Your All-in-One AI-Powered Toolkit for Academic Success.

Available 24*7 on WhatsApp / Email

Unlock your academic potential

© 2024 | Zucol Services PVT LTD | All rights reserved.

Added on 2023/01/13

|9

|1391

|46

AI Summary

This report provides a detailed analysis of liquidity ratios, profitability ratios, efficiency ratios, and investor ratios for two companies. It also includes recommendations for investment based on the findings.

Your contribution can guide someone’s learning journey. Share your
documents today.

REPORT

Need help grading? Try our AI Grader for instant feedback on your assignments.

TABLE OF CONTENTS

Report to Board of Directors for the substantial investments..........................................................1

(a) Liquidity ratios...........................................................................................................................4

(B) Profitability of Companies.........................................................................................................4

© Efficiency ratio............................................................................................................................5

(d) Investor ratio..............................................................................................................................5

REFERENCES................................................................................................................................7

Report to Board of Directors for the substantial investments..........................................................1

(a) Liquidity ratios...........................................................................................................................4

(B) Profitability of Companies.........................................................................................................4

© Efficiency ratio............................................................................................................................5

(d) Investor ratio..............................................................................................................................5

REFERENCES................................................................................................................................7

Report to Board of Directors for the substantial investments.

RATIO ANALYSIS

Particulars Formula Alpha Beta

Profitability Ratios

Return on

capital

employed

Net operating

profit/Employe

d Capital 15.14% 14.18%

Employed

Capital

Total assets –

Current

liabilities

(147000+1149

50)-53950 208000

(206000+1222

20)-127220 201000

Net operating

profit 31500 28500

Return on

Equity

Net Income /

Shareholder's

Equity 7.40% 12.44%

Net Income 11500 25000

Shareholder's

Equity 155500 201000

Gross profit

margin

Total Sales –

COGS/Total

Sales 20.00% 25.00%

1

RATIO ANALYSIS

Particulars Formula Alpha Beta

Profitability Ratios

Return on

capital

employed

Net operating

profit/Employe

d Capital 15.14% 14.18%

Employed

Capital

Total assets –

Current

liabilities

(147000+1149

50)-53950 208000

(206000+1222

20)-127220 201000

Net operating

profit 31500 28500

Return on

Equity

Net Income /

Shareholder's

Equity 7.40% 12.44%

Net Income 11500 25000

Shareholder's

Equity 155500 201000

Gross profit

margin

Total Sales –

COGS/Total

Sales 20.00% 25.00%

1

COS 336000 236250

Sales 420000 315000

Operating

profit margin

Operating

Income/ Net

Sales 7.50% 9.05%

Operating

income 31500 28500

Revenues 420000 315000

Assets

Turnover

Sales / Net

assets 270.10% 156.72%

Sales 420000 315000

Net assets 155500 201000

Liquidity Ratios

Current assets 114950 122220

Current

liabilities 53950 127220

Inventory 70875 79800

Quick assets 44075 42420

Current ratio

Current assets /

current

liabilities 2.13 0.96

Quick ratio

Current assets -

(stock +

prepaid

expenses) 0.82 0.33

2

Sales 420000 315000

Operating

profit margin

Operating

Income/ Net

Sales 7.50% 9.05%

Operating

income 31500 28500

Revenues 420000 315000

Assets

Turnover

Sales / Net

assets 270.10% 156.72%

Sales 420000 315000

Net assets 155500 201000

Liquidity Ratios

Current assets 114950 122220

Current

liabilities 53950 127220

Inventory 70875 79800

Quick assets 44075 42420

Current ratio

Current assets /

current

liabilities 2.13 0.96

Quick ratio

Current assets -

(stock +

prepaid

expenses) 0.82 0.33

2

Need a fresh take? Get an instant paraphrase of this document with our AI Paraphraser

Efficiency Ratios

Inventory 70875 79800

Debtors 44075 42420

Creditors 32530 81720

Days 365 365

COS 336000 236250

Sales 420000 315000

Inventory

days

Inventory/

COS*365 76.992 123.289

Debtor days

Debtor/

Sales*365 38.30 49.15

Creditor days

Creditor /

Sales*365 28.27 94.69

Investor Return

EPS

Total Earnings/

Outstanding

shares

Total

Earnings 11500 25000

Outstanding

Shares (in

millions) 8400 12800

EPS 1.369 1.95

3

Inventory 70875 79800

Debtors 44075 42420

Creditors 32530 81720

Days 365 365

COS 336000 236250

Sales 420000 315000

Inventory

days

Inventory/

COS*365 76.992 123.289

Debtor days

Debtor/

Sales*365 38.30 49.15

Creditor days

Creditor /

Sales*365 28.27 94.69

Investor Return

EPS

Total Earnings/

Outstanding

shares

Total

Earnings 11500 25000

Outstanding

Shares (in

millions) 8400 12800

EPS 1.369 1.95

3

Gearing Ratio

Long-term debt 52500 0

Shareholder's

equity 155500 201000

Debt-equity

ratio 0.34 0.00

(a) Liquidity ratios

Current ratio: Current ratio reflect firm capability to make payment of current liability on time

(Kamar, 2017). Current ratio value is 2.13 for Alpha and same is 0.96 for Beta. Thus, Alpha is

in much better condition than Beta and have double current asset then current liability.

Quick ratio: Quick ratio value for Alpha is 0.82 and same for Beta is 0.33. On this basis it

can be said that Alpha is stronger than Beta on this position. Alpha relative to beta is in position

to pay majority of portion of its current liability by using liquid assets.

(B) Profitability of Companies

Profitability ratios are calculated for assessing the financial performance of company.

The financial performance of the company can be measured using various ratios given for the

profitability like return on capital employed, return on equity, gross profit and net profit margin

ratio (Dicle, and Meyer, 2018).

Return on capital employed of alpha is 15.14% where the of Beta is 14.18% this show

that bot the companies are effectively utilising its resources for generating required return over

the investments made. Both the companies are showing good returns over the invested capital.

Return on equity of company of alpha is 7.40 % and that of beta is 12.44%. IT could be

interpreted that the investors are getting heigh returns in beta as compared with the alpha. This

shows the funds invested of investors are being used by company in generative productive

operations (Kamar, 2017).

Gross profit margin shows how effectively companies are carrying their operations

keeping the cost of sales to minimum. Companies are required to utilize effective strategies and

steps where they can minimise the costs and generate more profits. Alpha is having gross margin

4

Long-term debt 52500 0

Shareholder's

equity 155500 201000

Debt-equity

ratio 0.34 0.00

(a) Liquidity ratios

Current ratio: Current ratio reflect firm capability to make payment of current liability on time

(Kamar, 2017). Current ratio value is 2.13 for Alpha and same is 0.96 for Beta. Thus, Alpha is

in much better condition than Beta and have double current asset then current liability.

Quick ratio: Quick ratio value for Alpha is 0.82 and same for Beta is 0.33. On this basis it

can be said that Alpha is stronger than Beta on this position. Alpha relative to beta is in position

to pay majority of portion of its current liability by using liquid assets.

(B) Profitability of Companies

Profitability ratios are calculated for assessing the financial performance of company.

The financial performance of the company can be measured using various ratios given for the

profitability like return on capital employed, return on equity, gross profit and net profit margin

ratio (Dicle, and Meyer, 2018).

Return on capital employed of alpha is 15.14% where the of Beta is 14.18% this show

that bot the companies are effectively utilising its resources for generating required return over

the investments made. Both the companies are showing good returns over the invested capital.

Return on equity of company of alpha is 7.40 % and that of beta is 12.44%. IT could be

interpreted that the investors are getting heigh returns in beta as compared with the alpha. This

shows the funds invested of investors are being used by company in generative productive

operations (Kamar, 2017).

Gross profit margin shows how effectively companies are carrying their operations

keeping the cost of sales to minimum. Companies are required to utilize effective strategies and

steps where they can minimise the costs and generate more profits. Alpha is having gross margin

4

of 20% and beta of 25%. It could be analysed that alpha is having higher revenues than beta but

beta is more effectively managing its costs and generating higher gross margins.

Net profit margin of alpha is 7.50% where of beta is 9.05%. Net profit margin shows the

amount that is left with company after carrying out all the operations and activities. Ultimate

goal of every business is to earn higher profits. From the investor point of view beta is having

high return as compared with alpha despite of having higher revenues. Net profit margin can be

increased by increasing the sales and more effectively managing its cost operations

© Efficiency ratio

Asset turnover ratio: Asset turnover ratio indicate efficiency with which firm is making

effective use of current assets in the business (Zainudin and Hashim, 2016). Asset turnover ratio

of Alpha is 2.70 and same of Beta is 1.57. Former is utilizing asset in better way then latter one.

Inventory days: Inventory days ratio reflect number of days in which inventory convert into

sale (Williams and Dobelman,2017). Inventory days for Alpha is 76.92 and same for Beta is

123.28. It can be said that Beta is quickly selling its product in the market and due to this reason,

it is more efficient then Alpha on this front.

Debtor days: Debtor days indicate days in which payment is received from the debtors.

Debtor days value for Alpha is 38.30 and same for Beta is 49. This indicate that Alpha collect

payment from debtors quickly then Beta and due to this reason, it can be said that on this front

Alpha is in best position.

Creditor days: Creditor days reflect number of days in which payment is made to the

creditors. Creditor days for Alpha is 28.27 and same for Beta is 94.69. Facts revealed that Alpha

is quickly making payment to creditor’s then Beta and there is huge difference between value of

the ratios across the business firm. Hence, it can be said that Alpha in more efficient on this front

then beta.

(d) Investor ratio

EPS: EPS refers to the earning per share means amount that each unit of share hold by the

shareholder receive from income. EPS of Alpha is 1.369 and same of Beta is 1.95. this reflect

that shareholders of the Beta are receiving more return then Alpha on each unit of share they

hold.

5

beta is more effectively managing its costs and generating higher gross margins.

Net profit margin of alpha is 7.50% where of beta is 9.05%. Net profit margin shows the

amount that is left with company after carrying out all the operations and activities. Ultimate

goal of every business is to earn higher profits. From the investor point of view beta is having

high return as compared with alpha despite of having higher revenues. Net profit margin can be

increased by increasing the sales and more effectively managing its cost operations

© Efficiency ratio

Asset turnover ratio: Asset turnover ratio indicate efficiency with which firm is making

effective use of current assets in the business (Zainudin and Hashim, 2016). Asset turnover ratio

of Alpha is 2.70 and same of Beta is 1.57. Former is utilizing asset in better way then latter one.

Inventory days: Inventory days ratio reflect number of days in which inventory convert into

sale (Williams and Dobelman,2017). Inventory days for Alpha is 76.92 and same for Beta is

123.28. It can be said that Beta is quickly selling its product in the market and due to this reason,

it is more efficient then Alpha on this front.

Debtor days: Debtor days indicate days in which payment is received from the debtors.

Debtor days value for Alpha is 38.30 and same for Beta is 49. This indicate that Alpha collect

payment from debtors quickly then Beta and due to this reason, it can be said that on this front

Alpha is in best position.

Creditor days: Creditor days reflect number of days in which payment is made to the

creditors. Creditor days for Alpha is 28.27 and same for Beta is 94.69. Facts revealed that Alpha

is quickly making payment to creditor’s then Beta and there is huge difference between value of

the ratios across the business firm. Hence, it can be said that Alpha in more efficient on this front

then beta.

(d) Investor ratio

EPS: EPS refers to the earning per share means amount that each unit of share hold by the

shareholder receive from income. EPS of Alpha is 1.369 and same of Beta is 1.95. this reflect

that shareholders of the Beta are receiving more return then Alpha on each unit of share they

hold.

5

Need help grading? Try our AI Grader for instant feedback on your assignments.

Debt equity ratio: Debt equity ratio reflect the capital structure of the firm (Arkan, 2016). Value

of the ratio for the 0.34 and same for Beta is 0. Alpha is in better position than beta because latter

one has to pay heavy amount as dividend then former one. Hence, cost of capital is high in case

of Beta.

Investment must be made in Beta because its profitability is high and EPS is good. Moreover,

Beta cash management is also good as it is receiving amount from debtors earlier then payment

made to creditors. However, it is less efficient then Alpha but overall it can be said that it will be

better to invest in Beta.

6

of the ratio for the 0.34 and same for Beta is 0. Alpha is in better position than beta because latter

one has to pay heavy amount as dividend then former one. Hence, cost of capital is high in case

of Beta.

Investment must be made in Beta because its profitability is high and EPS is good. Moreover,

Beta cash management is also good as it is receiving amount from debtors earlier then payment

made to creditors. However, it is less efficient then Alpha but overall it can be said that it will be

better to invest in Beta.

6

REFERENCES

Books and Journals

Dicle, M.F. and Meyer, J., 2018. Financial Statement and Ratio Analysis: A Classroom

Perspective.

Williams, E.E. and Dobelman, J.A., 2017. Financial statement analysis. World Scientific Book

Chapters, pp.109-169.

Arkan, T., 2016. The importance of financial ratios in predicting stock price trends: A case study

in emerging markets. Finanse, Rynki Finansowe, Ubezpieczenia. 79(1). pp.13-26.

Zainudin, E.F. and Hashim, H.A., 2016. Detecting fraudulent financial reporting using financial

ratio. Journal of Financial Reporting and Accounting. 14(2). pp.266-278.

Bhavani, G., 2018. Financial Statements Analysis on Tesla. Academy of Accounting and

Financial Studies Journal.

Kamar, K., 2017. Analysis of the effect of return on equity (ROE) and debt to equity ratio (DER)

on stock price on cement industry listed in Indonesia stock exchange (IDX) in the year of

2011-2015. IOSR Journal of Business and Management. 19(05). pp.66-76.

7

Books and Journals

Dicle, M.F. and Meyer, J., 2018. Financial Statement and Ratio Analysis: A Classroom

Perspective.

Williams, E.E. and Dobelman, J.A., 2017. Financial statement analysis. World Scientific Book

Chapters, pp.109-169.

Arkan, T., 2016. The importance of financial ratios in predicting stock price trends: A case study

in emerging markets. Finanse, Rynki Finansowe, Ubezpieczenia. 79(1). pp.13-26.

Zainudin, E.F. and Hashim, H.A., 2016. Detecting fraudulent financial reporting using financial

ratio. Journal of Financial Reporting and Accounting. 14(2). pp.266-278.

Bhavani, G., 2018. Financial Statements Analysis on Tesla. Academy of Accounting and

Financial Studies Journal.

Kamar, K., 2017. Analysis of the effect of return on equity (ROE) and debt to equity ratio (DER)

on stock price on cement industry listed in Indonesia stock exchange (IDX) in the year of

2011-2015. IOSR Journal of Business and Management. 19(05). pp.66-76.

7

1 out of 9