4.

Financial Statement Analysis

4.1 Horizontal Analysis:
Horizontal analysis (also known as trend analysis) is a financial statement analysis technique that
shows changes in the amount of corresponding financial statement items over a period of time. It
is a useful tool to evaluate the trend situations. The statements for two or more periods are used in
horizontal analysis. The earliest period is usually used as the base period and the items on the
statements for all later periods are compared with items on the statements of the base period. The
changes are generally shown both in dollars and percentage.

Balance Sheet
2018 2017 2016 2015
Trade Receivables 77% 67% 33% -3%
TOTAL ASSETS 44% 33% 23% 8%
Shareholders' Equity 6% 4% 3% 1%
Retained Earnings & Reserves 3% 2% 2% -2%
Non - Current Liabilities 575% 714% 600% 565%
Deferred Tax Liability 148% 86% -59% -100%
Trade & Other Payables -42% -57% -63% -64%
Current Liabilities 70% 29% 12% -28%
TOTAL EQUITY & LIABILITIES 44% 33% 23% 8%

We can see a large increment in non-current liabilities, it implies that they started taking more
capital-intensive projects from the very next year of 2015, thereby requiring a high level of debt
issuance. And, they got tax benefits out of it. Deferred tax liabilities arose from 2017 when their
income taxes were greater than taxes payable amount, it connotes that their sales had risen
relatively from the previous years.
In the horizontal analysis, we compare the performance year by year. Here, 2014 is our base year.
For the balance sheet, we can see the receivable has increased which means the company sales are
increased without the hand cash. Total assets has increased year by year 8%, 23%, 33% 44%
respectively which means the investors invested more to purchase assets for the company to
increase productivity. Shareholder Equity is also seen to be increased. The firm also increases
reserve money as retained earning as we can see that it has increased from -2% to 3% in the balance
sheet. The firm is aware of their Long term loan now, this is a positive sign for the firm, but we
can see they had more long term loans in previous years. But on the other hand they did not pay
their tax on time so the deferred tax will increase. The firm also taking short term loans and they
purchase raw materials or other things on account payable, so we can see the current liabilities are
increasing. The total equity and liabilities are also increasing for that particular reason.

Income Statement
2018 2017 2016 2015
Sales 150% 115% 8% -13%
Gross Profit 72% 49% -21% 744%
Less: Operating Expense 155% 121% 9% -2%
Operating Profit before Financial Expense 57% 37% -26% -18%
Less: Financial Expenses 27% 21% -30% -10%
Net Profit before WPPF -11% -38% -72% -59%
Net Profit before Income Tax -11% -38% -72% -59%
Net Profit after Tax for the Year -26% -53% -44% -60%

The company is now going through a better position that reflects by the increasing percentage of
sales. That’s why the gross profit also increased which we can see in the income statement.
Increasing the sell will increase productivity and for that the operating cost will be also increasing
that reflects in income statement -2% to 155%. The net profit of the company after and before tax
is reducing. Though company product is now selling more but the operating and financial expenses
are not favorable for the company so the income are decreasing year by year.

4.2 Vertical Analysis

Vertical analysis is a method of financial statement analysis in which each line item is listed as a
percentage of a base figure within the statement. Thus, line items on an income statement can be
stated as a percentage of gross sales, while line items on a balance sheet can be stated as a
percentage of total assets or liabilities, and vertical analysis of a cash flow statement shows each
cash inflow or outflow as a percentage of the total cash inflows.
Balance Sheet
2018 2017 2016 2015 2014
Non - Current Assets 50% 52% 55% 58% 36%
Current Assets 50% 48% 45% 28% 64%
Total Assets 100% 100% 100% 100% 100%
Shareholders' Equity 47% 50% 53% 60% 64%
Current Liabilities 39% 33% 30% 22% 33%
Non - Current Liabilities 13% 18% 16% 18% 3%
Total Equity & Liabilities 100% 100% 100% 100% 100%

In the base year 2014 the non-current assets are lower than the current assets which is a positive
sign for the manufacturing company. But after the base year the non-current and the current assets
are almost the same that is a bit unusual for a manufacturing companies. The company does most
of their operation by equity and current liabilities, they use less long term liabilities for operation
so that company have low financial risk which is positive for shareholders perspective. On the
other hand for using more current liabilities company get tax shield benefits.

Income Statement

2018 2017 2016 2015 2014

Sales 100.00% 100.00% 100.00% 100.00% 100.00%
Gross Profit 17.21% 17.37% 18.32% 243.57% 25.01%
Less: Operating Expense 3.87% 3.89% 3.81% 4.30% 3.79%
Operating Profit before Financial Expense 13.34% 13.47% 14.51% 20.06% 21.22%
Less: Financial Expenses 9.17% 10.13% 11.63% 18.69% 18.02%
Net Profit before WPPF 4.22% 3.42% 3.07% 5.55% 11.87%
Net Profit before Income Tax 4.02% 3.25% 2.92% 5.29% 11.30%
Net Profit after Tax for the Year 2.46% 1.82% 4.32% 3.81% 8.34%

In the vertical analysis for the income statement sales are 100%. The gross profit is almost same
every year except 2015 which was higher than the rest of the year. Though operating expense and
financial expense are decreasing by some amount and total comprehensive income is increasing
for the last two years but the net profit after tax for the year is decreasing.

4.3 Ratio Analysis

Ratio analysis is the comparison of line items in the financial statements of a business. It is a
quantitative method of gaining insight into a company’s performance. Ratio analysis consists of
calculating financial performance using five basic types of ratios:
 Liquidity
 Solvency
 Profitability
 Efficiency
 Market Value

4.3.1 Liquidity Ratio

The liquidity of a business firm is measured by its ability to satisfy its short term obligations as they
come due. Liquidity refers to the solvency of the firm’s overall financial position. It is a type of
financial ratio that indicates whether a company's current assets will be sufficient to meet the
company's obligations when they become due.

 Current Ratio

One of the most general and frequently used liquidity ratios is the current ratio. Organizations use
current ratio to measure the firm’s ability to meet short-term obligations. It shows the banks’ ability to
cover its current liabilities with its current assets.

Current Ratio = Current Asset/Current Liabilities

Year 2018 2017 2016 2015 2014

Ratio 1.27728367 1.47116863 1.49412088 1.24135501 1.91627450
 Current Ratio
1.91627450
2.00000000
1.47116863 1.49412088
1.50000000 1.27728367 1.24135501

1.00000000

0.50000000

0.00000000
2018 2017 2016 2015 2014

We know that the efficient current ratio is 1 to 3. So we can see that the company is maintaining a
roughly healthy current ratio over the five years. It has enough liquidity to cover the current liabilities.

 Cash Ratio

The cash ratio is a liquidity ratio that measures a firm's ability to pay off its current liabilities with cash
and cash equivalents. The metric calculates a company's ability to repay its short-term debt with cash or
near-cash resources, such as easily marketable securities.

Cash Ratio= Cash/Current Liabilities

Year 2018 2017 2016 2015 2014

Ratio 0.00436263 0.01986273 0.03550102 0.01202962 0.64054344
 Cash Ratio

0.7 0.64

0.6

0.5

0.4

0.3

0.2

0.1 0.019 0.035 0.012

0.004
0
2018 2017 2016 2015 2014

The efficient cash ratio rate is .1 to .3. Here the graph shows a very inefficient cash ratio for five recent
years of the company. Sometimes the cash ratio is too high and sometimes it is too low than it is
required. The high cash ratio shows the inefficient use of the cash and low ratio indicates that the
company do not have enough cash to cover the current liability. Lower cash ratio means higher liquidity
risk.

 Net Working Capital to Total Asset

Net Working Capital to Total Asset ratio is a liquidity ratio that expresses
the net current assets or working capital of a company as a percentage of its total assets. This ratio can
provide some insight as to the liquidity of the company, since this ratio can uncover the percentage of
remaining liquid assets (with Total Current Liabilities subtracted out) compared to the company’s Total
Assets.

Net Working Capital to Total Asset = Net Working Capital/Total Assets

Year 2018 2017 2016 2015 2014

Ratio 0.10947393 0.15315699 0.14988800 0.05412733 0.30663752
 Net Working Capital to Total Asset

0.35 0.306
0.3
0.25
0.2 0.153 0.149
0.15 0.109

0.1 0.054
0.05
0
2018 2017 2016 2015 2014

An increasing Working Capital to Total Assets ratio is usually a positive sign, showing the company’s
liquidity is improving over time. A low or decreasing ratio indicates the company may have too
many total current liabilities, reducing the amount of Working Capital available. In 2014, the company
had the highest working capital to total asset ratio and then reduced over the next four years. So the
short term solvency was reduced for the recent four years.

 Quick Ratio

The quick ratio is a much more exacting measure than current ratio. This ratio shows a firm’s ability
to meet current liabilities with its most liquid assets. It is also known as the acid-test ratio.

Quick Ratio= Current Asset – Inventory / Current Liabilities

 Year 2018 2017 2016 2015 2014
Ratio 0.80751802 0.89195028 0.86371421 1.23291052 1.32096784

Quick Ratio

1.321
1.4 1.233

1.2
0.891 0.863
1 0.807
0.8
0.6
0.4
0.2
0
2018 2017 2016 2015 2014

It is better to have high quick ratio. Because it means that the inventory is low and it signals high sales.
For our company the quick ratio is in a decreasing rate over the five years and it signals bad for the
company because it indicates higher inventory compared to current assets. That means the sales is
being decreased and also indicates lower liquidity.

 Absolute Liquidity Ratio

Absolute liquid ratio extends the logic further and eliminates accounts receivable (sundry debtors and
bills receivables) also. Though receivables are more liquid as comparable to inventory but still there may
be doubts considering their time and amount of realization. Therefore, absolute liquidity ratio relates
cash, bank and marketable securities to the current liabilities.

Absolute liquidity ratio = Absolute liquidity assets / Current liabilities

Year 2018 2017 2016 2015 2014

Ratio 0.54065010 0.68794054 0.64921336 0.70700289 1.15632803
 Absolute Liquidity Ratio

1.156
1.2

0.8 0.688 0.707

0.649
0.541
0.6

0.4

0.2

0
2018 2017 2016 2015 2014

Series 1

Lower absolute liquidity ratio means higher liquidity risk. So the company’s liquidity risk is increasing
over the five years in terms of absolute liquidity ratio as it is decreasing gradually.

4.3.2 Solvency Ratio

The solvency ratio is a key metric used to measure an enterprise’s ability to meet its debt obligations
and is used often by prospective business lenders. The solvency ratio indicates whether a company’s
cash flow is sufficient to meet its short-and long-term liabilities. The lower a company's solvency ratio,
the greater the probability that it will default on its debt obligations.

To evaluate the solvency dimension of Maksons Spinning Mills Limited, the following ratios for the
recent five years (2014 to 2018) have been calculated. The ratio that have been calculated under the
solvency dimension are:

 Total Debt Ratio

 Debt-equity Ratio
 Equity Multiplier
 Long-term Debt Ratio
 Times Interest Earned Ratio
 Equity Ratio
  Total Debt Ratio
The debt ratio is a financial ratio that measures the extent of a company’s leverage. The debt ratio is
defined as the ratio of total debt to total assets, expressed as a decimal or percentage.

𝐓𝐨𝐭𝐚𝐥 𝐃𝐞𝐛𝐭
Debt Ratio =
𝐓𝐨𝐭𝐚𝐥 𝐀𝐬𝐬𝐞𝐭𝐬

Year 2018 2017 2016 2015 2014

Ratio 0.530 0.502 0.467 0.402 0.363

Total Debt Ratio

0.600
0.500
0.400
0.300
0.200
0.100
0.000
2018 2017 2016 2015 2014
2018 2017 2016 2015 2014

An upward trend can be observed as the ratio has been increasing with each progressing year. In 2014,
it was 0.363 and in 2018 it is 0.530. This increase shows that Maksons Spinning Mills Limited is trying to
use more leverage to finance its assets. As in none of the years, the ratio has exceeded 1.0, it can be
safely said that the company is not putting itself at a risk of default if interest rates were to rise
suddenly. Although Makson Spinning Mills Limited is using increasing leverage, it still has not crossed
the safety margin and thus have maintained a healthy total debt ratio. The increased leverage, here can
be a sign of expansion of the company.

 Debt – Equity (D/E) Ratio

It is a measure of the degree to which a company is financing its operations through debt versus wholly-
owned funds. More specifically, it reflects the ability of shareholder equity to cover all outstanding debts
in the event of a business downturn.
 𝐓𝐨𝐭𝐚𝐥 𝐃𝐞𝐛𝐭
D/E Ratio = 𝐓𝐨𝐭𝐚𝐥 𝐄𝐪𝐮𝐢𝐭𝐲

Year 2018 2017 2016 2015 2014

Ratio 1.126 1.007 0.875 0.672 0.571

Debt - Equity Ratio

1.126
1.200 1.007
1.000 0.875

0.800 0.672
0.571
0.600
0.400
0.200
0.000
2018 2017 2016 2015 2014

Series1

An upward trend can be observed as the ratio has been increasing with each progressing year. In 2014,
it was 0.571 and in 2018 it is 1.126. This is also reflected in the total debt ratio, as the numerator of both
ratios are the same so the trends of each respective ratios follow similar pattern. A lower debt to equity
ratio usually implies a more financially stable business. Companies with a higher debt to equity ratio are
considered more risky to creditors and investors than companies with a lower ratio. In the ideal scenario
the debt – equity ratio should be 1:1. If the values of debt – equity ratio are observed then it can be
seen that the money generated through the investors is more the enough to pay off the debts till 2016,
but from 2017 – 2018, the company’s debt has exceeded its equity which is an indicator that the risk for
investors has increased.

 Equity Multiplier

The equity multiplier is a financial leverage ratio that measures the portion of company’s assets that are
financed by stockholder's equity. It is calculated by dividing a company's total asset value by total net
equity.
 𝐓𝐨𝐭𝐚𝐥 𝐀𝐬𝐬𝐞𝐭𝐬
Equity Multiplier = 𝐓𝐨𝐭𝐚𝐥 𝐄𝐪𝐮𝐢𝐭𝐲

Year 2018 2017 2016 2015 2014

Ratio 2.126 2.007 1.875 1.672 1.571

Equity Multiplier
2.500 2.126 2.007
1.875
2.000 1.672 1.571
1.500
1.000
0.500
0.000
2018 2017 2016 2015 2014

Series1

An upward trend can be observed as the ratio has been increasing with each progressing year. In 2014,
it was 1.571 times and in 2018 it is 2.126 times. This ratio follows the same trend as total debt ratio as it
is a variation of the total debt ratio. As the value of the equity multiplier has increased with each passing
year, it translates to more financial leverage for the company. Maksons Spinning Mills Limited, with a
higher debt burden, will have higher debt servicing costs which means that they will have to generate
more cash flows to sustain optimal operating conditions. High equity multiplier could indicate that the
company may be overly dependent on debt for its financing which would make it a potentially risky
investment. The upside is that, due to its high financial leverage, the growth prospects might be
enticing.

 Long – Term Debt Ratio

The long-term debt to total asset ratio is a solvency or coverage ratio that calculates a company’s
leverage by comparing total debt to assets. In other words, it measures the percentage of assets that a
business would need to liquidate to pay off its long-term debt.

𝐋𝐨𝐧𝐠−𝐓𝐞𝐫𝐦 𝐃𝐞𝐛𝐭
Long – Term Debt Ratio = 𝐋𝐨𝐧𝐠−𝐓𝐞𝐫𝐦 𝐃𝐞𝐛𝐭+𝐓𝐨𝐭𝐚𝐥 𝐄𝐪𝐮𝐢𝐭𝐲
 Year 2018 2017 2016 2015 2014
Ratio 0.223 0.262 0.234 0.229 0.043

Long - Term Debt Ratio

0.300 0.262
0.223 0.234 0.229
0.250
0.200
0.150
0.100 0.043
0.050
0.000
2018 2017 2016 2015 2014

Series1

From 2014 – 2015, the value of the ratio increased significantly. This happened as the company went for
some long – term investment. The value then declined slightly in 2016, followed by a slight increase and
slight decrease in 2017 and 2018 respectively. Ideally a long – term debt ratio of less than 0.5 is
considered healthy and as the company has been able to maintain so, it means it is in good health. But,
the debt of Maksons Spinning Limited has increased over the years that has been reflected by total debt
and debt – equity ratio, so based on that observation the long – term debt ratio should follow the same
trend. As it is not doing so, this means that the company has relied on other means of fund growth.
Hence, the variation.

4.3.3 Efficiency Ratio

The efficiency ratio is typically used to analyze how well a company uses its assets and liabilities
internally. An efficiency ratio can calculate the turnover of receivables, the repayment of liabilities, the
quantity and usage of equity, and the general use of inventory and machinery. This ratio can also be
used to track and analyze the performance of commercial and investment banks.

 Receivables Turnover Ratio: Calculated as credit sales divided by average accounts

receivable. A high turnover rate can be achieved by being selective about only dealing with
 high-grade customers, as well as by limiting the amount of credit granted and engaging in
aggressive collection activities.

Receivables Turnover ratio = Sales/Average Account Receivable

Year 2018 2017 2016 2015 2014

Ratio 2.31011289 2.10779860 1.32701659 1.45379178 1.63470101

Receivable Turnover Ratio

2.31
2.50 2.11

2.00 1.63
1.45
1.33
1.50

1.00

0.50

0.00
2018 2017 2016 2015 2014

Receivable turnover ratio high means the company is getting paid earlier for its accounts receivable.
Here the ratios has increased from 2014 to 2018 at a gradual rate but it can be said it means that
receivables are turning into cash more frequently.

 Days’ Sales in Receivables: measure of the average number of days that it takes a
company to collect payment in cash after a sale has been made.

Days’ Sales in Receivables= 360/ Receivable Turnover Ratio

Year 2018 2017 2016 2015 2014

Ratio 155.836540 170.794306 271.285230 247.628309 220.223758
 Days' sales in receivables

300.00 271.29
247.63
250.00 220.22

200.00 170.79
155.84
150.00

100.00

50.00

0.00
2018 2017 2016 2015 2014

The number of days needed to collect payment in cash was pretty much high in the beginning but it
started to reduce with time which is a good sign for MAKSON SPINNINGS MILLS LIMITED.

 Inventory Turnover ratio: The inventory ratio is calculated by diving the cost of goods
sold for a period by the average inventory for that period.

Inventory Turnover=COGS/Inventory

Year 2018 2017 2016 2015 2014

Ratio 2.18328512 2.00894309 1.05523046 0.90507 1.06211290

Inventory Turnover

2.50 2.18
2.01
2.00

1.50
1.06 1.06
0.91
1.00

0.50

0.00
2018 2017 2016 2015 2014
The higher ratio means most efficiently the company is using inventory. The company started to
increase their turnover ratio which indicates they increased their sales at a high pace because from 2014
to 2018 it increased by more than double.

 Days’ Sales in Inventory: it measures the number of days it will take a company to sell
all of its inventory. ... Shorter days inventory outstanding means the company can convert
its inventory into cash sooner.
Days' sales in inventory=360/Inventory turnover

Year 2018 2017 2016 2015 2014

Ratio 164.889137 179.198705 341.157705 3.977599 338.947019

Days' sales in Inventory

397.76
400.00 341.16 338.95
350.00
300.00
250.00
164.89 179.20
200.00
150.00
100.00
50.00
0.00
2018 2017 2016 2015 2014

If the sale is high, the ratio is low and the lower the ratio is the better for the company. The amount of
days is generally pretty high for the company but as indicated in other ratios their sales are increasing
and ratio is decreasing simultaneously so it’s a good sign for the company.

 Account Payable Turnover: Accounts-payable turnover is calculated by dividing the total

amount of purchases made on credit by the average accounts-payable balance for any given
period.

Account payable Turnover: Purchases on credit/Average Payable balance

 Year 2018 2017 2016 2015 2014
Ratio 181.583245 42.099864 34.833887 86.120045 41.625086

Accounts Payable Turnover

200.00 181.58
180.00
160.00
140.00
120.00
86.12
100.00
80.00
60.00 42.10 41.63
34.83
40.00
20.00
0.00
2018 2017 2016 2015 2014

Since the accounts payable turnover ratio indicates how quickly a company pays off its vendors. As with
most efficiency ratios, a higher ratio is almost always more favorable than a lower ratio. It also implies
that new vendors will get paid back quickly. A high turnover ratio can be used to negotiate favorable
credit terms in the future. So it means the company is in good shape right now as their ratio hit a
massive increase in 2018.

 Days Payable Outstanding: is a financial ratio that indicates the average time that a
company takes to pay its bills and invoices to its trade creditors, which include suppliers,
vendors or other companies.

Days Payable Outstanding= 360 x Account Payable/Cost of Goods Sold

Year 2018 2017 2016 2015 2014
Ratio 1.64 1.42 2.47 3.22 7.80
 Days Payable Outstanding
7.80
8.00
7.00
6.00
5.00
3.22
4.00
2.47
3.00 1.64 1.42
2.00
1.00
0.00
2018 2017 2016 2015 2014

It refers to the average number of days it takes a company to pay back its accounts payable. Therefore,
days payable outstanding measures how well a company is managing its accounts payable. A DPO of 20
means that on average, it takes a company 20 days to pay back its suppliers. Here on average the the
days needed are very low which is a good sign for the company.

 Operating Cycle: is the average period of time required for a business to make an initial
outlay of cash to produce goods, sell the goods, and receive cash from customers in
exchange for the goods.
Operating Cycle = Days Sales in Inventories + Days sales in Receivables

Year 2018 2017 2016 2015 2014

Ratio 320.73 349.99 612.44 645.39 559.17

Operating Cycle

273.75
300.00 250.85
228.03
250.00

200.00 172.21
157.48
150.00

100.00

50.00

0.00
2018 2017 2016 2015 2014
It refers to number of days a company takes in converting its inventories to cash. It equals the time
taken in selling inventories plus the time taken in recovering cash from trade receivables. So the lesser
the days are the better sign for the company, here the company has successfully reduced their number
of days with time which relates to other ratios that the company is in good shape.

 Cash Conversion Cycle: Cash conversion cycle is an efficiency ratio which measures the
number of days for which a company’s cash is tied up in inventories and accounts
receivable. It is aimed at assessing how effectively a company is managing its working
capital.
Cash Conversion Cycle = Operating Cycle – Days Payable Outstanding

Year 2018 2017 2016 2015 2014

Ratio 319.08 348.57 609.98 642.17 551.37

Cash Conversion Cycle

300.00 271.29
247.63
250.00 220.22

200.00 170.79
155.84
150.00

100.00

50.00

0.00
2018 2017 2016 2015 2014

Cash conversion cycle is an important ratio, particularly for companies that carry significant inventories
and have large receivables, because it highlights how effectively the company is managing its working
capital. So the lesser the better, and here we can see the ratio is decreasing with time but it peaked in
2015 at a very high rate but within 3 years the company has managed to reduce it by double rate.

 Total Asset Turnover Ratio : Measures the value of a company’s sales generated relative
to the value of its assets.
 Total assets turnover=Sales/Total assets

Year 2018 2017 2016 2015 2014

Ratio 0.48912208 0.45773761 0.24704432 0.22658471 0.28216711

Total Asset Turnover

0.49
0.46
0.50

0.40
0.28
0.30 0.25
0.23

0.20

0.10

0.00
2018 2017 2016 2015 2014

Since it indicates the value of the company’s sales generated relative to the value of its assets, so it is
obvious that higher ratios are a good sign and as we can see our company’s total asset turnover ratio
has been increasing with time.

 Overhead Rate : The overhead ratio is the overhead costs of the business expressed as
a percentage of the revenue (sales).

Overhead Rate= Overheads/Revenue

Year 2018 2017 2016 2015 2014

Ratio 0.06591219 0.01949868 0.01047770 0.01166417 0.03222231
 Overhead Rate

0.066
0.070
0.060
0.050
0.040 0.032

0.030 0.019
0.020 0.010 0.012
0.010
0.000
2018 2017 2016 2015 2014

The overhead ratio shows the proportion of expenses to total income which cannot be used for
production of goods and services. A low overhead ratio indicates that a company is minimizing business
expenses that are not directly related to production. Here the company’s expenses have increased
which indicates company is failing to minimize their expenses.

 Cost of Fund: Cost of funds is a reference to the interest rate paid by financial institutions
for the funds that they use in their business.

Cost of Fund = Interest Expense/Total Asset

Year 2018 2017 2016 2015 2014

Ratio 0.04342989 0.04541749 0.03804959 0.01770054 0.04999162
 Cost of Fund
0.050
0.050 0.045
0.043
0.045 0.038
0.040
0.035
0.030
0.025 0.018
0.020
0.015
0.010
0.005
0.000
2018 2017 2016 2015 2014

A lower cost will end up generating better returns when the funds are used for short-term and long-
term loans to borrowers. The company’s CoF is fluctuating but it is eventually going to decrease.

 Yield on Asset: Compares a financial institution’s interest income to its earning assets.

Yield on Asset = Interest Income/Total Asset

Year 2018 2017 2016 2015 2014

Ratio 0.00000029 0.00000194 0.00074388 0.0000010 0.02248463

Yeild on asset

0.025 0.022

0.020

0.015

0.010

0.005
0.000 0.000 0.001 0.000
0.000
2018 2017 2016 2015 2014
Yield on earning assets (YEA) indicates how well assets are performing by looking at how much income
they bring in. But Makson’s spinning mill ltd is doing very poor since it is not earning any income from
interest after 2014.

 Net Income to Total Operating Income: The portion of income that comprises or makes
up the total operating income.

Net Income to Total Operating Income = Net Profit after Tax for the Year/ Operating Profit or (Loss)

Year 2018 2017 2016 2015 2014

Ratio 0.59082733 0.54497150 1.49620882 2.77823100 2.60099682

Net Income to Total Oprating Income

2.778
3.000 2.601

2.500

2.000 1.496
1.500

1.000 0.591 0.545

0.500

0.000
2018 2017 2016 2015 2014

As we can see as the year passes by the ratio is decreasing so it means the portion of income that is
making the total operating income is decreasing at a rapid rate.

 Salary and Allowance to Total Operating Expense: The portion of expense that
comprises or makes up the total operating expense.

Salary and Allowance to Total Operating Expense= Salary & Allowance Expense/ Total Operating
Expense

Year 2018 2017 2016 2015 2014

Ratio 0.36089434 0.40367019 0.45409392 0.24281581 0.30159628
 Salary and Allowance to Total Operating Expense

0.500 0.454
0.450 0.404
0.400 0.361
0.350 0.302
0.300 0.243
0.250
0.200
0.150
0.100
0.050
0.000
2018 2017 2016 2015 2014

Higher ratio indicates bad sign for the company because the salary and Allowance is on the rise and it is
covering most of the operating expense.

4.3.4 Profitability Ratio

These measures evaluate the bank’s earnings with respect to a given level of sales, a certain level of
assets, the owner’s investment, or share value. Without profits, a firm could not attract outside capital.
Moreover, present owners and creditors would become concerned about the company’s future and
attempt to recover their funds. Owners, creditors, and Management pay close attention to boosting
profits due to the great importance placed on earnings in the marketplace.

 Profit Margin: Profit margin is part of a category of profitability ratios calculated as net
income divided by revenue, or net profits divided by sales.

Profit Margin = Net Income / Net Sales (revenue)

Year 2018 2017 2016 2015 2014

Ratio 0.17213245 0.17366949 0.18317898 2.43566805 0.25009762
 30
24.56% 25.01%
25
17.26% 18.31%
20 17.21%

15

10

0
2014 2015 2016 2017 2018

The higher the profit margin ratio, the better the condition. We can see that in terms of profit margin
2018 is the worst year for the company, because the profit margin is 17.21% which is comparatively
lower than other four years which is not a good sign for the company. In terms of profit margin the best
year for the company was 2014, the ratio was 25.01%.

 Return on Asset (ROA):

Return on assets (ROA) is an indicator of how profitable a company is relative to its total assets. ROA
gives an idea as to how efficient management is at using its assets to generate earnings. Calculated by
dividing a company's annual earnings by its total assets.

ROA=Net income/ Total assets

Year 2018 2017 2016 2015 2014

Ratio 0.01964480 0.01489925 0.00721413 0.01197735 0.03188590

1.96
2
1.8 1.48
1.6 1.31
1.4 1.19
1.2
1 0.7
0.8
0.6
0.4
0.2
0
2018 2017 2016 2015 2014
The higher the ROA the better the condition for the company. In 2018 the ROA was 1.31% which was
comparatively higher than other four years, this condition was favorable for the company. ROA
increases from 2018 to 2015, but after 2016 ROA decreased. In 2015 and 2016 ROA for PBL was almost
same but in 2017 ROA decreased significantly, which was not a good news for the company.

 Return on Equity (ROE):

Return on equity (ROE) is the amount of net income returned as a percentage of shareholders equity.
Return on equity measures a corporation's profitability by revealing how much profit a company
generates with the money shareholders have invested.

ROE is expressed as a percentage and calculated as.

Return on Equity = Net Income/Shareholder's Equity

Year 2018 2017 2016 2015 2014

Ratio 0.04176756 0.02990724 0.01352337 0.02002270 0.05009186

6 5.09
5 4.16
4
2.99
3
2
2 1.35

0
2018 2017 2016 2015 2014

The higher the ROE ratio the better for the company. As we can see there are some up downs of ROE
ratio from year to year. In 2014 the ROE ratio was 5.09%, which is higher than other four years. From
year 2015 to 2014 the ROE ratio of PBL increases which was a good sign for the company. But after 2014
ROE decreased in 2015. In 2016 ROE ratio of PBL was comparatevly bad than 2015. In 2017 ROE
increased significantly, management should take steps to increase ROE because it is a very sensitive
part. The ratio in 2017 was 2.09% this is something the management should worry about, because it is
the lower among these five years.
  Return on Capital Employed (ROCE):

This is often referred to as the primary accounting ratio and it expresses the annual percentage return
that an investor would receive their capital.it is calculated using the following formula:

Return on Capital Employed=Net Profit after Tax for the Year/ (TOTAL ASSETS - Current Liabilities
Year 2018 2017 2016 2015 2014
Ratio 0.01988740 0.01236439 0.01531417 0.01113048 0.03535977

4 3.53
3.5
3
2.5 1.98
2 1.53
1.23 1.11
1.5
1
0.5
0
2018 2017 2016 2015 2014

The higher the ROCE the better it is for the company. The company was in best favorable position
among these five years in 2014. The ROCE ratio decreased significantly in 2015 which is not good. They
should concern about it, they should try to recover it.

 Operating margin Ratio:

Operating margin ratio is the percentage of revenue remaining after all operating expenses, interest,
taxes and preferred stock dividends (but not common stock dividends) have been deducted from a
company's total revenue.

Operating Margin ratio = Net Income / Net Sales

Year 2018 2017 2016 2015 2014

Ratio 0.04164789 0.03345408 0.02886328 0.01371604 0.03205597
 4.5 4.06
4 3.34 3.2
3.5 2.88
3
2.5
2 1.37
1.5
1
0.5
0
2018 2017 2016 2015 2014

The higher the net profit margin ratio, the better the condition for the company. We can see that in
terms of net profit margin 2015 is the worst year, because the net profit margin is 1.37% which is
comparatively lower than other four years which is not a good sign .In terms of net profit margin the
best year for the bank was 2018, the ratio was 4.06%.

4.3.5 Market Value Ratio

Market value ratios are used to evaluate the current share price of a publicly held company's stock.
These ratios are employed by current and potential investors to determine whether a company's shares
are overpriced or underpriced. One of the most important factors when purchasing a security is
its market value. Many investors pick securities or assets based on disconnects between market
value and what they perceive the security is worth, hoping they might have uncovered a future star for a
discount price.

 Price Earnings Ratio

The price earnings ratio (P/E ratio) is the ratio for valuing a company that measures its current
share price relative to its per-share earnings (EPS). The price earnings ratio is also sometimes
known as the price multiple or the earnings multiple. P/E ratios are used by investors and analysts
to determine the relative value of a company's shares in an apples-to-apples comparison. It can
also be used to compare a company against its own historical record or to compare aggregate
markets against one another or over time. Analysis and investors review a company's P/E ratio
when they determine if the share price accurately represents the projected earnings per share. The
formula for price earnings ratios is:

Price earnings ratio = Price per share/earnings per share

Year 2018 2017 2016 2015 2014

Ratio 20.4081633 30.3030303 25.6410256 35.7142857 13.6986301

Price Earning Ratio

35.7142857
40
35 30.3030303
25.6410256
30
25 20.4081633

20 13.6986301
15
10
5
0
2018 2017 2016 2015 2014

We know that a higher price earnings ratio indicates that the stock is overvalued. So we can see
that the company was maintaining its price to earnings ratio in 2014 but over the year the value
has increased. Therefore, we can say that over the five year the market value ratio of the company
has increased.

 Dividend Payout Ratio

The dividend payout ratio is the ratio of the total amount of dividends paid out to shareholders relative
to the net income of the company. It is the percentage of earnings paid to shareholders in dividends.
The dividend payout ratio provides an indication of how much money a company is returning to
shareholders versus how much it is keeping on hand to reinvest in growth, pay off debt, or add to cash
reserves (retained earnings). The formula for Dividend payout ratio is:

Dividend Payout Ratio = Dividend Paid/Net Income

 Year 2018 2017 2016 2015 2014
Ratio 1.02040816 1.51515152 1.28205128 1.78571429 0.68493151

Dividend Payout Ratio

1.78571429
2 1.51515152
1.28205128
1.5 1.02040816
0.68493151
1

0.5

0
2018 2017 2016 2015 2014

We know that a high dividend payout ratio is good. So we can see that the company has roughly
maintained its dividend payout ratio over the five years. Therefore we can say that the company’s
market value ratio is in a good position.

 Book Value Per Share

Book value per share is the equity available to common shareholders divided by the number
of outstanding shares. This represents the minimum value of a company's equity. It indicates a firm's net
asset value on a per-share basis. When a stock is undervalued, it will have a higher book value per
share in relation to its current stock price in the market. The formula of book value per share is:

Book Value per Share = (Total Equity-Preferred Equity)/Total Shares Outstanding

Year 2018 2017 2016 2015 2014

Ratio 19.0992732 19.5461371 19.4950259 19.1087722 19.7825381
 Book Value per Share
19.7825381
19.8 19.5461371 19.4950259
19.6
19.4
19.0992732 19.1087722
19.2
19
18.8
18.6
2018 2017 2016 2015 2014

A higher book value means the shares have more liquidation value. From the graph above we can see
that the company has roughly maintained its book value per share.

 Retention Rate

The retention rate is the proportion of earnings that is kept back in the business as retained earnings. It
refers to the percentage of net income that is retained to grow the business, rather than being paid out
as dividends. It also helps investors determine how much money a company is keeping to reinvest in the
company's operation. The formula for Retention rate is:

Retention rate = (Net Income-Dividends Distributed)/Net Income

Year 2018 2017 2016 2015 2014

Ratio 18.6177658 29.1551688 24.3533425 33.0246013 13.3796874
 Retention Rate
33.0246013
35 29.1551688
30 24.3533425
25 18.6177658
20 13.3796874
15
10
5
0
2018 2017 2016 2015 2014

As we already know the higher the retention rate the better it is. From the graph above we can see that
the value of retention rate has fluctuated and it is not constant for the five years period. In 2015 the
retention rate was highest so the company was performing well in that year but as years passed it stated
to fluctuate and in the end of 2018 it decreased. So we can say that the company couldn’t maintain its
retention rate.