North South University

Report for Accounting 201

Title: Intra-Company and Inter-Company Ratio Analyses of Navana CNG and Aftab Automobiles

Submitted to: Mr. Sabbir Mubin Course Instructor ACT 201

Submitted by: Sharmin Khan Fayaz Bin Amin Mohammad Ibrahim Faria Rashid Chowdhury 102 0320 030 102 0045 030 102 0486 030 102 0320 030

Section: 6 Date: 11th April, 2011

Dated: April 11th, 2011 Mr. Riyashad Ahmed (RyA) Faculty School of Business, North South University, Bangladesh. Baridhara, Dhaka. Subject: Submission of Group Project Report Dear Sir, We were advised to prepare a report on the Financial Performance of Navana CNG and Aftab Automobiles. As were advised, we have successfully completed the report. It gives us immense pleasure to tell you that working on this report has given us a wide range of exposure. To prepare this report, we have to make intensive analyses of the companys financial performance in last 3 years. We applied all our knowledge gathered in this course to judge and evaluate the financial condition of the company. This report basically gives an overview the companys performance on the basis of 13 major financial ratios. We also had to make recommendation as to how the company can improve its performance and whether the company would be a good investment for the stockholders. As this was an actual company project, research was done on an extensive basis. It will be a great honor for us if you require us to explain any sort of queries. Yours Sincerely, Sharmin Khan Fayaz Bin Amin Mohammad Ibrahim Faria Rashid Chowdhury 102 0320 030 102 0045 030 102 0486 030 102 0320 030

Ratio analysis:
Ratio Analysis expresses the relationship among selected items of financial report. It expresses the mathematical relationship between one quantity and another. The relationship is expressed in terms of a percentage, a rate or a simple proportion.

Liquidity ratios:
Liquidity Ratios measure the short-term ability of the company to pay its maturing obligations and to meet unexpected needs for cash.

Year Current Ratio Acid Test Ratio Receivables Turnover Inventory Turnover

Navana CNG 2010 2009 4.19:1 0.14:1 63.07 times 1.16 times 2.38:1 0.25:1 24.82 times 1.07 times

Aftab Automobiles 2010 2009 32.66:1 1.43:1 3.39 times 2.28 times 1.33:1 0.52:1 2.55 times 2.54 times

Calculation are Shown in Appendix

Current ratio:
It is a widely used ratio to evaluate a companys liquidity and short-term debt-paying ability. Its formula is given belowCurrent Ratio= Navana CNG: In the year 2010, the companys Current Assets were 4.19 times higher than its Current Liabilities. The ratio increased from 2009 where the ratio was 2.38:1. That means Navana CNG increased their current assets from 2009.

Aftab Automobiles: In the year 2010, the companys Current Assets were 32.66 times higher than its Current Liabilities. The ration increased from 2009 where the ratio was 1.33:1. That means Aftab Automobiles increased their current assets from 2009. Inter-Company Analysis: Aftab Automobiles current ratio is better than Navana CNG. And Aftab Automobiles increase in current assets were more that that of Navana CNG.

Acid test :
The Acid-Test Ratio is a measure of a companys immediate short-term liquidity. Its formula is given belowQuick Ratio or, Acid test Ratio=

Navana CNG: In the year 2010, the companys current assets including receivables were 0.14 times of its current liabilities. The ratio decreased from 2009 where it was 0.25:1. That means the company lost its liquidity in last year. Aftab Automobiles: In the year 2010, the companys current assets including receivables were 1.43 times of its current liabilities. The ratio decreased from 2009 where it was 0.52:1. That means the company lost its liquidity in last year. Inter-Company Analysis: Aftab Automobiles Acid-test Ratio is better than that of Navana CNG. It means Aftab Automobiles have more liquid asset than Navana CNG to pay the liabilities.

Receivable turnover:
Liquidity may be measured how quickly certain assets can be converted to cash. The ratio used to assess the liquidity of the receivables is receivables turnover. It measures the number of times on average receivables are collected during the period. Its formula is given belowReceivables Turnover =

Navana CNG: In the year 2010, the company collected its receivables 63 times in the whole year. The ratio increased from 2009 (24.82 times) which means the company got its sales got cashed more than last year. Aftab Automobiles: In the year 2010, the company collected its receivables 3.39 times in the whole year. The ratio increased from 2009 (2.55 times) which means the company got its sales got cashed more than last year. Inter-Company Analysis: Both of the companies Receivables Turnover increased from last year but in Aftab Automobiles case the increase was not significant.

Inventory Turnover:
formula is given below-

Inventory turnover measures the number of times on average the

inventory is sold during the period. Its purpose is to measure the liquidity of the inventory. Its

Inventory Turnover = Navana CNG: In the year 2010, the company has sold out its inventories 1.16 times. This ratio decreased from last year (1.07 times) that means the company had less sale of its inventories than last year.

Aftab Automobiles: In the year 2010, the company has sold out its inventories 2.28 times. This ratio decreased from last year (2.54 times) that means the company had less sale of its inventories than last year. Inter-Company Analysis: In 2010, Aftab Automobiles sold and restocked its inventories more than Navana CNG and the difference margin is significant.

Profitability Ratios

Profitability ratios measure income or operating success of an enterprise for a given period of time. Income, or the lack of it, affects the companys ability to obtain debt and equity financing. It also affects the companys liquidity position and the companys ability to grow.

Year Profit Margin 53% 45% 29.7% Total Asset 0.46 times 0.55 times 0.71 times Turnover Return on 24.9% 25% 10.5% Assets Return on 37.6% 48.45% 33.7% Common Stockholders Equity EPS 8.01 6.74 29.1 P/E Ratio 1.23 1.48 1.63 Payout Ratio 33.44% 25.75% 16.7% Calculation are Shown in Appendix

Navana CNG 2010 2009

Aftab Automobiles 2010 2009 14.9% 0.91 times 13.5% 41.5%

136.49 11.64 0.90%

Profit margin:
Profit margin is a measure of percentage of each dollar of sales that results in net income. Its formula is given belowProfit Margin Ratio =

Navana CNG: In the year 2010, the company earned Net Profit of Tk 53 for every Tk 100 worth of Sales. This ratio has increased from last year (45%). Which means the company managed to make more profit out of its sales and reduced cost related to sales. Aftab Automobiles: In the year 2010, the company earned Net Profit of Tk 29.7 for every Tk 100 worth of Sales. This ratio has increased from last year (14.9%). Which means the company managed to make more profit out of its sales and reduced cost related to sales. Intra-Company Analysis: Navana CNG gained more profits from Aftab Automobiles from sales in 2010. And the amount is significant.

Asset Turnover:
Assets Turnover is a measure of a companys sales over every one Taka of Total Assets. The formula for Asset Turnover is given below: Total asset turnover Ratio= Navana CNG: In the year 2010, Navana CNG 1TK of Asset managed to generate 0.46 TK of sales. The ratio decreased from last year (0.55 Times). Which means the companys Assets lost efficiency in last one year.

Aftab Automobiles: In the year 2010, Navana CNG 1TK of Asset managed to generate 0.71 TK of sales. The ratio decreased from last year (0.91 Times). Which means the companys Assets lost efficiency in last one year. Intra-Company Analysis: Aftab Automobiles managed to generate more sales from their assets than Navana CNG but the company does not have a significant advantage over Navana CNG in terms of this ratio.

Return on asset: An overall measure of profitability is return on assets. Its formula is given
belowROA = Navana CNG: In the year 2010, Every Tk100 worth of assets generated Tk24.90 of Net Profit for the company. The ratio slightly decreased from last year (25%) Aftab Automobiles: In the year 2010, Every Tk100 worth of assets generated Tk10.5 of Net Profit for the company. The ratio decreased from last year (13.5%) Intra-Company Analysis: Navana CNG managed to generate more profit from Assets than Aftab Automobiles and the amount is significant.

Return on Common Stockholders Equity:

This ratio measures the return that the stockholders get from their investment to the company. The formula of the ratio isReturn on Common Shareholders Equity =

Navana CNG: In the year 2010, Shareholders earned Tk37.6 out of every Tk100 of investment. The ratio decreased from last year (48.45%) this means the stockholders got less return from their investment in last year. Aftab Automobiles: In the year 2010, Shareholders earned Tk33.7 out of every Tk100 of investment. The ratio decreased from last year (41.5%) this means the stockholders got less return from their investment in last year. Inter-Company Analysis: From the ratios above, we can see that Navana CNGs investors got more profit than those of Aftab Automobiles, though the difference is not significant.

Earnings per share:

Earnings per share is a measure of net income earned on each share of common stock. A measure of net income earned on a per share basis provides a useful perspective for determining profitability. Its formula is given belowEPS =

Navana CNG: Common Shareholders of the company earned Tk8.01 for every share they hold. This has increased by TK1.27 from last year and the change is not drastic. Aftab Automobiles: Common Shareholders of the company earned Tk29.1 for every share they hold. This has decreased by TK107 from last year and the change is drastic. Inter-Company Analysis: Navana CNG was far better than Aftab Automobiles in terms of providing profit to their shareholders.

Price earnings ratio:

The price earnings ratio is an oft-quoted measure of the ratio of the market price of each share of common stock to the earnings per share. Its formula is given belowP/ E Ratio = Navana CNG: Companys shareholders were willing to pay Tk1.23 for each Taka of reported earnings. This ratio has decreased slightly from last year. Due to a little change in share price the ratio also changed a little. Aftab Automobiles: Companys shareholders were willing to pay Tk1.63 for each Taka of reported earnings. This ratio has decreased drastically from last year. Due to a drastic change in share price the ratio also changed drastically.

Payout ratio:
The payout ratio measures the percentage of earnings distributed in the form of cash dividends. Its formula is given belowPayout Ratio = Navana CNG: The company paid 37.44% of dividends from its net income. This ratio has increased from last year (25.75%) Aftab Automobiles: The company paid 16.7% of dividends from its net income. This ratio has increased drastically from last year (0.90%)

Solvency ratios:
Solvency ratios measure the ability of the company to survive over a long period of time. There are several ratios under solvency ratios-

Year Debt to Asset Ratio Time Interest Earned

Navana CNG 2010 2009 25.69% 13.79 times 43% 3.95 times

Aftab Automobiles 2010 2009 23.3% 3.87times 63% 1.71 times

Calculation are Shown in Appendix

Debt to total assets ratio:

The debt to total assets ratio measures the percentage of the total assets provided by creditors. Its formula is given belowDebt to Asset Ratio= Navana CNG: In the year, 2010, companys 25.69% of the total assets were financed by the creditors. The amount decreased from last year (43%) Aftab Automobiles: In the year, 2010, companys 23.3% of the total assets were financed by the creditors. The amount decreased from last year (63%) Inter-Company Analysis: Both of the company have had almost same amount of debt in their assets in 2010.

]Times interest earned:

Times interest earned provides an indication of the companys ability to meet interest payments as they come due. This represents the amount available to cover interest. Its formula is given belowTIE Ratio = Navana CNG: In the year 2010, EBIT was 13.79 times higher than Interest Expense. The ratio increased from last year (3.93times) Aftab Automobiles: In the year 2010, EBIT was 3.87 times higher than Interest Expense. The ratio increased from last year (1.71times) Inter-Company Analysis: The above information refers that Navana CNG has more income than Aftab Automobiles to pay their interest from debts.

Appendix:
Ratio Analyses of Navana CNG for 2010: Liquidity Ratio:

I.

Current Ratio=

= = 4.19: 1

II.

Quick Ratio or, Acid test Ratio= =

= 0.14: 1

III.

Receivables Turnover = = = 63.07 Times

IV.

Inventory Turnover =

=
= 1.16 times

Profitability Ratio:
I. Profit Margin Ratio = = = 53% II. Total asset turnover Ratio=

=
= 0.46 times

III.

ROA = = = 24.9%

IV.

Return on Common Shareholders Equity = = = 37.6%

V.

EPS = = = 8.01

VI.

P/ E Ratio = =

= 1.23

VII.

Payout Ratio =

=
= 37.44%

Solvency Ratio:
I. Debt to Asset Ratio= = = 25.6% II. TIE Ratio = = = 13.79 Times

Ratio Analyses of Navana CNG for 2009: Liquidity Ratio:

V.

Current Ratio=

= = 2.38: 1

VI.

Quick Ratio or, Acid test Ratio= =

= 0.25: 1

VII.

Receivables Turnover = = = 24.82 Times

VIII.

Inventory Turnover =

=
= 1.07 times

Profitability Ratio:
VIII. Profit Margin Ratio = = = 45% IX. Total asset turnover Ratio=

=
= 0.55 times

X.

ROA = = = 25%

XI.

Return on Common Shareholders Equity = = = 48.45%

XII.

EPS = = = 6.74

XIII.

P/ E Ratio = =

= 1.48

XIV.

Payout Ratio =

=
= 25.75%

Solvency Ratio:
I. Debt to Asset Ratio= = = 43 % II. TIE Ratio = = = 3.95 Times

Ratio Analyses of Aftab Automobiles for 2010: Liquidity Ratio:

I.

Current Ratio=

= = 32.66: 1

II.

Quick Ratio or, Acid test Ratio= =

= 1.43: 1

III.

Receivables Turnover = = = 3.39 Times

IV.

Inventory Turnover =

= 2.28 times

Profitability Ratio:
I. Profit Margin Ratio = = = 29.7%

II.

Total asset turnover Ratio=

=
= 0.71 times

III.

ROA = = = 10.5%

IV.

Return on Common Shareholders Equity = = = 33.7%

V.

EPS = = = 299.10

VI.

P/ E Ratio = =

= 1.63

VII.

Payout Ratio =

=
= 16.7%

Solvency Ratio:
I. Debt to Asset Ratio= = = 23.3 % II. TIE Ratio = = = 3.87 Times

Ratio Analyses of Aftab Automobiles for 2009: Liquidity Ratio:

V.

Current Ratio=

= = 1.33: 1

VI.

Quick Ratio or, Acid test Ratio= =

= 0.52: 1
VII. Receivables Turnover = = = 2.55 Times VIII. Inventory Turnover =

=
= 2.54 times

Profitability Ratio:
VIII. Profit Margin Ratio = = = 14.9%

IX.

Total asset turnover Ratio=

=
= 0.91 times

X.

ROA = = = 13.5%

XI.

Return on Common Shareholders Equity = =

= 41.5% XII. EPS = = = 136.49

XIII.

P/ E Ratio = =

= 11.64

XIV.

Payout Ratio =

=
= 0.90%

Solvency Ratio:
III. Debt to Asset Ratio= = = 63 % IV. TIE Ratio = = = 1.71 Times