Kedzie Kord Company’s Analysis

Group Assignment
Advance Financial Management
Group Members:
o BISMA Kamran (F18BB028)
o SABA HAFEEZ (F18BB032)
o ARSLAN AZAM (F18BB008)
o MUHAMMAD ALI (F18BB044)
Submitted to:
Dr. HIRA AFTAB
Submission Date:
11 October 2020

Institute of Business and Information Technology

University of the Punjab
Lahore
 LIQUIDITY RATIO
A liquidity ratio is a type of financial ratio used to determine a company's ability to pay its short-
term debt obligations.

 CURRENT RATIO:

YEAR CURRENT CURRENT KK COMPANY INDUSTRY
ASSETS LIABILITIE AVERAGE
S
20X1 63.8 33.8 1.88 0.80
20X2 57.0 42.3 1.34 0.80
20X3 63.3 44.1 1.43 0.80

TREND ANALYSIS:

Interpretation:
As current ratio of KK Company is stronger than industry it shows that the company has good
ability to cover its short term liabilities with its current assets.

 Acid-Test (Quick);

YEAR CURRENT CURRENT INVESTMENT KK INDUSTRY

ASSETS LIABILITIE S COMPANY AVERAGE
S
20X1 63.8 33.8 59.2 0.13 0.80
20X2 57.0 42.3 48.0 0.21 0.80
 20X3 63.3 44.1 47.9 0.34 0.80

TREND ANALYSIS:

Interpretation:
As the quick ratio of KK Company is weaker than the industry it shows that the company’s
ability to meet current liabilities with its most liquid assets is not good. Weak acid-test ratio
indicates a potential problem in the inventories account.

LEVERAGE RATIO
A leverage ratio is a financial measurement that looks at how much capital comes in the form of
loans and assesses the ability of a company to meet its financial obligations.
 DEBT TO EQUITY RATIO:

YEAR KK COMPANY INDUSTRY AVERAGE

20X1 0.69 0.80
20X2 1.09 0.80
20X3 1.09 0.80
 TREND ANALYSIS:

INTERPRETATION:
A lower obligation to value proportion shows a lower sum of obligation is taken by a firm to
meet its budgetary commitments which may be a great thing as in case of any misfortune the
firm may not be subject to higher potential hazard. A better proportion shows that the company
is getting more of its financing by borrowing cash and in case of misfortune it the firm will
endure a parcel.

DEBT TO ASSETS RATIO:

YEAR KK COMPANY INDUSTRY AVERAGE

2001 0.41 0.44
2002 0.52 0.44
2003 0.52 0.44
 DEBT TO ASSETS RATIO
0.6

0.5

0.4
Ratio Value 0.3

0.2

0.1 TREND
0
2001 2002 2003
Analysis Year

Debt to Total Assets Industry

ANALYSIS:

INTERPRETATION:
A debt to resource proportion of 0.4 or less than that's by and large considered to be great. In
20X1 the KK Company has the obligation to resource proportion superior than the industry
normal and it can create sufficient cash to benefit its obligation. Whereas in 20X2 and 20X3 the
company has borrowed more obligations and has made more on account buys so its long term
obligation and payables has been expanded which in turn comes about in expanding obligation to
resource proportion and the proportion is more prominent than 0.5 which appears that most of
the company's resources are financed through obligation.

TOTAL CAPITALIZATION:
YEAR KK COMPANY INDUSTRY AVERAGE

2001 0.62 0.26

2002 0.92 0.26
2003 0.93 0.26

TREND ANALYSIS:

Total Capitalization

1
0.9
0.8
0.7
Ratio Value

0.6
0.5
0.4
0.3
0.2
0.1
0 Interpretation:
2001 2002Year
Analysis
Total Capitalization Industry 2003
A add up to
capitalization
proportion of less than 1.0 demonstrates that the trade is in a solid position and the firm isn't
having any money related challenges to meet its obligation burden. The industry is in a
exceptional great add up to capitalization position.

COVERAGE RATIO
A coverage ratio is a measure of a company's ability to service its debt and meet its financial
obligations. The higher the  coverage ratio, the easier it should be to make interest payments on
its debt and pay dividends.

INEREST COVERAGE RATIO:

 YEAR KK COMPANY INDUSTRY AVERAGE

2001 14.38 4
2002 7.22 4
2003 7.70 4

TREND
Interest Coverage Ratio ANALYSIS:
16 Interpretation:
14
12 The intrigued scope
proportion measures
Ratio Value

10
8 the capacity of a
6 company to pay the
4 intrigued on its
2 exceptional
0
2001 2002 2003 obligation. A tall
Analysis Year proportion shows that
a company can pay
Interest Coverage Ratio Industry
for its intrigued cost a
few times over,
whereas a moo
proportion is a marker that a company may default on its credit installments.

Activity Ratios
An activity ratio is a type of financial metric that indicates how efficiently a company is
leveraging the assets on its balance sheet, to generate revenues and cash.

 Average Collection Period:

Year Calculated Ratio (Days) Industry Average (Days)
2001 60.40 45
2002 70.06 45
2003 90.44 45
Trend Analysis

Interpretation:
The above calculations appears that the capacity of the company to gather its accounts
receivable isn't productive as compared to the industry normal so the company ratio curve
is persistently moving upward which could be a terrible sign for company. So ready to
say that; a tall proportion may show the company does not have successful capability to
works on a cash premise. Company does not has quality clients that pay off their
obligations rapidly. A tall proportion appears a terrible credit approach and destitute
collecting process.

 Inventory Turnover:
Year Calculated Ratio(Days) Industry Average(Days)

2001 86.84 111

2002 85.74 111

2003 99.85 111
 Trend analysis:

Interpretation:
The KK Company’s execution within the graph as appeared isn't great since it is below the
mechanical normal. The Company isn't overseeing the stock successfully. So we may say that:
Low stock turnover proportion demonstrates the overloading, destitute promoting or a declining
request for the item. The low proportion is a pointer of awful stock administration which leads to
the moo request for the product

Total Asset Turnover:

Year Calculated Ratio Industry Average

2001 1.66 1.66

2002 1.66
1.45
2003 1.37 1.66
 Trend Analysis

Interpretation:
As the calculations is appearing at the conclusion of year 2001 the resources are appearing a
steady execution and at it has been gravely falling down a while later. So the company’s
resources have not apportioned viably. So the reasons may be; a low turnover proportion
demonstrates the resources have not being utilized effectively and successfully. If the resources
are not utilizing viably it implies producing deals will too influenced by this.

 Profitability ratios:

Year Gross Profit Industry

Margin Average
2001 28.04% 23.8 %
2002 25.60% 23.8 %
2003 26.50% 23.8 %
Trend analysis:

Interpretation:
Gross Profit Margin of KK Company is diminishing per year but it is more noteworthy than
industry normal which suggests that this company can make sensible benefit on deals. Moreover,
financial specialist tends to pay more for a company with higher net benefit. As GPM of KK
company is higher than industry normal so this company is more proficient.

 Net Profit Margin:

Year Net Profit Margin Industry Average

2001 4.95% 4.70%
2002 4.80% 4.70%
2003 4.67% 4.70%
Trend analysis:

Interpretation:
KK Company has marginally more prominent net profit margin than industry normal which
shows that company is more productive at changing over deals into genuine benefit. It too
appears that company is more compelling at fetched control. Besides, it tells financial specialist
that how well the company is performing its administration and operation.

 Return on Investment:
Year KK company Industry Average

2001 8.23% 7.80%

2002 6.96% 7.80%
2003 6.42% 7.80%
Trend analysis:

Interpretation:
KK Company has great ROI in 2001 but it diminishes after a long time and is lower
than industry normal which implies that
company isn't utilizing its assets base proficiently to produce sales.
 Return on equity:
Year Return On Equity Industry Average

2001 13.90% 14.04%

2002 14.51% 14.04%
2003 13.39% 14.04%

Trend Analysis

Interpretation:
Condition of ROE in 2001 is somewhat low than 2002 but it diminishes once more in
2003 and is lower than industry normal which suggests that KK company isn't utilizing
its investor’s reserves successfully and isn't able of creating cash inside and more
dependent on debt financing. This proportion ought to be higher.
 Common Size Analysis

Kedzie Kord’s Common Size Balance Sheet

Regular (in thousands) Common-size (%)
Assets 20X1 20X2 20X3 20X1 20X2 20X3
Cash 561 387 202 7.86 3.75 1.69
Receivables 1963 2870 4051 27.50 27.86 34.03
Inventories 2031 2613 3287 28.46 25.36 27.61
Current Assets 4555 5870 7540 63.83 56.99 63.34
Net Fixed Assets 2581 4430 4364 36.17 43.00 36.65
Total Fixed Assets 7136 10300 11904 100.0 100.0 100.0

Liability and Equity Regular (in thousands) Common-size (%)

Payables 1862 2944 3613 26.09 28.58 30.35
Accruals 301 516 587 4.21 5.00 4.93
Bank Loan 250 900 1050 3.50 8.73 8.82
Current Liabilities 2413 4360 5250 33.81 42.33 44.10
Long Term Debt 500 1000 950 7.00 9.70 7.98
Shareholder’s Equity 4223 4940 5704 59.17 47.96 47.91
Total Liabilities & Equity 7136 10300 11904 100.0 100.0 100.0

Interpretation:
The table above shows Kedzie Kord’s common size balance sheet. In assets cash has decreased
almost five times that in 20X1. The receivables have also increased in the past year. The
inventories have slightly decreased and there is not much change in current assets and net fixed
assets. Less cash and more receivables mean that Kedzie Kord is selling more on account than
cash.
The liability section of the balance sheet indicates a significant increase in payables, bank loans
and current liabilities. Long term debt and accruals have also increased a bit. The shareholder’s
equity on the other side has decreased by large which explains the increase of payables, bank
loans and liabilities.
 Kedzie Kord’s Common Size Income Statement
Regular (in thousands) Common-size (%)
20X1 20X2 20X3 20X1 20X2 20X3
Sales 11863 14952 16349 100.0 100.0 100.0
Cost of goods sold 8537 11124 12016 71.96 74.39 73.49
Selling, general, and 2276 2471 2793 19.18 16.52 18.18
administrative expenses
Interest 73 188 200 0.61 1.25 1.22
Profit before taxes 977 1169 1340 8.23 7.81 8.19
Taxes 390 452 576 3.28 3.02 3.52
Profit after taxes 587 717 764 4.94 4.79 4.67

Interpretation:
The common size income statement of Kenzie Kord’s shows that the sales have slightly
decreased. As the expenses have been reduced the cost of goods sold have also decreased. The
interest has doubled and the taxes slightly increased. Profits before and after taxes have reduced
owing to the rise of taxes and interest.
 Index Analysis
Kedzie Kord's Indexed Balance Sheet
  REGULAR (in thousands) INDEXED (%)
Assets 20X1 20X2 20X3 20X1 20X2 20X3
Cash 561 387 202 100.0 69.0 36.0
Receivables 1963 2870 4051 100.0 146.2 206.4
Inventories 2031 2613 3287 100.0 128.7 161.8
Current assets 4555 5870 7540 100.0 128.9 165.5
Net fixed assets 2581 4430 4364 100.0 171.6 169.1
Total assets 7136 10300 11904 100.0 144.3 166.8
             
Liability & Equity REGULAR (in thousands) INDEXED (%)
Payables 1862 2944 3613 100.0 158.1 194.0
Accruals 301 516 587 100.0 171.4 195.0
Bank loan 250 900 1050 100.0 360.0 420.0
Current liabilities 2413 4360 5250 100.0 180.7 217.6
Long term debt 500 1000 950 100.0 200.0 190.0
Shareholder's equity 4223 4940 5704 100.0 117.0 135.1
Total liabilities & equity 7136 10300 11904 100.0 144.3 166.8

Interpretation
The above table shows index analysis for the balance sheet of the company Kedzie Kord’s. In
this analysis the asset side shows decrease in the cash as compared to last two years. There is
apparent increase in the accounts receivables, inventory current and fixed assets over past two
years. Accounts receivables has been doubled in year 20X3 which means greater accounts
receivables have a purely positive effect on income statements, as they directly contribute to
current-period revenue of the company. In year 20X2 and 20X3 the KK company invested more
in inventory that is somewhat positive for company.On liability side large increase in accruels,
payables and other cuurent liabilities has been noticed. At the end increases in long-term debt
and shareholder’s equity helped the company to finance its operations through debts.
 Kedzie Kord's Indexed Income Statement
REGULAR (in thousands) INDEXED (%)
20X1 20X2 20X3 20X1 20X2 20X3
Sales 11863 14952 16349 100.0 126.0 137.8
Cost of goods sold 8537 11124 12016 100.0 130.3 140.8
Selling, general, and
2276 2471 2793 100.0 108.6 122.7
administrative expenses
Interest 73 188 200 100.0 257.5 274.0
Profit before taxes 977 1169 1340 100.0 119.7 137.2
Taxes 390 452 576 100.0 115.9 147.7
Profit after taxes 587 717 764 100.0 122.1 130.2

Interpretation
This indexed income statement shows that the sales of the company has been increased as
compared to year 20X1 and 20X2. Moreover there is a noticeable change in profit of the
company i.e. profit before and after taxes. The indexed income statement is same as common
size income statement in which each line item is expressed as a percentage of revenue or sales.
Common-size and index analysis is much easier to analyze a company over time and compare it
with its peers.

Summary Of Company Analysis

The Kedzie Kord company is not performing in 20X3 as it was in 20X1. During the recent two
years it has shown a negative trend. Its operations are mainly being financed by loans and debts
and keeping in view the current situation repaying these liabilities is a difficult task and it may
default unable to pay its principal payments. As the company has messed up its inventories
account and much capital being stuck in the inventory it is unable to meets its current liabilities
with most liquid assets. Company is meeting most of its financial needs through loans even the
assets are being mainly financed by loans if the situation continues to deteriorate it may suffer
loses. On the positive side it is not facing any money issues its operations are being financed.
The clients of the company are not reputable for paying there obligations quickly so the
company is unable to work on cash basis which shoes its weak collection process as there is
major decrease in cash in past two years.
The inventory has increased greatly but its turnover has decreased owing to poor stock
management. The resources are not being utilized to their potential. Goods are not being
produced and sold effectively. Returns on the investments being made are not up to the mark as
the investors’ reserves are not being efficiently used. Although the profits are decreasing
apparently but the statistics are promising which may attract new investors. As it is mostly being
financed by loans interest to be paid has doubled in the past two years and adding the rise in tax
leaves behind lesser share of profits. The company may get out of this situation and perform
better in coming years but at the moment investing in it seems a bit risky for new investors. It
does not have much capital which might come in handy if any misfortune befalls the company.
The stats show that company is struggling during this time period but a positive future can be
speculated.