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 companys 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 Companys quick asset is increased in 2011 than 2010 so that companys 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 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.

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 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 companys credit policy in 2011 was better than that of 2010.

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
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Fixed Asset Turnover Ratio=

= tk 2.09

By using tk 1 of fixed asset the company can generate sales of tk 2.09 Interpretation Companys 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 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.

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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. For 2010 Return on Assets (ROA) = = .41%

The company earns .41% profits by utilizing all the assets. Interpretation This low return results from the companys 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.

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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 =

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.
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LEVERAGE RATIO

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.
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Interpretation Companys 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.

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
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Monno Ceramics Debt Ratio in 2011 was 69.19% (.27% less than 2010), indicating that its creditors supplied about three fourth of the companys 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.

MARKET RATIO
Price Earning Ratio (P/E Ratio)
Price Earning Ratio (P/E Ratio) = For 2011 Price Earning Ratio (P/E Ratio) = For 2010 Price Earning Ratio (P/E Ratio) = 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
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= 48.54 times

= 188.82 times

 Market/ Book Value Ratio

Book Value Ratio = Book Value Per Share = For 2011 Book Value Per Share = Book Value Ratio = For 2010 Book Value Per Share = Book Value Ratio = = 2.57 = 208.56 = 4.70 = 192.44

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

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