ratio analysis on monno ceramics

Assignment

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Ratio Analysis

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

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LIQUIDITY RATIO

Current Ratio

Current Ratio=

For 2011

Current Ratio = = 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 = = 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.

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Quick Ratio

Quick ratio =

For 2011

Quick ratio = = 0.41 times

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

For 2010

Quick ratio = = 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.

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EFFICIENCY/ASSET UTILIZATION RATIO

Inventory Turnover Ratio

Inventory Turnover Ratio=

For 2011

Inventory Turnover Ratio= = 1.89 times

Monno Ceramic can produce 1.89 times in a year.

For 2010

Inventory Turnover Ratio= = 1.96 times

Monno Ceramic can produce 1.96 times in a year.

Interpretation

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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=

For 2011

Day Sales Outstanding Ratio= = 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= = 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.

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Fixed Asset Turnover Ratio

Fixed Asset Turnover Ratio=

For 2011

Fixed Asset Turnover Ratio= = 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= = 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=

For 2011

Total Asset Turnover Ratio= = tk 0.82

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

For 2010

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Total Asset Turnover Ratio= = tk 0.88

By using tk 1 of total asset the company can generate sales of tk 0.88

Interpretation

Again decrease in Total Asset Turnover Ratio in 2011, indicating that the company is not

generating a sufficient volume of business given its investment in total asset. To become more

efficient, sales should be increased, some assets should be disposed of , or a combination of these

steps should be taken.

PROFITABILITY RATIO

Return On Assets (ROA)

Return on Assets (ROA) =

For 2011

Return on Assets (ROA) = = 2.98%

The company earns 2.98% profits by utilizing all the assets.

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For 2010

Return on Assets (ROA) = = .41%

The company earns .41% profits by utilizing all the assets.

Interpretation

This low return results from the company’s above average use of de

Return On Equity (ROE)

Return on Equity (ROE) =

For 2011

Return on Equity (ROE) = = 9.68%

Monno Cermic earns 9.68% profit for their shareholders.

For 2010

Return on Equity (ROE) = = 1.36%

Monno Cermic earns 1.36% profit for their shareholders.

Interpretation

As Monno Ceramic was more dependent on equity than asset so this increasing change in ROE in 2011 was expected. But in the long run Monno Ceramic might suffer a lot due to its poor liquidity position, poor asset management and its above average debt.

Net Profit Margin

Net Profit Margin =

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For 2011

Net Profit Margin = = 3.6%

Whatever the amount of sales, of that 3.6% company earns as profit or more specifically on sales the rate of profit is 3.6%.

For 2010

Net Profit Margin = = .47%

Whatever the amount of sales, of that .47% company earns as profit or more specifically on sales the rate of profit is .47%

Interpretation

Though slight upward change of Net Profit Margin, it is indicating that company sales are too

low, its costs are too high. But still in 2011 it was better than the 2010 sales.

LEVERAGE RATIO of 13

Time Interest Earned

Time Interest Earned =

For 2011

Time Interest Earned = = 1.53 times

Monno Ceramic has operating profit 1.53 times than its interest expense. This means, the company can meet its interest expense 1.53 times with its existing operating profit.

For 2010

Time Interest Earned = = 1.05 times

Monno Ceramic has operating profit 1.05 times than its interest expense. This means, the company can meet its interest expense 1.05 times with its existing operating profit.

Interpretation

Company’s TIE ratio is not satisfactory though it slight increased in 2011 than 2010. This kind

of poor TIE ratio results in a conclusion that, Monno Ceramic would face difficulties if it

attempted to borrow additional funds.

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Debt Ratio

Debt Ratio =

For 2011

Debt Ratio = = 69.19%

69.19% of total fund is financed from debt sources and rest 30.81% is financed from equity sources.

For 2010

Debt Ratio = = 69.46%

69.46% of total fund is financed from debt sources and rest 30.54% is financed from equity sources.

Interpretation

Monno Ceramics Debt Ratio in 2011 was 69.19% (.27% less than 2010), indicating that its

creditors supplied about three fourth of the company’s total financing. Creditors might be

reluctant to lend the firm more money , and management would be subjecting the firm to a

greater chance of bankruptcy.

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MARKET RATIO

Price Earning Ratio (P/E Ratio)

Price Earning Ratio (P/E Ratio) =

For 2011

Price Earning Ratio (P/E Ratio) = = 48.54 times

For 2010

Price Earning Ratio (P/E Ratio) = = 188.82 times

Interpretation

P/E ratios are higher for firms with high growth prospects, but they are lower for riskier firms. From this prospect it can be said that Monno Ceramic was regarded as being somewhat riskier in 2011 as having poor growth

Market/ Book Value Ratio

Book Value Ratio =

Book Value Per Share =

For 2011

Book Value Per Share = = 192.44

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Book Value Ratio = = 4.70

For 2010

Book Value Per Share = = 208.56

Book Value Ratio = = 2.57

Interpretation Increases of Book Value ratio in 2011 shows investors are willing to pay more for Monno Ceramic’s book value.

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ratio analysis on monno ceramics

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