088,348 (447,928) (7.941)Current portion of long term borrowings 1,759,405 1,799,405 (40,000) (2.273)Taxation 3,426,264 1,816,595 1,609,669 46.980

20,578,083 17,854,574 2,723,509 13.235

43,060,856 38,551,582 4,509,274 10.472





ASSETS 2010 2009 Variance Variance %

NON – CURRENT ASSETS

Property, plant and equipment 15,933,588 13,993,518 1,940,070 12.176Goodwill 1,569,234 1,569,234 0 -Long term investments 7,870,027 7,727,528 142,499 1.811Long term loans and advances 455,328 337,541 117,787 25.869Long term deposits and prepayments 9,037 6,305 2,732 30.231

25,837,214 23,634,126 2,203,088 8.527

CURRENT ASSETS

Stores, spares and loose tools 2,440,201 2,996,633 (556,432) (22.803)Stock in trade 211,720 144,087 67,633 31.945Trade debts 357,956 256,886 101,070 28.235Loans and advances 336,269 130,219 206,050 61.275Deposits and prepayments 50,188 37,653 12,535 24.976Other receivables 617,664 734,062 (116,398) (18.845)Short term investments 12,020,581 6,768,568 5,252,013 43.692Cash and bank balances 1,189,063 3,849,348 (2,660,285) (223.730)

17,223,642 14,917,456 2,306,186 13.390

43,060,856 38,551,582 4,509,274 10.472



Income Statement for the year ended December 31, 2010


2010 2009 Variance Variance %

Sales 44,874,359 36,163,174 8,711,185 19.412Cost of sales 25,310,406 20,515,044 4,795,362 18.946GROSS PROFIT 19,563,953 15,648,130 3,915,823 20.015Distribution cost 3,944,473 3,174,505 769,968 19.520

15,619,480 12,473,625 3,145,855 20.141Finance cost 1,086,741 944,947 141,794 13.048Other expenses 1,376,000 1,272,448 103,552 7.526

13,156,739 10,256,230 2,900,509 22.046Other income 3,153,110 2,800,987 352,123 11.167NET PROFIT BEFORE TAXATION 16,309,849 13,057,217 3,252,632 19.943Provision for taxation 5,281,000 4,234,111 1,046,889 19.824NET PROFIT AFTER TAXATION 11,028,849 8,823,106 2,205,743 20.000

Earnings per share – basic and diluted (Rs) 16.25 13 3.25 20.000


Variance AnalysisFatima Fertilizer Company



EQUITY AND LIABILITIES 2,010 2009 Variance Variance

SHARE CAPITAL AND RESERVES

Authorized2,100,000,000 (2009: 2,100,000,000)ordinary shares of Rs 10 each 21,000,000 21,000,000 - -400,000,000 (2009: 400,000,000)preference shares of Rs 10 each 4,000,000 4,000,000 - -

Issued, subscribed and paid up2,000,000,000 (2009: 1,800,000,000)ordinary shares of Rs 10 each 20,000,000 18,000,000 2,000,000 10.000400,000,000 (2009: Nil) preferenceshares of Rs 10 each 4,000,000 - 4,000,000 100.000

Share premium 790,000 - 790,000 100.000Accumulated loss (531,220) (257,212) (274,008) 51.581

24,258,780 17,742,788 6,515,992 26.860

NON CURRENT LIABILITIES

Advance against preference shares - 3,898,250 (3,898,250) -Long term finance 37,446,530 30,846,063 6,600,467 17.626Dividend payable on preference shares 603,672 - 603,672 100.000Employee retirement benefits 73,796 54,493 19,303 26.157

38,123,998 34,798,806 3,325,192 8.722

CURRENT LIABILITIES

Current portion of long term finance - 402,796 (402,796) -Short term finance – secured 316,208 - 316,208 100.000Trade and other payables 3,704,173 1,662,141 2,042,032 55.128Accrued finance cost 2,989,396 2,596,001 393,395 13.160Provision for taxation 64,483 - 64,483 100.000

7,074,260 4,660,938 2,413,322 34.114

CONTINGENCIES & COMMITMENTS69,457,038 57,202,532 12,254,506 17.643





ASSETS 2010 2009 Variance % Variance

NON CURRENT ASSETSProperty, plant and equipment 875,984 684,940 191,044 21.809Capital work in progress 64,258,204 54,292,989 9,965,215 15.508Deferred tax asset 21,914 - 21,914 100.000Long term loans and deposits 16,330 8,150 8,180 50.092

65,172,432 54,986,079 10,186,353 15.630

CURRENT ASSETSStores and spares 2,269,080 1,142,798 1,126,282 49.636Stock in trade 535,825 - 535,825 100.000Trade debts 256,548 - 256,548 100.000Loans, advances, deposits,prepayments and otherreceivables 939,864 849,238 90,626 9.642Cash and bank balances 283,289 224,417 58,872 20.782

4,284,606 2,216,453 2,068,153 48.269

69,457,038 57,202,532 12,254,506 17.643



Profit and Loss Account for the year ended December 31, 2010


2010 2009 Variance % Variance

Administrative expenses (113,866) (96,205) (17,661) 15.510Finance cost (8,950) (7,494) (1,456) 16.268Other income 1,746 6,578 (4,832) (276.747)Loss before taxation (121,070) (97,121) (23,949) 19.781

Taxation (42,569) - (42,569) 100.000Loss for the year (163,639) (97,121) (66,518) 40.649

Loss per share – basic (rupees) (0.08) (0.08) - -– diluted (rupees) (0.07) (0.08) 0.01 (14.286)


EXTERNAL VARIANCE ANALYSIS OF FAUJI FERTILIZER VS FATIMA FERTILIZER FOR THEYEAR ENDED DECEMBER 31, 2010

Benchmark (Rupees in '000)BALANCE SHEET FFC FATIMA Variance % Variance

EQUITY AND LIABILITIES

EQUITYIssued, subscribed and paid up share capital 6,785,271 20,000,000 (13,214,729) (194.76)

NON – CURRENT LIABILITIESLong term borrowings 3,819,405 37,446,530 (33,627,125) (880.43)

CURRENT LIABILITIESTrade and other payables 9,614,026 3,704,173 5,909,853 61.47Interest and mark – up accrued 137,968 2,989,396 (2,851,428) (2,066.73)Short term borrowings 5,640,420 316,208 5,324,212 94.39Current portion of long term borrowings 1,759,405 - 1,759,405 100.00Taxation 3,426,264 64,483 3,361,781 98.12

ASSETS

NON – CURRENT ASSETSProperty, plant and equipment 15,933,588 875,984 15,057,604 94.50Long term Loans, Deposits and Prepayments 464,365 16,330 448,035 96.48

CURRENT ASSETSStores, spares and loose tools 2,440,201 2,269,080 171,121 7.01Stock in trade 211,720 535,825 (324,105) (153.08)Trade debts 357,956 256,548 101,408 28.33Loans, advances, deposits, prepayments andother receivables

1,004,121 939,864 64,257 6.40Cash and bank balances 1,189,063 283,289 905,774 76.18

PROFIT AND LOSS ACCOUNTFinance cost 1,086,741 (8,950) 1,095,691 100.82Other expenses 1,376,000 (113,866) 1,489,866 108.28Other income 3,153,110 1,746 3,151,364 99.94NET PROFIT BEFORE TAXATION 16,309,849 (121,070) 16,430,919 101.00Provision for taxation 5,281,000 (42,569) 5,323,569 100.81NET PROFIT AFTER TAXATION 11,028,849 (163,639) 11,192,488 101.00


EXTERNAL VARIANCE ANALYSIS OF FAUJI FERTILIZER VS FATIMA FERTILIZER FOR THEYEAR ENDED DECEMBER 31, 2009

Benchmark (Rupees in '000)BALANCE SHEET FFC FATIMA Variance % Variance

EQUITY AND LIABILITIES

EQUITYIssued, subscribed and paid up share capital 6,785,271 21,000,000 (14,214,729) (209.49)

NON – CURRENT LIABILITIESLong term borrowings 4,578,809 30,846,063 (26,267,254) (573.67)

CURRENT LIABILITIESTrade and other payables 8,002,897 1,662,141 6,340,756 79.23Interest and mark – up accrued 147,329 2,596,001 (2,448,672) (1,662.04)Short term borrowings 6,088,348 - 6,088,348 100.00Current portion of long term borrowings 1,799,405 402,796 1,396,609 77.62Taxation 1,816,595 - 1,816,595 100.00

ASSETS

NON – CURRENT ASSETSProperty, plant and equipment 13,993,518 684,940 13,308,578 95.11Long term Loans, Deposits and Prepayments 343,846 8,150 335,696 97.63

CURRENT ASSETSStores, spares and loose tools 2,996,633 1,142,798 1,853,835 61.86Stock in trade 144,087 - 144,087 100.00Trade debts 256,886 - 256,886 100.00Loans, advances, deposits, prepayments andother receivables 901,934 849,238 52,696 5.84Cash and bank balances 3,849,348 224,417 3,624,931 94.17

PROFIT AND LOSS ACCOUNTFinance cost 944,947 (7,494) 952,441 100.79Other expenses 1,272,448 (96,205) 1,368,653 107.56Other income 2,800,987 6,578 2,794,409 99.77NET PROFIT BEFORE TAXATION 13,057,217 (97,121) 13,154,338 100.74Provision for taxation 4,234,111 - 4,234,111 100.00NET PROFIT AFTER TAXATION 8,823,106 (97,121) 8,920,227 101.10


Working Capital

A measure of both a company's efficiency and its short-term financial health. It is also known as “networking capital", or the "working capital ratio.

The working capital ratio is calculated as

Working Capital = Current Assets – Current Libalities

Current Ratio 2010 2009

Fauji Fertilizer (3,354,441) (2,937,118)

Fatima Fertilizer (2,789,654) (2,444,485)

Analysis

Negative working capital means that a company currently is unable to meet its short-term liabilitieswith its current assets (cash, accounts receivable and inventory). If a company's current assets do notexceed its current liabilities, then it may run into trouble paying back creditors in the short term. Theworst-case scenario is bankruptcy.

Working capitals for both companies i.e. Fauji and Fatima Fertilizer have declining working capitalratio and it is increased in 2010 than previous year 2009. Both Firms has been facing problems inpaying the dues.

-3,400,000

-3,300,000

-3,200,000

-3,100,000

-3,000,000

-2,900,000

-2,800,000

-2,700,000

Working Capital for Fauji Fertilizer

2010

2009

-2,900,000

-2,800,000

-2,700,000

-2,600,000

-2,500,000

-2,400,000

-2,300,000

-2,200,000

Working Capital for Fatima Fertilizer

2010

2009

-4,000,000-3,500,000-3,000,000-2,500,000-2,000,000-1,500,000-1,000,000

-500,0000

Working Capital for 2010

Fauji Fertilizer

Fatima Fertilizer

-3,500,000

-3,000,000

-2,500,000

-2,000,000

-1,500,000

-1,000,000

-500,000

0

Working Capital for 2009

Fauji Fertilizer

Fatima Fertilizer


Current Ratio

This ration indicates that for every one rupee of current assets there should be one rupee of current liability.A low current ratio indicates tied up assets not being put into use so therefore lack of liquidity.

Current Ratio = Current AssetsCurrent Liabiltites

Current Ratio 2010 2009

Fauji Fertilizer 0.84 0.83

Fatima Fertilizer 0.61 0.48

Analysis

The Current ratio is the measure of general liquidity in the firm. For both companies i.e. Fauji Fertilizerand Fatima Fertilizer, The current ratio of 2010 is slightly higher than that of 2009 which means that in2010 the company will be much more in good position to pay the debt in the next coming year. Inabove comparative graph, you can easily judge that Fauji Fertilizer is in better position than FatimaFertilizer.

0.835

0.835

0.836

0.836

0.837

0.837

0.838

2010 2009

Current Ratio Fauji Fertillizer

2010

2009

0.0000.1000.2000.3000.4000.5000.6000.700

2010 2009

Current Ratio Fatima Fertilizer

2010

2009

0

0.2

0.4

0.6

0.8

1

Fauji Fertilizer FatimaFertilizer

Current Ratio for 2010

Fauji Fertilizer

Fatima Fertilizer

0

0.2

0.4

0.6

0.8

1


Current Ratio for 2009

Fauji Fertilizer

Fatima Fertilizer


Quick Ratio (Acid Test Ratio)

This is the measurement of Liquidity in Business. This is also most commonly used test of Liquidity.

Qucik Ratio = Current assets - InventoryCurrent Liabilities

Quick Ratio 2010 2009



Analysis

Quick Ratio is an indicator of a company's short-term liquidity. The quick ratio measures acompany's ability to meet its short-term obligations with its most liquid assets. The higher the quickratio, the better the position of the company. In above calculation you can observe that Quick Ratio ofFauji Fertilizer is same 0.82 but for Fatima Fertilizer, it is increased from 0.47 to 0.52 which is showsgood sign or improvement and shows ability to meet its short-term obligations with most its liquidassets.

0.610.620.630.640.650.660.670.68

2010 2009

Quick Ratio for Fauji Fertilizer

2010

2009

0.00

0.05

0.10

0.15

0.20

0.25

2010 2009

Quick Ratio for Fatima Fertilizer

2010

2009

00.10.20.30.40.50.60.70.8


Quick Ratio for 2010

Fauji Fertilizer

Fatima Fertilizer

00.10.20.30.40.50.60.7


Quick Ration for 2009

Fauji Fertilizer

Fatima Fertilizer


Cash Ratio

This ratio indicates serve Liquidity problems with Inventory and Receivables.

Cash Ratio = Cash Equivelent + Marketable SecurityCurrent Liability

Cash Ratio 2010 2009



Analysis

The ratio of a company's total cash and cash equivalents to its current liabilities. The cash ratio is mostcommonly used as a measure of company liquidity. It can therefore determine if, and how quickly, thecompany can repay its short-term debt. A strong cash ratio is useful to creditors when deciding howmuch debt, if any, they would be willing to extend to the asking party. Cash Ratio for Fauji Fertilizer isslightly increased from 2009 and for Fatima Fertilizer is decreased from 0.23 to 0.17. Fauji Fertilizer ismore stable as you can see from above graphs and values.

0.570.580.59

0.60.610.620.630.640.65

2010 2009

Cash Ratio for Fauji Fertilizer

2010

2009

0.00

0.05

0.10

0.15

0.20

0.25

2010 2009

Cash Ratio for Fatima Fertilizer

2010

2009

00.10.20.30.40.50.60.7


Cash Ratio for 2010

Fauji Fertilizer

Fatima Fertilizer

00.10.20.30.40.50.60.7


Cash Ratio for 2009

Fauji Fertilizer

Fatima Fertilizer


Gross Profit Margin

This ratio shows the percentage of revenues available to cover operating expenses and yield a profit. Higheris better and the trend should be upward.

Gross profit margin = Sales – Cost of goods soldSale

Gross Profit Margin 2010 2009


Fatima Fertilizer Not Possible Not Possible

Analysis

This shows the percentage of available revenues according with respect to its sales. Gross Profit Marginfor Fauji fertilizer is same for year 2010 and 2009 i.e. 0.43. If Fauji fertilizer wants to increase its profitmargin then it should decrease the value of cost of goods sold, or increase the value of Sales. ThisShows that company's profitability is low and cost of goods sold is very high.

Gross Profit Margin for Fatima Fertilizer is not possible due to the fact that values of sales and Cost ofgoods sold is not given in Financial Statement.

00.05

0.10.15

0.20.25

0.30.35

0.40.45

0.5

2010 2009

Gross profit margin for Fauji Fertilizer

2010

2009


Operating Profit Margin (return on sales)

Shows the profitability of current operations without regard to interest charges and income taxes. Higher isbetter and the trend should be upward.

Operating profit margin = Sales – Operating expenses or Operating IncomeSale Sale

Operating Profit Margin 2010 2009



Analysis

This ratio shows the profitability without including any types of charges or any type of expense. It is theration between Operating Income and Sales. For Fauji fertilizer the value of Operating Profit Margin isvery low i.e. 0.36 and it is constant between two years for 2010 and 2009. If Fauji fertilizer wants toincrease Return on Sale then it should increase its Operating Income by having less Operating Expense.Return on Sale for Fauji fertilizer is very low.

Operating Profit Margin for Fatima Fertilizer is not possible due to the fact that values of sales and Costof goods sold is not given in Financial Statement.

0

0.05

0.1

0.15

0.2

0.25

0.3

0.35

0.4

2010 2009

Operating Profit Margin for Fauji Fertilizer

2010

2009


Net profit margin (net return on sale)

Show the after-tax profits per dollar of sales. Higher is better and the trend should be upward.

Net profit margin = Profit after taxesSale

Net profit margin 2010 2009



Analysis

This ratio shows the profit margin including charges and expense. It is the ration between Profit afterTaxes and Sales. For Fauji fertilizer the value of Operating Profit Margin is very low i.e. 0.25 but it isincrease a very little from 0.24 (Year 2009) to 0.25 (Year 2010). If Fauji fertilizer wants to increase NetReturn on Sale then it should decrease its Operating Expense. Net Return on Sale for Fauji fertilizer isvery low but having positive value is the sign that company is making profits through operations.

Net Profit Margin for Fatima Fertilizer is not possible due to the fact that values of sales and Cost ofgoods sold is not given in Financial Statement.

0.234

0.236

0.238

0.24

0.242

0.244

0.246

0.248

0.25

0.252

2010 2009

Net Profit Magin for Fauji Fertilizer

2010

2009


Return on Total Assets

A measure of the return on total investment in the Enterprise. Interest is added to after-tax profits to form thenumerator since total assets are financed by creditors as well as by stockholder. Higher is better and thetrend should be upward.

Return on total assets = Profit after taxes + InterestTotal assets

Return on Total Assets 2010 2009


Fatima Fertilizer (0.002) (0.002)

Analysis

Return on assets is a measure of how effectively the firm's assets are being used to generate profits. Byhaving positive value means that company's assets are greater than its profit. For Fauji fertilizer thevalue of Return on Total Assets increased from 0.23 (Year 2009) to 0.26 (Year 2010). It shows a littleimprovement but higher value is better for company and trend should be upward. For Fatima fertilizerNegative ratio shows that company is in loss. Company has to pay interest cost from its assets.

0.210.220.230.240.250.260.27

2010 2009

ROTA for Fauji Fertilizer

2010

2009

-0.0025

-0.002

-0.0015

-0.001

-0.0005

0

2010 2009

ROTA for Fatima Fertilizer

2010

2009

-0.050

0.050.1

0.150.2

0.250.3

FaujiFertilizer

FatimaFertilizer

ROTA for 2010

Fauji Fertilizer

Fatima Fertilizer

-0.05

0

0.05

0.1

0.15

0.2

0.25

FaujiFertilizer

FatimaFertilizer

ROTA for 2009

Fauji Fertilizer

Fatima Fertilizer


Return on Stockholder’s Equity

Shows the return stockholders are earning on their investment in the enterprise. A return in 12-15% range is“average” and the trend should be upward.

Return on stockholder’s equity = Profit after taxes____Total stockholder equity

Return on Stockholder’s Equity 2010 2009



Analysis

Return on equity is the bottom line measure for the shareholders, measuring the profits earned for eachdollar invested in the firm's stock. Fauji fertilizer by having positive Return on Equity (ROE) shows thatstockholders are getting profit from company, although it is very minimal but trend is going upwardfrom 0.67 (Year 2009) to 0.71 (Year 2010). Fauji fertilizer must increase its net profit margin to havebetter ROE and to gain investor trust. Fatima fertilizer is in very bad situation, having negative ratioshows that company is in loss. Company has to pay interest cost from its assets.

0.650.660.670.680.69

0.70.710.72

2010 2009

ROE for Fauji Fertilizer

2010

2009

-0.012

-0.01

-0.008

-0.006

-0.004

-0.002

0

2010 2009

ROE for Fatima Fertilizer

2010

2009

-0.10

0.10.20.30.40.50.60.70.8


ROE for 2010

Fauji Fertilizer

Fatima Fertilizer

-0.10

0.10.20.30.40.50.60.70.8


ROE for 2009

Fauji Fertilizer

Fatima Fertilizer


Debt to Assets Ratio

Measure the extent to which borrowed funds have been used to finance the firm’s operation. Low fractionsor ratios are better – a higher fraction indicates overuse of debt and greater risk of bankruptcy.

Debt to Assest Ratio = ___Total debt___Total assets

Debt to Assets Ratio 2010 2009



Analysis

Financial leverage ratios provide an indication of the long-term solvency of the firm. It also measuresthe extent to which the firm is using long term debt. Both Fauji and Fatima fertilizer have near to samevalues. Fauji fertilizer have 0.64 for the year 2010 and 0.66 for the year 2009, whereas Fatima fertilizerhave 0.65 and 0.69 for the year 2010 and 2009 respectively. This shows that company can incur moredebt if it wants. But both companies are near to breaking point which is alarming situation.

0.630.635

0.640.645

0.650.655

0.660.665

2010 2009

Debt to Assets ratio for Fauji Fertilizer

2010

2009

0.630.640.650.660.670.680.69

0.7

2010 2009

Debt to Assets ratio for Fatima Fertilizer

2010

2009

0.6340.6360.638

0.640.6420.6440.6460.648

0.650.652

FaujiFertilizer

FatimaFertilizer

Debt to Assets ratio for 2010

Fauji Fertilizer

Fatima Fertilizer

0.640.650.660.670.680.69

0.7

FaujiFertilizer

FatimaFertilizer

Debt to Assets ratio for 2009

Fauji Fertilizer

Fatima Fertilizer


Should usually be less than 1.0 High ratios (especially above 1.0) signal excessive debt, lowercreditworthiness, and weaker balance sheet strength.

Debt to equity Ratio = ______Total debt_________Total stockholders’ equity

Debt to Equity Ratio 2010 2009



Analysis

Debt ratio should be less than 1.0, but for Fauji fertilizer having high values 1.79 and 1.95 for the year2010 and 2009 respectively is the signal of excessive debt. Although it is decreased a little but still it isalarming situation. Same is the case for Fatima fertilizer, its Debt to Equity ratio decreased from 2.22 to1.86 which is still very high value.

1.7

1.75

1.8

1.85

1.9

1.95

2

2010 2009

Debt to Equity ratio for Fauji Fertilizer

2010

2009

1.61.71.81.9

22.12.22.3

2010 2009

Debt to Equity for Fatima Fertilizer

2010

2009

1.741.761.78

1.81.821.841.861.88

FaujiFertilizer

FatimaFertilizer

Debto Equity ratio for 2010

Fauji Fertilizer

Fatima Fertilizer

1.8

1.9

2

2.1

2.2

2.3


Debt to Equity ratio for 2009

Fauji Fertilizer

Fatima Fertilizer

Debt to Equity Ratio


Long term Debt to Equity ratio

Shows the balance between debt and equity in the firm’s long term capital structure. A low ratio indicatesgreater capacity to borrow additional funds if needed.

Long term debt to equity ratio = _____Long-term debt______Total stockholders’ equity

Long term debt to equity ratio 2010 2009



Analysis

Long term Debt ratio indicates a capacity to borrow additional fund by having low value of Debt toEquity ratio. This is ideal situation for Fauji fertilizer because 0.25 and 0.35 for the year 2010 and 2009respectively. Fauji fertilizer is also in better condition than Fatima fertilizer because value of Debt toEquity ratio is still very low as compared to Fatima fertilizer.

00.05

0.10.15

0.20.25

0.30.35

0.4

2010 2009

Debt to Equity ratio for Fauji Fertilizer

2010

2009

1.41.45

1.51.55

1.61.65

1.71.75

1.8

2010 2009

Debt to Equity for Fatima Fertilizer

2010

2009

0

0.5

1

1.5

2


Debt to Equity ratio for 2010

Fauji Fertilizer

Fatima Fertilizer

0

0.5

1

1.5

2


Debit to Equity ratio for 2009

Fauji Fertilizer

Fatima Fertilizer


Times interest earned (coverage ratio)

Measure the ability to pay annual interest charges. Lenders usually insist on minimum ratio of 2.0, but ratiosabove 3.0 signal better creditworthiness.

Times interest earned ratio = Operatjng incomeInterest Expense

Times interest earned ratio 2010 2009



Analysis

The times interest earned ratio indicates how well the firm's earnings can cover the interest payments onits debt. This ratio also is known as the interest coverage. By having lower values it shows that companyhas very low capability to pay interest charges. Fauji fertilizer is in stable condition as compared toFatima fertilizer, because it have much higher value of Times interest earned ration, whereas Fatimadoes not have any capability to pay interest charges by having negative value.

020406080

100120140

2010 2009

Coverage ratio for Fauji Fertilizer

2010

2009

-0.05

-0.04

-0.03

-0.02

-0.01

0

2010 2009

Coverage ratio for Fatima Fertilizer

2010

2009

-200

20406080

100120140


Coverage ratio for 2010

Fauji Fertilizer

Fatima Fertilizer

-20

0

20

40

60

80

100


Coverage ratio for 2009

Fauji Fertilizer

Fatima Fertilizer


Days of Inventory

Measures inventory management efficiency. Fewer days of inventory are usually better.

Days of inventory = ______Inventory_______Cost of goods sold / 365

Days of Inventory 2010 2009



Analysis

The inventory turnover often is reported as the inventory period, which is the number of day’s worth ofinventory on hand, calculated by dividing the inventory by the average daily cost of goods sold. Days ofinventory for Fauji fertilizer is 3.05 for the year 2010 and 2.56 for the year 2009. Fauji fertilizer is inbetter condition because fewer days of inventory are usually better.

Days of Inventory for Fatima Fertilizer is not possible due to the fact that values of sales and Cost ofgoods sold is not given in Financial Statement.

2.3

2.4

2.5

2.6

2.7

2.8

2.9

3

3.1

2010 2009

Days of Inventory for Fauji Fertilizer

2010

2009


Inventory turnover

Measures the number of inventory turns per year. Higher is better.

Inventory turnover = Cost of goods soldInventory

Inventory Turnover 2010 2009



Analysis

Inventory turnover ratio is the cost of goods sold in a time period divided by the average inventory levelduring that period. Fauji fertilizer have very high Inventory turnover ratio i.e. 119.56 for year 2010 and142.38 for the year 2009.

Inventory turnover for Fatima Fertilizer is not possible due to the fact that values of sales and Cost ofgoods sold is not given in Financial Statement.

105

110

115

120

125

130

135

140

145

2010 2009

Inventory turn-over for Fauji Fertilizer

2010

2009


Average collection period

Indicates the average length of time the firm must wait after making a sale of receive cash payment. A shortcollection time is better.

Average collection period = Acount recevieableTotal Sales / 365

Average collection period 2010 2009



Analysis

The receivables turnover often is reported in terms of the number of days that sales remain in accountsreceivable before they are collected. This number is known as the collection period. It is the accountsreceivable balance divided by the average daily sales. Fauji fertilizer is in very good situation havingshort collection period for 5 days for the year 2010 and around 7 days for the year 2009. This Showsthat company has not to wait too long time to receive cash payment after making sale.

Average collection period for Fatima Fertilizer is not possible due to the fact that values of sales andCost of goods sold is not given in Financial Statement.

0

1

2

3

4

5

6

7

8

2010 2009

Average Collection Period for Fauji Fertilizer

2010

2009


Conclusion

Ratio Analysis - Current

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