Financial Statement Analysis

UMACLK-15-M FINANCIAL STATEMENT ANALYSIS
Exam Answer Sheet
Please type your answers below.
1. Analyse, comment on, and interpret (i) two profitability, (ii) two gearing, (iii) one
efficiency, (iv) one liquidity and (v) two investor related ratios which you feel will
help you to assess the position and performance of the company for the years
ending 31 December 2020 and 31 December 2019 only from the perspective of an
equity investor.
In your analysis you should include the ratios you have calculated.
Maximum word count: 800 words
Answer:
Profitability ratios
Ratios 2019 2020
Gross profit margin 7778 / 12486 * 100 =
62.29%
8435 / 13993 *100 =
67.55%
Net profit margin 3137 / 12486 * 100 =
25.12%
3014 / 13993 * 100 =
21.53%
Interpretation : in terms of gross profit which indicates the company’s profitability
after deducting those expenses which are associated with making and selling of the
products and thus shows the success of the management of the company in
generating sales by reducing the cost associated with various aspects involved in
producing final products. Thus here the company’s gross profit has improved by
approximately 3% which indicates management’s success in generating higher
revenue and accordingly higher profits.
Net profit ratio of the company has reduced due to increase in interest expense and
reduction in income derived from interest received from various investments. This
indicates that company’s non-operating activity has caused reduction in the
company’s profitability.
Gearing ratios
Ratios 2019 2020
Debt to equity ratio 13801 / 9407 = 1.47 15195 / 9159 = 1.66
Equity ratio
(shareholder’s equity /
total assets)
9407 / 32139 = 0.29 9159 / 31292 = 0.29
Debt equity ratio has been increased as compared to previous year which indicates
that company has include more of debt capital into its capital and accordingly
indicating higher financial risk for the company as an ideal ratio is 1:1.
Equity ratio of the company indicates how much of the company’s total assets has
been financed through equity capital raised by the company. This ratio is quite stable

for the company indicating that the company has similar financing technique for the
two years.
Efficiency ratio
Ratios 2019 2020
Fixed assets turnover
ratio (Net sales / average
fixed assets)
12486 / (33002+27106 /
2)
= 12486 / 30054 = 0.415
13993 / (27106 + 25978 /
2)
= 13993 / 26542 = 0.527
Efficiency of the company has increased has indicated by the fixed assets turnover
ratio which has increased in the current year as compared to previous year, therefore
indicating higher efficiency of the company in utilizing its assets towards generating
revenue for the company.
Liquidity ratio
Ratios 2019 2020
Current ratio 5033 / 8931 = 0.564 5314 / 6938 = 0.766
Liquidity of the company is not better as indicated by the lower ratio in both the years
which is below 2, as the ideal current ratio for any company is 2:1. But there is an
improvement in the company’s liquidity position in the current year as compared to
previous year as the current ratio has increased indicating company’s ability to meet
short term obligations has improved.
Investor’s ratio
Ratios 2019 2020
Price earnings ratio (price
per share / earnings per
share)
61.29 / -5.20 = -11.79 65.42 / 1.67 = 39.17
Dividend payout ratio
(dividend per share /
earnings per share)
1.75 / -5.2 = - 0.34 1.75 / 1.67 = 1.05
Price earnings ratio is negative in 2019 indicating that the company is not able to
return to share shareholder’s anything in terms of distributing profits. But the same
has improved in 2020 indicating that the company’s profitability has improved or its
non-operating expenses has reduced which allows for more profits available for
shareholders.
Dividend payout ratio has also improved and become positive in 2020 where it is more
than one indicating that the company is utilizing its retained earnings to distribute
dividends to shareholders.
2. Identify one political, one macroeconomic, one socio-cultural and one technology
factor that affect the company, and evaluate their impact on the company’s
financial position and performance.
Maximum word count: 800 words