Essays on Project -Financial Statements Analysis Assignment

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PROJECT -FINANCIAL STATEMENTS ANALYSISLIQUIDITY RATIOSCurrent ratio =Current asset/current liabilities2009 10,073,976/6,427,117 2008 12,523,263/8,843,696 =1.57 =1.42Quick ratio=current asset-inventory)/current liabilities2009 (10,073,976-13,237)/6,427,117 2008 (12,523,263-29,891)/ 8,843,696 =1.57 =1.41Cash ratio=cash/current asset2009 2,763,448/6,427,117 2008 6,839,040/8,843,696 =0.43 =0.77NWC to Total asset=NWC/Total asset2009 (10,073,976-6,427,117)/13,697,530 2008 (12,523,2638,843,696)/16,939,393 =0.27 =0.22Interval measure=current asset/Average daily operating cost2009 10073976/(2,179,703/365) 2008 12,523,263/(1,426,924/365) =1686.93 =3203.39InterpretationThe current ratio has improve in the year 2009 but it is still below the recommended rate of 2:1The quick ratio is above the standard rate which means the company can be able to meet its short term obligationsThe cash ratio decreased from 0.77 to 0.43 in the year 2009 due to payment of the company’s short term obligationsLONGTERM SOLVENCY RATIOTotal debt ratio= (Total asset-total equity)/total asset2009 (13,697,550-6,124,589)/13,697,550 2008 (16,939,393-5,958,324)/16,939,393 =0.55 =0.64 Debt/Equity=Total debt/Total equity2009 (13,697,550-6,124,589)/6,124,589 2008 (16,939,393-5,958,324)/5,958,324 =1.24 =1.84Equity multiplier=Total asset/Total equity=1+D/E2009 1+1.24 2008 1+1.84 =2.24 =2.84Long term ratio=Long term debt/(Long term debt +Total equity)2009 1,145,844/(1,145,844+6,124,589) 2008 2,137,373/(2,137,373+5,958,324) =0.16 =0.26InterpretationThe assets financed by external borrowing has decreased from 64.83% to 55.28%The long term ratio indicates that for every AED 100 shilling of equity of the company AED 15.76 is debt in 2009 while in 2008 it is AED 26.4 The Equity multiplier has decreased from 2.84 to 2.24 which indicates lack of investment ideas by the management of the companyASSET MANAGEMENT OR ACTIVITY RATIOSInventory Turnover= Cost of good/Inventory2009 2,179,703/13,237 2008 1,426,924/29,891 =164.67times =47.74 timesDays sales in Inventory=365/Inventory turnover2009 365/ 164.67 2008 365/47.74 =2.21 days =7.65 daysReceivable turnover=Sale/account receivable2009 3,102,708/2,859,883 2008 3,723,428/2,393,052 =1.08 =1.56Days sale receivable =365/Receivable turnover2009 365/ 1.08 2008 365/1.56 =338days =234 daysTotal asset turnover=sales/total asset2009 3,102,708/13,697,550 2008 3,723,428/16,939,393 =0.23 times =0.22 timesNWC turnover=Sales/net working capital2009 3,102,708/(10,073,976-6,427,117) 2008 3,723,428/(12,523,263-8,843,696) =0.85 =1.01Fixed asset turnover=Sales/NFA2009 3,102,708/1,412,829 2008 3,723,428/1,018,121 =2.20 times =3.66 timesInterpretationThe inventory turnover ratio has increased in the year 2009 which indicates that the company cannot convert stock into cash quicklyThe Receivable turnover has decreased in the year 2009 which shows that there is increase in efficiency in collection of debtsTotal asset turnover remains constant of 0.22 which is the frequency by which assets have been used to generate sales revenuePROFITABILITY RATIOProfit margin=net income/sales2009 494,998/3,102,708 2008 1,784,268/3,723,428 =15.95% =47.92%Return on asset=net income/Total asset2009 494,998/13,697,550 2008 1,784,268/16,939,393 =3.61% =10.53%Return on equity=Net income/total equity2009 494,998/6,124,584 2008 1,784,268/5,958,324 =8.08% =29.95%InterpretationProfit Margin has decreased from 47.92% to 15.95% which indicates the fall in the ability of the company to control the cost of sales, operating and financing expensesReturn on assets has decreased from 10.53% to 3.61% which indicates underutilization of assets to generate revenue for the companyReturn on equity has decreased from 29.95% to 8.08% which indicates underutilization of shareholders fund to generate revenue to the companyMARKET VALUE MEASURESBook Value per share=Total equity/No of shares2009 6124589/2500000 2008 5958324/2500000 =2.45 per share =2.38 per shareMarket price per share (Mps) =Earnings per share/cost of capital2009 0.19/0.0808 2008 0.74/0.2929 =2.35 per share =2.47 per sharePrice earnings ratio=market price per share/earnings per share2009 2.35/0.19 2008 2.47/0.74 =12.37 =3.34Market to book ratio=market price per share/book value per share2009 2.35/2.45 2008 2.47/2.38 =0.96 =1.04InterpretationsIn the year 2009 the shares were undervalued since the mps was less than book value per share.

While in 2008 the shares were overvaluedIn the year 2009 an investor will take 12.37 years to recoup his cost of investment while in the year 2008 will take 3.33 years SummaryThe profitability and performance of the company has generally decreased due to most negative ratios

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