Comparative Financial Ratio Analysis: Three Companies

This report provides a comprehensive financial analysis of three companies: Angostura Holdings Limited, National Flour Mills Limited, and West Indian Tobacco Company Limited. The analysis focuses on key financial ratios to assess the companies' performance across several areas, including liq...Read More

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Executive Summary
Financial analysis is the assessment of the three pillars of the business namely viability,
stability, profitability of the overall business. Ratio analysis, the part of the financial analysis is a
technique used by the management to provide an analysis of performance of the company either
on the basis of previous years or on the basis of similar companies performing in an industry.
Ratio analysis is a metric that is used to compare the transactions of the business on the basis of
various categories. These categories are profitability, liquidity, solvency and the efficiency of the
business. Overall assessment states that, Angostura Holdings Company is ahead and a right
choice for an investor to invest his funds.

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Table of Contents
Introduction.................................................................................................................................................4
Company Profiles.........................................................................................................................................4
Objective of the financial analysis and its important...................................................................................4
Ratio Analysis.............................................................................................................................................5
Conclusions and Recommendations............................................................................................................6
References...................................................................................................................................................7

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Introduction
Three companies have been analyzed in this report on the basis of the financial health of
the company to get an overall understanding of how well the companies are operating and what
changes are required to be made (Schroeder, Clark & Cathey, 2019).
Company Profiles
The West Indian Tobacco Company Limited was founded in the year 1904 and the same
was implemented by Mr. John Philips who is the founder of the company. National Flour mills
limited came into existence in the year 1972 and Angostura Holdings Limited was founded in
1824 which is leading rum producer.
Objective of the financial analysis and its important
Financial analysis is one of the best indicators for determining the performance of the
business on the comparative levels. The complete review is with respect to the assets and
liabilities. This also reveals the cash position of the company can be analyzed at the broader level
(Robinson, Henry, Pirie & Broihahn, 2015).
Importance of financial analysis
 Shareholders are the owners and time and again they are required to take the business
decisions, whether one shall invest in the business or not. The meaningful information
can be extracted with the help of the financial analysis.
 In order to initiate the process of the decision making financial analysis plays a vital role
as it helps to form a blur print of the organization.

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Ratio Analysis
With the help of the ratio analysis the company can figure out the trend of the ongoing
business. The operational efficiency of the business can also be decoded with the help of such
technique. The ratios that were used are determines below.
Liquidity
The liquidity position of the business is defines by current ratio as well as quick ratio.
The current ratio of the National Flour Mills Limited has the lowest liquidity and Angostura
Holdings Limited have the highest at 2.02 times and 9.82 times respectively. In terms of quick
ratio, Angostura still walks ahead of the rest two companies and this indicates, the company is
able to convert the cash and settle the liabilities faster and hence it is the most liquid company
(Goldmann, 2017).
Solvency
In terms of solvency the debt to equity ratio and times interest coverage ratio has been
identified in order to identify how much funds are acquired through debt and equity and whether
debt is payable by the company on time. The debt to equity ratio of Angostura Holdings Limited
is lowest at 0.07 and the same also fell down with respect to the previous years and on the other
hand, National Flour Mills were attracted towards debt more, but now they are focusing more
over the equity. Angostura Holdigns is inclined towards making fixed payments and hence, debt
is the right choice between all the three options (Gitman, Juchau & Flanagan, 2015).
Profitability
In the present scenario, net profit margin is outstanding in case of West India Tobacco
Company being 44.05% and Angostura Holdings is behind it at 16.58%. The pressure is on

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National Flour Mills as the profitability is just 5.25% due to higher operating costs. The highest
return has been received is in case of West India Tobacco Company whereas National Flour
Mills and Angostura Holdings Limited ranges from 4.17% as it fell down from previous year and
12.31% respectively. Overall, West India Tobacco Company is most profitable amongst all three
and Angostura can improve (Edwards, Schwab & Shevlin, 2015).
Efficiency
Efficiency is judged by accounts receivable ratio, inventory turnover ratio and accounts
payable ratio. This implies that inventory levels are lower for West India Company and highest is
1.05 for Angostura Company. The cliché is the cash is collected and the payables are not paid at
all by West India which is crucial. In case of receivables turnover ratio Angostura takes
maximum times as National Flour Mills Limited at .0.33 times. This also implies that Angostura
is efficient amongst all three as the period is declining in all the three cases (Chiaramonte &
Casu, 2017).
Conclusions and Recommendations
From the overall analysis it can be concluded that Angostura Holdings Limited is the
right choice, but efficiency needs to be improved. Angostura Holdings can increase the net profit
margins by increasing the prices to competitive level. On the other hand, National Flour Mills
Limited can improve by reducing the operating costs and utilizing the assets in the efficient
manner.

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References
Chiaramonte, L. & Casu, B., (2017). Capital and liquidity ratios and financial distress. Evidence
from the European banking industry. The British Accounting Review, 49(2), 138-161.
Edwards, A., Schwab, C., & Shevlin, T. (2015). Financial constraints and cash tax savings. The
Accounting Review, 91(3), 859-881.
Gitman, L.J., Juchau, R. & Flanagan, J., (2015). Principles of managerial finance. Sydney:
Pearson Higher Education AU.
Goldmann, K., (2017). Financial liquidity and profitability management in practice of polish
business. In Financial Environment and Business Development, UK: Springer, 103-112.
Robinson, T.R., Henry, E., Pirie, W.L. & Broihahn, M.A., (2015). International financial
statement analysis. UK: John Wiley & Sons.
Schroeder, R. G., Clark, M. W. & Cathey, J. M. (2019). Financial accounting theory and
analysis: text and cases. UK: John Wiley & Sons.