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8/9/2019 Industrial & Time Serious Analysis by Zeeshan Tufail
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STATEMENT OF SUBMISSION
I completed their task of Midt erm PROJECT of Financial
Management TASK GIVEN: Ratios Analysis of Financial Statements
at Superior University Lahore; to fulfill the partial requirement of
the Semester of MBA 4t h Semest er.
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ACKNOWLEDGEMENT
We bow our head to Almighty Allah, the Omnipotent, the Merciful,
who endeavor our services towards his manuscript. All praises to
Almighty Allah who gave us the courage and patience for completion
of this work. All the respects are for Holy Prophet Muhammad
(Peace Be upon Him) who see moral and spiritual teachings
enlightened our hearts.
We feel how weak and deficit in vocabulary to find suitable wordsthat would fully convey the sense of immense indebtedness and
deep gratitude that we owe to our teacher, Sir Noman Dar for his
endless propitious guidance, illustration advice, keen interest, value
able comments and encouragement throughout the course of
studies and completion of this work.
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DYNEA PAKISTAN LIMITED
ANNUAL REPORTS
FOR THE YEAR ENDED
30TH JUNE 2006
30TH JUNE 2007
30TH JUNE 2008
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FINANCIAL ANALYSIS
Financial analysis is an aspect of the overall business finance function that involves
examining historical data to gain information about the current and future financial health
of a company. Financial analysis can be applied in a wide variety of situations to give
business managers the information they need to make critical decisions. "The inability to
understand and deal with financial data is a severe handicap in the corporate world," Alan
S. Donnahoe wrote in his book What Every Manager Should Know about Financial Analysis.
"In a very real sense, finance is the language of business. Goals are set and performance is
measured in financial terms. Plants are built, equipment ordered, and new projects
undertaken based on clear investment return criteria. Financial analysis is required in
every such case."
ROLE OF FINANCIAL ANALYSIS WITH THE HELP OF FINANCIAL MANAGEMENT
New business leaders and managers have to develop at least basic skills in financial
management. Expecting others in the organization to manage finances is clearly asking for
trouble. Basic skills in financial management start in the critical areas of cash management
and bookkeeping, which should be done according to certain financial controls to ensure
integrity in the bookkeeping process. New leaders and managers should soon go on to
learn how to generate financial statements (from bookkeeping journals) and financial
analysis of those statements to really understand the financial condition of the business.
Financial analysis shows the "reality" of the situation of a business -- seen as such; financial
management is one of the most important practices in management. This topic will help
you understand basic practices in financial management, and build the basic systems and
practices needed in a healthy business.
Financial analysis can tell you a lot about how your business is doing. Without this analysis,
you may end up staring at a bunch of numbers on budgets, cash flow projections and profit
and loss statements. You should set aside at least a few hours every month to do financial
analysis. Analysis includes cash flow analysis and budget deviation analysis mentioned
above. Analysis also includes balance sheet analysis and income statement analysis. There
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are some techniques and tools to help in financial analysis, for example, profit analysis,
break-even analysis and ratios analysis that can substantially help to simplify and
streamline financial analysis. How you carry out the analysis depends on the nature and
needs of you and your business. The following links will help you get a sense for the
"territory" of financial analysis.
ROLE OF FINANCIAL ANALYSIS WITH THE HELP OF CORPORATE FINANCE
Corporatefinance is a broad term that is used to collectively identify the various financial
dealings undertaken by a corporation. Generally, the term also applies to the various
methods, procedures, and configurations of the financial operations employed by a given
company. In most instances, corporations will have a specific financial division that is
charged with the task of managing corporatefinance in all aspects of financial operation.
The primary goal of corporate finance is to maximize corporate value while managing the
firm's financial risks. Although it is in principle different from managerial finance which
studies the financial decisions of all firms, rather than corporations alone, the main
concepts in the study of corporate finance are applicable to the financial problems of all
kinds of firms.
The discipline can be divided into long-term and short-term decisions and techniques.
Capital investment decisions are long-term choices about which projects receive
investment, whether to finance that investment with equity or debt , and when or whether
to pay dividends to shareholders. On the other hand, the short term decisions can be
grouped under the heading "Working capital management ". This subject deals with the
short-term balance of current assets and current liabilities; the focus here is on managing
cash, inventories, and short-term borrowing and lending (such as the terms on credit
extended to customers).
The terms corporate finance and corporate financier are also associated with investment
banking. The typical role of an investment bank is to evaluate the company's financial
needs and raise the appropriate type of capital that best fits those needs.
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ROLE OF FINANCIAL ANALYSIS WITH THE HELP OF WORKING CAPITAL
MANAGEMENT
Working capital refers to that part of firms capital which is required for financing short
term or current assets such as cash, marketable securities, debtors, and inventories. In
other words working capital is the amount of funds necessary to cover the cost of operating
the enterprise.
Financial management decisions are divided into the management of assets (investments)
and liabilities (sources of financing), in the long-term and the short-term. It is common
knowledge that a firm's value cannot be maximized in the long run unless it survives the
short run. Firms fail most often because they are unable to meet their working capital
needs; consequently, sound working capital management is a requisite for firm survival.
About 60 percent of a financial manager's time is devoted to working capital management,
and many of the potential employees in finance-related fields will find out that their first
assignment on the job will involve working capital. For these reasons, working capital
policy and management is an essential topic for financial analysis. Working capital refers to
current assets, and net working capital is defined as current assets minus current liabilities.
Working capital policy refers to decisions relating to the level of current assets and the way
they are financed, while working capital management refers to all those decisions and
activities a firm undertakes in order to manage efficiently the elements of current assets.
Working capital, sometimes called gross working capital, simply refers to the firm's total
current assets (the short-term ones), cash, marketable securities, accounts receivable, and
inventory. While long-term financial analysis primarily concerns strategic planning,
working capital management deals with day-to-day operations.
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RATIOS ANALYSIS
Liquidity Ratios
1. Current Ratio
FORMULA = current asset s / current liabilities
Name Y ear 2006 Y ear 2007 Y ear 2008
Current Assets 418,961,027 395,702,747 518,597,390
Current Liabilities 282,390,563 240,205,345 307,703,547
Calculation 1.483:1 1.647:1 1.685:1
Int erpretation
This ratio shows the Short Term Liquidity of the company. If the ratio is greater than
unity it is satisfactory, if less than unity it shows that the company face Working Capital Or
Short Term Liquidity Problem. The above result shows that we have current assets
Rs.1.647 and Rs.1.685 to pay Rs.1 liability that is satisfactory condition in 2008 as
compared to year 2007.
2. Quick Ratio
FORMULA = current asset s - inventory
Current liabilities
0
100,000,000
200,000,000
300,000,000
400,000,000
500,000,000
600,000,000
Current Assets Current Liabilities
Year 2006
Year 2007
Year 2008
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Name Y ear 2006 Y ear 2007 Y ear 2008
Current Assets 418,961,027 395,702,747 518,597,390
Current Liabilities 282,390,563 163,818,967 233,112,330
Inventory 147,567,854 163,818,967 233,112,330
Calculation 0.961:1 0.965:1 0.927:1
INTERPRETATION
This ratio reflects the Immediate Liquidity Position of the company. If the percentage of
inventory in current assets is higher than acid-test ratio will be lower. The above result
shows that the acid test ratio in year 2007 & year 2008 are 41% and 44%, therefore in year
2008 the Immediate Liquidity Position is high so it is unsatisfactory while 2007 is
satisfactory.
3. Working Capital Ratio
FORMULA = current asset s - inventory
Name Y ear 2006 Y ear 2007 Y ear 2008
Current Assets 418,961,027 395,702,74
7
518,597,390
Current Liabilities 282,390,563 240,205,34
5
307,703,547
Calculation 136,570,464 155,497,4 210,893,84
0
100,000,000
200,000,000
300,000,000
400,000,000
500,000,000
600,000,000
Current Assets Current Liabilities Inventory
Year 2006
Year 2007
Year 2008
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02 3
INTERPRETATION
This ratio reflects the ability of the company to work. As per the above result shows
that the working capital of 2008 is more favorable for the company as compare to the 2006,
and 2007.
Leverage/Capital Ratios
4. Debt Ratio
FORMULA = Total Debt / Total Asset s
Name Y ear 2006 Y ear 2007 Y ear 2008
Total Debt 17,011,538 7,163,025 8,219,846
Total Assets 592,369,210 303,685,825 344,587,457
Calculation 0.028 0.023 0.023
0
100,000,000
200,000,000
300,000,000
400,000,000
500,000,000
600,000,000
Current Assets Current Liabilities Calculation
Year 2006
Year 2007
Year 2008
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INTERPRETATION
This ratio indicates the Capital Structure of the company. The capital structure of the
Company in the year 2007 was composed of 2% debt and 98% of equity. It remain same
in the year 2008.
5. Int erest Coverage Ratio
FORMULA = EBIT / Int erest
Name Y ear 2006 Y ear 2007 Y ear 2008
EBIT 60,195,217 27,118,753 44,780,000
Interest 18,429,195 15,647,972 11,075,034
Calculation 3.266 1.733 4.043
0
100,000,000
200,000,000
300,000,000
400,000,000
500,000,000
600,000,000
700,000,000
Total Debt Total Assets
Year 2006
Year 2007
Year 2008
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INTERPRETATION
This ratio reflects the companies ability to cover its interest. As per the above result shows
that the result of 2008 shows that the company is working at its full capacity as compare to
2006 and 2007.
6. Debt equity Ratio
FORMULA = Debt / Equity
Name Y ear 2006 Y ear 2007 Y ear 2008
Debt 17,011,538 7,163,025 8,219,846
Equity 292,967,109 296,522,800 336,367,611
Calculation 0.05 0.24 0.02
0
10,000,000
20,000,000
30,000,000
40,000,000
50,000,000
60,000,000
70,000,000
EBIT Interest
Year 2006
Year 2007
Year 2008
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INTERPRETATION
This ratio reflects the capital structure of the company is how efficient as per the above the
result shows that the debt 5% and 95% equity in 2006 and debt 24% and equity 76% in
2007. In 2008 the debt is 2% and equity is 98%. So 2008 is more favorable for the
company.
Profitability Ratios
7. Gross Profit Ratio
FORMULA = (Gross Profit / Sale) 100
Name Y ear 2006 Y ear 2007 Y ear 2008
Gross Profit 180,896,845 132,162,723 187,990,553
Sale 1,114,079,977 1,174,891,399 1,261,973,380Calculation 16.273% 11.248% 14.896%
0
50,000,000
100,000,000
150,000,000
200,000,000
250,000,000
300,000,000
350,000,000
400,000,000
Debt Equity
Year 2006
Year 2007
Year 2008
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INTERPRETATION
This ratio reflects the gross profit of the company. The above result shows that in year2007 & year 2008 the gross profit is 11.248% and 14.896%.
8. Net Profit Ratio
FORMULA = (Net Profit / Sale) 100
Name Y ear 2006 Y ear 2007 Y ear 2008
Net Profit 36,524,226 17,710,004 39,844,811
Sale 1,114,079,977 1,174,891,399 1,261,973,380
Calculation 3.278 1.507 3.157
0
200,000,000
400,000,000
600,000,000
800,000,000
1,000,000,000
1,200,000,000
1,400,000,000
Gross Profit Sale
Year 2006
Year 2007
Year 2008
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INTERPRETATION
This ratio reflects the profit generating ability of the company. As per the above result
shows 2006 is generating more profit as compare 2007 and2008.
9. Operating Profit Ratio
FORMULA = (Operating Profit / Sale) 100
Name Y ear 2006 Y ear 2007 Y ear 2008
Operating Profit 85,936,554 45,466,175 87,482,885
Sale 1,114,079,977 1,174,891,399 1,261,973,380
Calculation 7.713% 3.869% 6.932%
0
200,000,000
400,000,000
600,000,000
800,000,000
1,000,000,000
1,200,000,000
1,400,000,000
Net Profit Sale
Year 2006
Year 2007
Year 2008
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INTERPRETATION
This ratio shows that in year2007 and 2008 the operating profit ratio is 3.869% and6.932% while increment is 3.063% that is good for the company. The above result shows
that operating profit and net sale both are increased.
10. Return On Asset s
FORMULA = (Net Profit /Asset s)
Name Y ear 2006 Y ear 2007 Y ear 2008
Net Profit 36,524,226 17,710,004 39,844,811
Assets 592,369,210 303,685,825 344,587,457
Calculation 0.061 Times 0.05 Times 0.11 Times
0
200,000,000
400,000,000
600,000,000
800,000,000
1,000,000,000
1,200,000,000
1,400,000,000
Operating Profit Sale
Year 2006
Year 2007
Year 2008
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INTERPRETATION
This ratio indicates the profitability of the assets of the company. The above result showsthat if we invest Rs.1 in the Dynea Pakistan Ltd. Generating profit Rs. 0.05 in year 2007 and
Rs.0.11 in 2008.
11. Re
turn On Equity
FORMULA = (Net Profit /Equity) 100
Name Y ear 2006 Y ear 2007 Y ear 2008
Net Profit 36,524,226 17,710,004 39,844,811
Equity 292,967,109 296,522,800 336,367,611
Calculation 12.47 5.97 11.85
0
100,000,000
200,000,000
300,000,000
400,000,000
500,000,000
600,000,000
700,000,000
Net Profit Assets
Year 2006
Year 2007
Year 2008
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Int erpretation
This ratio reflects the ability of the company to generate profit. As per the above result
shows that if we invest 1 rupee in 2006 and get return on it 12.47 which is more
favorable for the company and also shows that company was working at its full capacity
in 2006.
Mark et/Shareholder Ratio
12. EPS Ratio
FORMULA = (Net Income /No. of Common Share)
Name Y ear 2006 Y ear 2007 Y ear 2008
Net Profit 36,524,226 17,710,004 39,844,811
Common Shares 592,369,210 303,685,825 344,587,457
Calculation 0.183 0.089 0.199
0
50,000,000
100,000,000
150,000,000
200,000,000
250,000,000
300,000,000
350,000,000
400,000,000
Net Profit Equity
Year 2006
Year 2007
Year 2008
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Int erpretation
This ratio reflects earning of the company on its shares. As per the above
result shows that if we invest 1 rupee in 2008 and get profit of 0.199 as
compare to 2006 and 2007.
13. Per Earning Ratio
FORMULA = (Mark et Price Per Share /Earning Per Share)
Name Y ear 2006 Y ear 2007 Y ear 2008
MP Share 5 5 5
EP Share 1.94 0.94 1.46
Calculation 2.577 5.319 3.424
Int erpretationthis ratio reflects the ability of the company that how much worth of the companys share in the market.
As per the above result shows that the market worth of company share in 2007 was 5.319 which is
more favorable for the company as compare to 2006 and 2008.
0
100,000,000
200,000,000
300,000,000
400,000,000
500,000,000
600,000,000
700,000,000
Net Profit Common Shares
Year 2006
Year 2007
Year 2008
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Activity/Operating Ratios
14. Account Receivable Turnover
FORMULA = (Net Credit Sale/Avg. Account Receivable)
Name Y ear 2006 Y ear 2007 Y ear 2008
Net Credit Sale 1,114,079,977 1,174,891,399 1,261,973,380
Avg.Account Receivable 19,683,288 8,626,949 53,469,215 Calculation 56.60 136.18 23.60
Int erpretation
This ratio reflects the company how quickly they collect its receivable. As per the above the
result shows that the company has the minimum duration to collect its receivable in 2008
which is more favorable than remaining years.
0
1
2
3
4
5
6
MP Share EP Share
Year 2006
Year 2007
Year 2008
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15. Avg. Collection Period
FORMULA = (No. of days in a Y ear /Account Receivable TurnOver )
Name Y ear 2006 Y ear 2007 Y ear 2008
No.of Days in a Year 365 365 365
AccountReceivableTurnOver 56.60 136.18 23.60
Calculation 7.21 2.68 15.46
Int erpretation
0
200,000,000
400,000,000
600,000,000
800,000,000
1,000,000,000
1,200,000,000
1,400,000,000
Net Credit Sale Avg.Account
Receivable
Year 2006
Year 2007
Year 2008
0
50
100
150
200
250
300
350
400
No.of Days in a
Year
AccountReceivable
TurnOver
Year 2006
Year 2007
Year 2008
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This ratio reflects how quickly the company is collecting its receivable according to the
above result shows that in 2007 company has minimum duration for collecting its
receivable which shows the management ability.
16. Account Payable Turnover
FORMULA = (Net Credit Purchase/Avg. Account Payable)
Name Y ear 2006 Y ear 2007 Y ear 2008
Net Credit Purchase 763,214,633 856,156,694 953,876,338
Avg.Account Payable 75,751,429 71,994,948 132,744,359
Calculation 10.075 11.89 7.185
Int erpretation
This ratio shows the goodwill of the company. According to the above result in 2008 its
payable duration is minimum as compare 2006 and 2007.
17. Avg. payment Period
FORMULA = (No. of Days in a Y ear/Account Payable TurnOver)
Name Y ear 2006 Y ear 2007 Y ear 2008
No.of Days in a Year 365 365 365
AccountRavableTurnOver 10.075 11.89 7.185
Calculation 36.228 30.698 50.800
0
200,000,000
400,000,000
600,000,000
800,000,000
1,000,000,000
1,200,000,000
Net Credit PurchaseAvg.Account Rayable
Year 2006
Year 2007
Year 2008
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Int erpretation
The above ratio shows the strength of the company. If company pays its debt in minimum
time than the company is working good above result shows that in 2007 its debt paying
capacity is minimum as compare to 2006 and 2008.
18. Inventory TurnOver
FORMULA = (CGS/Avg. Inventory)
Name Y ear 2006 Y ear 2007 Y ear 2008
CGS 933,183,132 1,174,891,399 765,596,765
Avg. Inventory 147,567,864 163,818,967 233,112,330
Calculation 6.323 7.172 3.284
0
50
100
150
200
250
300
350
400
No.of Days in a
Year
AccountRavable
TurnOver
Year 2006
Year 2007
Year 2008
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Int erpretation
This ratio shows that the if we 1 rupee in 2008 and get return of 3.284 as compare to 2006
and 2007 which shows that in 2008 company was getting maximum return on its
inventory.
19. Avg. age Of Inventory
FORMULA = (No. of Days in a Y ear/Inventory turn Over)
Name Y ear 2006 Y ear 2007 Y ear 2008
No.of Days in a Year 365 365 365
Inventory TurnOver 6.323 7.172 3.284
Calculation 57.72 50.89 111.14
0
200,000,000
400,000,000
600,000,000
800,000,000
1,000,000,000
1,200,000,000
1,400,000,000
CGS Avg. Inventory
Year 2006
Year 2007
Year 2008
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Inventory
This above ratio shows the average age of inventory of the company as the above result
shows that in 2007 average age of inventory of the company is 50.89 that is most favorable
as compare to other years.
20. Operating Cycle
FORMULA = (Avg. Collection Period + Avg. Age of Inventory)
Name Y ear 2006 Y ear 2007 Y ear 2008
ACP 7.21 2.68 15.46
Avg. Age of Inventory 57.2 50.89 111.14
Calculation 64.93 53.57 126.6
0
50
100
150
200
250
300
350
400
No.of Days in a
Year
Inventory TurnOver
Year 2006
Year 2007
Year 2008
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Int erpretation
This ratio shows that the working condition of the company as above result shows in 2007
the operating cycle of the company is 53.57 which is good as compare to other years.
21. Asset s Turnover
FORMULA = (Sale/Total Asset s)
Name Y ear 2006 Y ear 2007 Y ear 2008
Total Assets 592,369,210 543,891,170 652,291,004
Sale 1,114,079,977 1,174,891,399 1,261,973,380
Calculation 1.88 2.16 2.28
0
20
40
60
80
100
120
ACP Avg. Age of
Inventory
Year 2006
Year 2007
Year 2008
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Total assets Turnover (times) 1.88 2.16 2.28 2.106
Account Payable Turnover 10.075 11.89 7.185 9.716
Average Payment Period 36.228 30.698 50.800 39.242
Average Age of Inventory 57.72 50.89 111.14 73.25
Operating Cycle 64.93 53.57 126.6 81.7
Debt Ratio 0.028 % 0.023 % 0.023 % 0.024
Interest Coverage Ratio 3.266 1.733 4.043 3.014
Debt equity Ratio 0.05 0.24 0.02 0.103
Gross profit Margin 16.273% 11.248% 14.896% 14.139
ROA 0.61 0.05 0.11 0.256
ROE 12.47 5.97 11.85 10.096
EPS 0.183 0.089 0.199 0.157
PE Ratio 2.577 5.319 3.424 3.773
TIME SERIES ANALYSIS
Current Ratio Analysis
The average of 2008 is more then as compare to 2007 and 2006. So the ratio of 2008 is
favorable.
Quick Ratio Analysis
The quick ratio of 2008 is more then as compare to 2007 and 2006. So the ratio of 2008 is
favorable.
Inventory Turnover Ratio
The Inventory Turnover ratio of 2007 is more then as compare to 2006 and 2008. So the
ratio of 2007 is favorable.
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Average Collection Period
The Average Collection Period of 2007 is less then as compare to 2006 and 2008. So the
average collection period of 2007 is favorable and 2008 is unfavorable for average
collection period.
Total Asset s Turnover (times)
The total assets turnover (times) of 2008 is more then as compare to 2006 and 2007. So
the total assets turnover (times) of 2008 is favorable
Debt Ratio
The debt ratioof 2006 is less then as compare to 2007 and 2008. So the debt ratio of 2006
is favorable and 2007-8 is unfavorable for debt ratio.
Int erest Coverage Ratio
The Interest Coverage Ratio of 2008 is more then as compare to 2006 and 2007. So the
Interest coverage Ratio of 2008 is favorable.
Gross profit Margin
The Gross profit Margin of 2006 is more then as compare to 2007 and 2008. So the gross
profit margin of 2006 is favorable and 2007 is unfavorable for debt ratio.
Net Profit Margin
The Net Profit Margin of 2006 is more then as compare to 2007 and 2008. So the net profit
margin of 2006 is favorable and 2007 is unfavorable for debt ratio.
ROA
The ROA of 2007 is more then as compare to 2006 and 2008. So the ROA of 2007 is
favorable and 2006 is unfavorable for debt ratio.
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ROE
The ROE of 2006 is more then as compare to 2007 and 2008. So the ROE of 2006 is
favorable and 2007 is unfavorable for debt ratio.
Mark et/Book Ratio
The Market/Book Ratio of 2005 is more then as compare to 2006 and 2004. So the
Market/Book Ratio of 2005 is favorable and 2006 is unfavorable for debt ratio.
Working Capital Ratio
The working Capital of Year 2008 is more than as compare to 2006 & 2007.So the 2008 is
favorable & 2006 is unfavorable.
Debt Equity Ratio
The debt equity ratio of year 2008 is less as compared to 2007 & 2006. So 2008 is favorable
& 2007 is unfavorable for company.
Earnings Per Share
EPS of 2008 is more than other years which shows company is growing as compared to
previous years. So 2008 is more favorable while 2007 is less favorable.
Per Earning Ratio
The PE ratio of 2007 is more favorable for co. as compared to 2006 & 2008. In 2007 co.
showing more profit, in 2006 co. indicate less profit due to recession & other factors.
Receivable Turn Over
Receivable turn Over of 2008 is less than as compared to 2006 as well 2007, which meansin 2008 co. showing better condition with respect to last three years. So this year is more
satisfactory.
Account Payable Turn Over
Account payableturn Over of 2008 is less as compared to 2006 & 2007.Which means that
co. is trying to maintain its goodwill.
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Avg. Payment Period
Avg. Payment period of 2007 is less as compared to 2006 & 2008. Main reason for
decrease the avg. Payment period of 2008 is recession & inflation.
Avg. age of Inventory
Avg. age of inventory of 2007 is more favorable as compared to 2006 & 2008. In this year
the co. activities were its peak. The reason for increase avg. age of inventory of 2008 was
recession, inflation as well as political conditions in Pakistan.
Operating cycle
Operating cycle of 2007 is more favorable as compared to 2006 & 2008.