Financial Ratio Analysis and Company Performance Evaluation

This assignment presents a comprehensive ratio analysis of Argil's financial performance for the years 2014 and 2015. It computes and interprets various financial ratios, including current ratio, days sales outstanding, inventory turnover, fixed asset turnover, debt ratio, net profit margin, and return on assets. The analysis evaluates the company's profitability, efficiency, liquidity, and capital structure, comparing the trends between the two years and against industry standards. Furthermore, the assignment discusses the financial position of the company, highlighting areas of strength and weakness, and provides insights into potential improvements or deterioration in the future. Finally, it suggests additional information, such as government policies, consumer preferences, competitor analysis, and management expertise, that would be valuable for projecting the company's future financial position. This assignment is a great resource for students studying finance and accounting.

RATIO ANALYSIS
ARGIL
23/12/2015
Name Of Student:
.
a. Compute the 2014 values of the following ratios:

Ratio Calculation
Sr No Particular Formula 2014 2015
1 Current Asset ( Current Asset / Current Liability ) 3.62 times 3.79 times
2 Days Sales Outstanding (Receivable /Sales) *365 43.80 Days 41.71Days
3 Inventory Turnover (Average Inventory/cost of goods Sold)*365 82.13 Days 65.83Days
4 Fixed Asset Turnover (Net Sales/Average Net Fixed Asset) 3.95 times 4.00Times
5 Debt Ratio (Total Debt / Total Asset) 0.51 times 0.48 times
6 Net Profit Margin ( Net profit /Sales )*100 3.60% 4.11%
7 Return on Asset (Net Profit / Avarage Asset)*100 6.35% 7.66%
Formula View
Sr
No Particular Formula 2014 2015
1 Current Asset ( Current Asset / Current Liability ) =(235/65) =(201/53)
2 Days Sales Outstanding (Receivable /Sales) *365 =(90/750)*365 =(80/700)*365
3 Inventory Turnover (Average Inventory/cost of goods Sold)*365 =(135/600)*365 =(101/560)*365
4 Fixed Asset Turnover (Net Sales/Average Net Fixed Asset) =(750/190) =(700/175)
5 Debt Ratio (Total Debt / Total Asset) =(217/425) =(181/376)
6 Net Profit Margin ( Net profit /Sales )*100 =(27/750)*100 =(28.8/700)*100
7 Return on Asset (Net Profit / Avarage Asset)*100 =(27/425)*100 =(28.8/376)*100
(b. )
The financial position of the Argil’s is very strong, it is to be noted that the liquidity position of
the company is good as the current ratio is quite good, 3.79 times. Company can easily pay its
current debt by the liquid assets.
As far as profitability of the company is concern net profit margin is 4.11% which is nearer to
the industry average. Return on asset is 7.66% which is lower than industry average of 9.9% but
till on better position. Overall profitability ratio is lower in compare to industry but if we analyze
independently it is quite good.
The Days sales outstanding are 41.71 days as against industry standard of 33.5 days, Company
need to implement credit control policy. The fixed Asset turnover is 4 which is almost similar to
the industry standard. Overall efficiency ratio is nearer to the industry standard and
independently quite good.
48% of total asset of the company is financed by debt portion of the company as against industry
standard of 43%. We can say that debt is half of the weightage in relation to financing of the
asset.

Overall position of the company is quite good and can say nearer to industry standard
(c.)
The comparison of the financial position can be segmented in four areas (1) Profitability (2)
Efficiency (3) Liquidity (4) Capital Structure. The same are discussed below for in relation to
comparison of 2014 and 2015 ratio
Comment on Profitability
It is to be noted that the net profit margin for 2015 has decreased to 3.60% from 4.11% in 2014.
The Return on asset also shows the decreasing trend in 2015, the ratio has decreased to 6.35%
from 7.66%. Overall profitability situation is deteriorated during 2015 in comparison with 2014
Comment on Efficiency
The Days Sales outstanding ratio showed the loose credit control policy in 2015 in compare to
year 2014. In year the credit period was 41.71 days in the year 2014 which was increased to
43.80 days in the 2015. The Fixed Asset turnover ratio has slightly decreased to 3.95% in 2015
from 4% in 2014. Overall Efficiency of the company has decreased in 2015 in comparison to
2014 but on smaller base.
Comment Liquidity position
The current ratio of the company has decreased to 3.62 times from 3.79 times. We can says the
liquidity position of the company is good, however if we compare the same with year 2014, in
2015 it got deteriorated.
Capital Structure
The Debt portion has been increased to .51 in the year 2015 in compare to year 2014. Though the
company increased debt, the profitability of the company shown decreasing trend , which is not
good sign for the company.
Overall position of the company in the year 2015 got deteriorated in compare to 2014.
(d) What other information would be useful for projecting whether Argile’s financial position is
expected to improve or deteriorate in the future?
It should be noted that Ratio analysis is the only analysis of the past data , it does not take into
consideration the future prospect of the company and the effect of the decision taken in current

year and realizing benefit in the next year. Following are the information that may be useful for
projecting the financial position of the company.
(1) The upcoming Government policy and consumer preference towards the product of the
company.
(2) Current moves and decisions of the company that are taken in the interest of the
company.
(3) Analysis of competitor’s position and their market shares also helpful in projecting the
future position of the company.
(4) The experience and reliability of the management personal is very important.