# Ratio Analysis of Modern Cement

**Topics:**Financial ratios, Financial ratio, Generally Accepted Accounting Principles

**Pages:**6 (1766 words)

**Published:**October 31, 2009

Ratio Analysis

Activity Analysis

|ST Activity Ratios |2002 |2003 |2004 |2005 |2006 | |Inventory Turnover Ratio |0 |1.11 |0.097 |0.085 |0.696 | |Average No. Days Inventory In Stock |0 |328.9 |3742.72 |4301.69 |524.56 |

Interpretations:

Short Term Activity ratios calculate the operational efficiency regarding the utilization of short term assets Inventory Turnover Ratio: The ratio tells about how many times Inventory turnover is made or complete in a given year. Higher the ratio is better that mean the inventory is turnover very quickly. Inventory Turnover Ratio 1.11 in 2003 indicates that company can sell total finished goods (inventory) 1.11 times every year. Increase in this ratio indicates the efficiency in managing inventory, which is not present in this company as we can the declining rate over the past years. This also indicates that the reserve of inventory and inventory holding cost is high for this company. Inventor Turnover Period: The ratio tells about number of days inventory remains in the stock and lower the ratio and better it is. From the table we can see that the ratios are too high which also indicates Modern Cement is inefficient in managing its inventory.

|LT Activity Ratios |2002 |2003 |2004 |2005 |2006 | |Total Asset Turnover Ratio |0.018 |0.007 |0.011 |0.006 |0.071 | |Fixed Asset Turnover Ratio |0.03 |0.008 |0.013 |0.007 |0.087 |

Interpretations:

Long Term Activity ratios calculate the operational efficiency regarding the utilization of long term investments. If the firm efficiently manages its assets, then it helps in generating more sales and revenue and required more assets to meet the more sales. Higher the ratio is better means the firms is efficiently managed to generate its sales. Total Asset Turnover Ratio: This ratio shows how much sales are generated by using per unit of total asset. It measures the efficiency of total investment management. It also shows the integrated efficiency of production, marketing and financing department. From the table we can see that the ratios are too low and it was highest in Year 2006 which was .071 means company generated Tk. 0.071 of sales from Tk.1 of total investment.

Fixed Asset Turnover Ratio: It shows how much sales are generated by using per unit of fixed asset. It measures the efficiency of fixed asset management. Higher ratio is better. From the table we can see that the ratios are lower and it was best in Year 2006 and it was 0.087 means the company generated Tk. 0.087of sales by investing Tk. 1 in fixed assets. Liquidity Analysis

|Liquidity Ratios |2002 |2003 |2004 |2005 |2006 | |Current Ratio |253.867 |0.498 |0.443 |0.41 |0.401 | |Quick Ratio |253.867 |0.185 |0.152 |0.137 |0.134 | |Cash Ratio |105.951 |0.002 |0.0004 |0.003 |0.0002 |

Interpretations:

Liquidity means Current Assets is used for Short Term obligations. ST lenders and ST creditors are more concern about the liquidity analysis of an firm, because they want to know that whether a firm has ability to pay its short term obligation in-time or not. Current Ratio: The ratio talks about how many current assets are used to payout its short term obligation. From Year 2003 to Year 2006, Modern Cement had almost similar amount with a decreasing rate to pay its current liability by its current asset which is around 0.5 Tk to pay its current liability against Tk. 1. The amount is low which indicates worse...

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