Ratio Analysis

Topics: Financial ratios, Financial ratio, Generally Accepted Accounting Principles Pages: 6 (1602 words) Published: May 2, 2013
Current Ratio:

The current ratio gauges how capable a business is in paying current liabilities by using current assets only. Current ratio is also called the working capital ratio. A general rule of thumb for the current ratio is 2 to 1. However, an industry average may be a better standard than this rule of thumb. So, according to the information that we got, in 2007 Beximco Pharmaceutical’s current ratio was 1.80 which declined to 1.10 in 2008 and ultimately in 2009 it boosted up to 2.97, that clearly defines that in 2009 they were quite good enough of being capable in paying their current liabilities by using their current assets only.

Quick Ratio:

Quick ratio focuses on immediate liquidity (i.e., cash, accounts receivable, etc.) but specifically ignores inventory. Also called the acid test ratio, it indicates the extent to which you could pay current liabilities without relying on the sale of inventory. Quick assets are highly liquid and are immediately convertible to cash. A general rule of thumb states that the ratio should be 1 to 1. So, according to the information that we got, in 2007 Beximco Pharmaceutical’s current ratio was 0.89 which declined to 0.52 in 2008 and ultimately in 2009 it boosted up to 2.24. Which means, compared to 2007 and 2008 their performance was so good that they could boost it up to 2.24.

Activity Ratio:

Inventory Turnover Ratio:

This ratio shows how many times in one accounting period the company turns over (sells) its inventory and is valuable for spotting under-stocking, overstocking, obsolescence and the need for merchandising improvement. Faster turnovers are generally viewed as a positive trend; they increase cash flow and reduce warehousing and other related costs. According to the description, since their Inventory Turnover Ratio was 1.49 in 2009, so definitely it was good for them as it was 1.33 in 2008 and 1.34 in 2007 which wasn’t that much comparative to 2009.

Average collection period

The average collection period often is reported in terms of the number of days that credit sales remain in accounts receivable before they are collected. As the graph showing that, in 2007 and in 2009 their average collection period was 50.01 days and 51.32 days which is definitely not good as it was 45.24 days in 2008. So, according to that, in 2009 their performance in terms of average collection period wasn’t that good. Average payment period

The average payment period ratio represents the number of days by the firm to pay its creditors. A high creditor’s turnover ratio or a lower credit period ratio signifies that the creditors are being paid promptly. This situation enhances the credit worthiness of the company. However a very favourable ratio to this effect also shows that the business is not taking the full advantage of credit facilities allowed by the creditors. Here it was 65.30 days in 2009 and 56.39 days was in 2008 whereas it was only 27.20 days in 2007. So their performance boosted up in 2008 and then gradually increased in 2009.

Total asset turnover

The total assets turnover ratio measures the use of all assets in terms of sales, by comparing sales with net total assets. So basically, it means by utilizing 1 unit worth of total asset how much money I am generating from my sales. Here, it gradually decreased from 0.30 to 0.24 during 2007 to 2009 and its not a good sign for Beximco pharmaceutical’s performance. It simply means in terms of their total assets they are generating fewer amounts day by day. Also it means they are not efficient enough to utilize their assets.

Debt Ratio:
Debt ratio

A ratio that indicates what proportion of debt a company has relative to its assets. The measure gives an idea to the leverage of the company along with the potential risks the company faces in terms of its debt-load. According to the information they did quite well in managing their debt load in 2008 compared to 2007 since the proportion decreased from 0.31...
Continue Reading

Please join StudyMode to read the full document

You May Also Find These Documents Helpful

  • Ratio Analysis Essay
  • Essay on Lowes Ratio Analysis
  • RATIO ANALYSIS of masood textile mills Essay
  • Ratio Analysis of Google Company Essay
  • Ratio Analysis Essay
  • Ratio Analysis Essay
  • Essay about Ratio Analysis
  • Ratio Analysis Essay

Become a StudyMode Member

Sign Up - It's Free