Ratio Analysis on Monno Ceramics Financial Year 2010-2011

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Assignment

0N

Ratio Analysis

[pic]

Monno Ceramic Industries Ltd.

Course Name: Business Finance

Course Code: FIN 201

Section: 03

Submitted To

Quazi Sagota Samina,

Senior Lecturer,

Department of Business Administration,

East West University.

Submitted By

Muhammad Nazmul Amin

ID# 2009-2-10-296

[pic][pic]

LIQUIDITY RATIO

❖ Current Ratio

Current Ratio=[pic]

For 2011

Current Ratio = [pic] = 0.95 times

Monno Ceramic can pay 0.95 times current liabilities with their current assets that means it has current asset 0.95 times than current liabilities.

For 2010

Current Ratio = [pic] = 0.96 times

Monno Ceramic can pay 0.96 times current liabilities with their current assets that means it has current asset 0.96 times than current liabilities.

Interpretation

The current ratio of Monno Ceramics was slight higher in 2010 than 2011.There wass a slight positive change in the company’s liquidity condition. Even then its current ratio was below than the rule of thumb so it was a negative side. But still its profitability was high as is current ratio was low.

❖ Quick Ratio

Quick ratio = [pic]

For 2011

Quick ratio = [pic] = 0.41 times

With current quick asset Monno Ceramic can meet its current liabilities 0.41 times.

For 2010

Quick ratio = [pic] = 0.36 times

With current quick asset Monno Ceramic can meet its current liabilities 0.36 times.

Interpretation

Company’s quick asset is increased in 2011 than 2010 so that company’s liquidity also increased but its quite below than the rule of thumb (2 times). In spite of the increasing turn in quick ratio Monno Ceramic might face troubles to pay off short term obligations without relying on the sale of inventories in the event of liquidation.

EFFICIENCY/ASSET UTILIZATION RATIO

❖ Inventory Turnover Ratio

Inventory Turnover Ratio= [pic]

For 2011

Inventory Turnover Ratio= [pic] = 1.89 times

Monno Ceramic can produce 1.89 times in a year.

For 2010

Inventory Turnover Ratio= [pic] = 1.96 times

Monno Ceramic can produce 1.96 times in a year.

Interpretation

Inventory Turnover Ratio reduced in 2011 which was not a good sign. This suggests that Monno Ceramic was holding excessive stocks of inventory; excess stocks were, of course, unproductive and represented an investment with a low or zero rate of return.

❖ Day Sales Outstanding Ratio

Day Sales Outstanding Ratio= [pic]

For 2011

Day Sales Outstanding Ratio= [pic] = 34.23 = 34 days.

In case of sales on credit Monno Ceramic needs 34 days to collect the accounts receivables.

For 2010

Day Sales Outstanding Ratio= [pic] = 41.99 = 42 days.

In case of sales on credit Monno Ceramic needs 42 days to collect the accounts receivables.

Interpretation

Since Day Sales Outstanding ratio of Monno Ceramic was reduced in 2011 than 2010 so it can be said that company’s credit policy in 2011 was better than that of 2010.

❖ Fixed Asset Turnover Ratio

Fixed Asset Turnover Ratio= [pic]

For 2011

Fixed Asset Turnover Ratio= [pic] = tk 2.06

By using tk 1 of fixed asset the company can generate sales of tk 2.06

For 2010

Fixed Asset Turnover Ratio= [pic] = tk 2.09

By using tk 1 of fixed asset the company can generate sales of tk 2.09

Interpretation

Company’s decreasing Fixed Asset Turnover ratio was indicating a bad signal though it is a company of around 15 years old it might concentrate on its fixed asset.

❖ Total Asset Turnover Ratio

Total Asset Turnover Ratio= [pic]

For 2011

Total Asset Turnover Ratio= [pic] = tk 0.82

By using tk 1 of total asset the company can generate sales of tk 0.82

For 2010

Total Asset Turnover Ratio= [pic] = tk 0.88

By using tk 1 of total asset the...
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