ADDIS ABABA UNIVERSITY

School of Commerce

Department of Accounting and Finance

The Study on Financial Performance Using Ratio Analysis of Berhanena

Selam Printing Enterprise

In Partial Fulfillment of the Requirements for the Degree of Bachelor of Arts

in Accounting and Finance

Submitted by: TSION SHETAHUN WALE

BEE/3790/11 E3A3,

Tel: 09-41-135386

Submitted to: Instructor Worknesh

Submission Date: JUNE, 2022

 Certificate of Approval of Paper

ADDIS ABABA UNIVERSITY

School of Commerce

Department of Accounting and Finance

This is to certify that the paper entitled “The Study on Financial Performance
Using Ratio Analysis of Berhanena Selam Printing Enterprise, Addis Ababa
Ethiopia” and submitted in partial fulfillment of the requirements for the Degree
of Accounting and Finance complies with the regulations of the Addis Ababa
University School of Commerce and meets the accepted standards with respect to
originality and quality.

Name of Candidate:

1. Tsion Shetahun Signature: ------------------------ Date; -------------------

Name of Advisor:

Mrs. -Worknesh Tefera Signature --------------------- Date:-------------------

Department Head

Dakito Alemu (Phd) Signature ----------------------- Date: ------------------

Signature of Examiner’s:

1. --------------------------- Signature:------------------------ Date:-------------------

2. --------------------------- Signature:------------------------ Date;-------------------
 Declaration

I, the undersigned, declare that this study paper is my original work and has not
been presented for a degree award to Addis Ababa University and/or to any other
university or college.

Tsion Shetahun ID.No. BEE/3790/11 E3A3- Signature ------------------------

Date____
_______________

This study paper has been submitted for examination with my confirmation as a
supervisor to the candidate.

Advisor Signature Date

_________ ----------------- --------------

 ACKNOWLEDGMENTS

Above all I would like to thank the Almighty God and his mother Virgin Mary for keeping me in
life and health and giving me the courage to start and finalize this paper.

I am forever grateful and would like to extend my heartfelt thanks to my entire family: my father,
Shetahun Wale, my mother, Hirut Tsegiehana and brothers; Tensae and Daniel Shetahun ; for
their valuable supports and encouragement and also for their faith in my future achievement. I
thank you for everything you have done for me.

I also extend my gratitude and due respect for the assistance and valuable comments provided
by my advisor Mrs.Worknesh to make this research paper real and complete.

The researcher also acknowledges Berehanena Selam Printing Enterprise higher officials who
provide me the necessary support particularly Ato Debebe the enterprise’s General Accounts
Team Leader who facilitated and cooperated to get the required data from the enterprise..
 Contents
CHAPTER ONE..............................................................................................................................1
1. INTRODUCTION....................................................................................................................1
1.1 Background.......................................................................................................................1
1.2 Background of the Enterprise...........................................................................................2
1.3 Statement of the problem..................................................................................................2
1.4 Significance of the study...................................................................................................3
1.5 Scope of the study.............................................................................................................3
1.6 Limitations of the Study....................................................................................................3
1.7 Organization of the Study.................................................................................................4
CHAPTER II...................................................................................................................................5
2. Literature Review.................................................................................................................5
Tools of financial Performance Analysis.....................................................................................6
Ratio Analysis..............................................................................................................................6
2.1 Liquidity ratios..................................................................................................................7
2.1.1 Current ratio...............................................................................................................7
2.1.2 Quick ratio.................................................................................................................8
2.1.3 Other Liquidity Ratios...............................................................................................9
2.2 Debt Management Ratios/ Financial Leverage Ratios....................................................11
2.2.1 Debt ratio.................................................................................................................12
2.2.2 Times Interest Earned..............................................................................................13
2.3 Asset Management Ratios...............................................................................................13
2.3.1 Evaluating inventory................................................................................................13
2.3.2 Evaluating Receivables............................................................................................14
2.3.3 Evaluating Fixed Assets..........................................................................................15
2.3.4 Evaluating Total Assets...........................................................................................16
2.4 Profitability ratios...........................................................................................................16
2.4.1 Profit Margin............................................................................................................16
 2.4.2 Return on Assets (ROA)..........................................................................................17
2.4.3 Return on Equity (ROE)..........................................................................................17
2.5 Market Value Ratio.........................................................................................................18
2.5.1 Price–Earnings Ratio (PE Ratio)...........................................................................18
2.5.2 Market/Book Ratio (M/B).......................................................................................18
CHAPTER III................................................................................................................................19
3. Objective of the study.............................................................................................................19
3.1 General objective............................................................................................................19
3.2 Specific objectives..........................................................................................................19
CHAPTER IV................................................................................................................................20
4. Methodology..........................................................................................................................20
4.1 Study Area.......................................................................................................................20
4.2 Study design and period..................................................................................................20
4.3 Population, sample size and sampling technique............................................................20
4.4 Data collection procedures..............................................................................................20
4.5 Data source and types.....................................................................................................20
4.6 Data analysis technique...................................................................................................21
4.6.1 Ratio analysis...........................................................................................................21
4.6.2 Trend analysis..........................................................................................................21
4.7 Ethical consideration.......................................................................................................21
CHAPTER V.................................................................................................................................22
5. DATA ANALYSIS AND INTERPRETATION...................................................................22
5.1 Introduction.....................................................................................................................22
5.2 Financial Ratio Analysis.................................................................................................22
5.2.1 Liquidity Ratios.......................................................................................................22
5.2.1.3 Cash Ratio................................................................................................................27
5.2.2 Financial Leverage Ratio.........................................................................................31
5.2.3 Asset Management Ratio.........................................................................................33
5.2.4 Profitability Ratios...................................................................................................47
5.2.5 Market Value Ratios................................................................................................55
CHAPTER VI................................................................................................................................56
6. Findings, Conclusion and Recommendation..........................................................................56
6.1 Findings...........................................................................................................................56
6.1.1 Liquidity Ratios.......................................................................................................56
6.1.2 Financial Leverage Ratio.........................................................................................56
6.1.3 Asset Management Ratio.........................................................................................57
6.1.4 Profitability Ratios...................................................................................................58
6.2 Conclusion......................................................................................................................58
6.2.1 Liquidity position of the enterprise..........................................................................59
6.2.2 Leverage Position of the enterprise.........................................................................59
6.2.3 Profitability of the enterprise...................................................................................59
6.2.4 Assets Management of the enterprise......................................................................59
6.3 Recommendations...........................................................................................................60
REFERENCES..............................................................................................................................61
Annex

Financial Statements of the enterprise

 List of Tables

Table 5.1. Current Ratio................................................................................................................23

Table 5.2.Quick Ratio....................................................................................................................25
Table 5.3.Cash Ratio......................................................................................................................27
Table 5.4.Net Working Capital......................................................................................................29
Table 5.5.Debt to Equity Ratio......................................................................................................32
Table 5.6.Inventory Turnover Ratio..............................................................................................34
Table 5.7.Days’ Sales in Inventory................................................................................................37
Table 5.8.Receivables Turnover Ratio..........................................................................................39
Table 5.9. Days’ Sales in Receivables..........................................................................................41
Table 5.10.Fixed Assets Turnover Ratio.......................................................................................44
Table 5.11.Total Assets Turnover Ratio........................................................................................46
Table 5.12.Profit Margin Ratio......................................................................................................48
Table 5.13.Return on Assets..........................................................................................................50
Table 5.14.Return on Equity..........................................................................................................52
 List of Figures

Figure 5.1. Current Ratio...............................................................................................................24

Figure 5.2. Quick Ratio.................................................................................................................26
Figure 5.3. Cash Ratio...................................................................................................................28
Figure 5.4. Net Working Capital...................................................................................................30
Figure 5.5. Debt to Equity Ratio....................................................................................................33
Figure 5.6. Inventory Turnover Ratio............................................................................................35
Figure 5.7. Days’ Sales in Inventory.............................................................................................38
Figure 5.8. Receivables Turnover Ratio........................................................................................40
Figure 5.9. Days’ Sales in Receivables.........................................................................................43
Figure 5.10. Fixed Assets Turnover Ratio.....................................................................................45
Figure 5.11. Total Assets Turnover Ratio.....................................................................................47
Figure 5.12. Profit Margin Ratio...................................................................................................49
Figure 5.13. Returns on Assets......................................................................................................51
Figure 5.14. Returns on Equity......................................................................................................54
 CHAPTER ONE

1. INTRODUCTION
1.1 Background
Financial analysis helps to assess the profitability and financial position of a concern. This
analysis can be done by comparing the ratios for the same over a period of years, or for one
concern against the industry as a whole, or for the concern against as the predetermined
standards, or for just one department of the concern against the other departments of the same
concern.

Financial statement analysis is an extremely useful tool in understanding the financial

performance of any company. It allows determining a business’s current position with regards to
its commercial strengths and weaknesses. Financial statement analysis is a study about
accounting ratios among various items included in the balance sheet. These ratios include asset
utilization ratios, profitability ratios, leverage ratios, liquidity ratios, and valuation ratios.
Moreover, financial statement analysis is a quantifying method for determining the past, current,
and prospective performance of a company (Bruce Mackenzie, 2005).

A financial analysis assists in identifying the major strengths and weaknesses of a business
enterprise. It indicates whether a firm has enough cash to meet obligations; a reasonable accounts
receivable collection period; an efficient inventory management policy; sufficient plant,
property, and equipment; and an adequate capital structure (Moyer, McGuigan, Kretlow, 2005).

There are various tools and techniques in conducting financial performance analysis. (Pandey
2007; 515) explained that financial performance analysis uses ratio as a powerful tool. Ratios are
among the most popular and widely used tools of financial performance analysis for both internal
and external purpose; they are useful tools for management and as a guide to investors, creditors
and others.

For this study financial ratio analysis is considered as key tools to analyze the financial
performance of Berhanena Selam Printing Enterprise.

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 1.2 Background of the Enterprise
Berhanena Selam Printing Enterprise is governmentally owned printing enterprise which was
founded in September 1921. The enterprise provides both commercial and security printing
services. In commercial printing it offers book, magazine, and newspaper printing services, as
well as other printing services, including posters, cards, flyers, brochures, and agenda printing
services; and security printing services, such as lottery, bus and train tickets, bank cheque, pass
book, driving license, national exam, and certificate printing. It also provides sales services for
special printing products and stationary items, such as proclamations and negarit gazetas, decrees
and regulations, forms, writing pads, stationeries, and block notes, as well as civil, criminal,
commercial, and penal code and procedures.

The enterprise has also established printing technology college to offer both short term trainings
and Diploma Levels from level I to level III in printing technology and graphic design. The
enterprise has publishing unit to print educational supportive books for sale. The enterprise has
implemented IFRS accounting reporting system for the last five years. Its financial reports are
updated and audited by external auditors.(The enterprise’s web cite)

The enterprise has currently 930 permanent and 150 temporary and contract employees. Its
authorized capital is 1,528,700,000 and paid up capital is 1, 066, 737, 177.(The enterprise’s
audited report for the year 2021)

1.3 Statement of the problem

An enterprise’s financial performance status should be regularly checked because it indicates the
financial health of a business company. It enables the company to see whether the company is
profitable or not by comparing the current year performance to prior years’ performance and also
it helps to see whether the company’s financial performance is improving or declining and how it
is performing related to others companies in the same industry.

Berehanena Selam Printing enterprise it is working in printing industry. Although Berhanena

Selam Printing Enterprise’s financial performance is audited regularly and timely and notify the
financial statements to the public, it is realized that the enterprise is not making regular financial

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performance ratio analysis. But the enterprise makes annual performance review only to
determine its profitability by comparing with its annual budget and the previous year’s
performance. In order to see its financial performance of the enterprise, this study aims to
analyze the financial performance of by using financial ratios analysis techniques to examine the
effects of financial performance on the enterprise Liquidity, Leverage or debit management ,
asset management, profitability and market value ratios by analyzing the enterprise’s balance
sheet, profit and loss accounts.

1.4 Significance of the study

The aim of performing this study is to provide financial information for both internal and
external users including management of the enterprise, investors and creditors. The study will
enable to know the current status of enterprise and help to make decisions. The result of the
study can be used as input for further study and reference for other studies.

1.5 Scope of the study

The study covered the audited financial records of the enterprise’s annual reports of five years
from 2017 to 2021.financial operations of the enterprise. The study has been conducted with the
help of data obtained from audited financial statements. The study analyzed and measured the
financial performance of the enterprise by using performance evaluation indicators in relation to
liquidity, profitability and leverage by using financial analysis.

1.6 Limitations of the Study

The analysis of the study was based on annual reports of the enterprise in which the accuracy and
reliability of analysis depend on reliability of figures derived from financial statements.

There is also limitation to get similar studies in printing sector in our country. Since the
enterprise has no any records for its own industry average, it was difficult to make additional
comparison of the enterprise analysis findings with the printing industry average. Even though;
the study has the above limitation, the study tried to exert the maximum possible effort to reduce
the limitation by using horizontal and vertical analysis techniques. The study is limited to the
performance analysis of applying financial ratio analysis only.

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 1.7 Organization of the Study

The study has six chapters. The first chapter of the study deals with introduction and it contains
the background of the study and the company, statement of the problem, significance of the
study, scope and limitation of the study.

The second chapter covers the review of the literature discusses and examines recent research
studies and books as a basis for the purposed study. The third chapter deals with the objectives of
the study. The fourth chapter shows the methodology of the study.

The fifth chapter is the main body of the study and it deals with the analysis and interpretation of
the data. The sixth chapter shows the findings, conclusion and recommendation. It deals with the
description of the conclusion drawn based on the findings and the presentation of the
recommendations forwarded which is based on the conclusion drawn from the findings.

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 CHAPTER II
2. Literature Review
Generally managers use financial ratios to analyze a company's financial performance before
making a decision. Financial ratios reveal how a company is financed, how it uses its resources,
its ability to pay its debts and its ability to generate profit. Ratios provide a glimpse of a
company's position at a particular time, and are most useful when compared across time periods
and when comparing companies in the same industry.(Brigham, E., & Houston, J. 2009).

Ratio Analysis is one of the basic tools of financial analysis. It is an important tool in business
planning and decision making as it explores the strengths, weaknesses, opportunities and threats
facing the company (B.F Online, 2014). Ratios alone do not give a complete picture of a
company's investment potential, but they are a wise place to start the analysis (Young, 2014).

Nowadays, the financial analysis of an enterprise is one of the main prerequisites for successful
management of financial resources, and, according to several scientists, is one of the most
significant elements of financial management. A problem with using ratios as tools is that the
extant literature testing their value is limited. For example, there is little evidence that a capital
accumulation ratio of 0.7 is better than one of 0.3, or that the protection provided by holding 6
months of assets in liquid investments is worth the tradeoff in expected return (Harness,
Chatterjee, Finke, 2008).

Financial ratios allow for comparisons and, therefore, are intertwined with the process of
benchmarking, comparing one's business to that of others or of the same company at a different
point in time. In many cases, benchmarking involves comparisons of one company to the best
companies in a comparable peer group or the average in that peer group or industry. In the
process of benchmarking, investor identifies the best firms in their industry, or in another
industry where similar processes exist, and compares the results and processes of those studied to
one's own results and processes on a specific indicator or series of indicators (Boundless, 2014).

Financial statement analysis involves a study of the relationships between income statement and
balance sheet accounts, how these relationships change over time (Trend Analysis), and how a
particular firm compares with other firms in industry (Comparative Ratio Analysis). Although

5
financial analysis has limitations, when used with care and judgment, it can provide some very
useful insights into the operations of a company (Khan, Jain, 1993).

Ratio analysis is an important technique. It is a powerful tool of financial Analysis. It is defined

as “The indicated quotient of two mathematical expressions” and as “the relationship between
two or more things. Systematic use of ratio is to interpret the financial statement so that the
strength and weakness of a firm as well as its historical performance and current financial
condition can be determined. A ratio is only comparison of the numerator with the
denominator .The term ratio refers to the numerical or quantitative relationship between two
figures. Thus, ratio is the relationship between two figures and obtained by dividing a former by
the latter. Ratios are designed show how one number is related to another. The data given in the
financial statements are in absolute form and are dumb and are unable to communicate anything.
Ratios are relative form of financial data and are very useful technique to check upon the
efficiency of a firm. Some ratios indicate the trend or progress or downfall of the firm. (Drake, P.
(2010).

Tools of financial Performance Analysis

According to John.N.Meyer, “The financial statement provides summary of accounts of a
business enterprise, the balance sheet reflecting assets, liabilities and capital as on a certain date
and the income statement showing the result of operation during a certain period”. The financial
statements are prepared with a view to depict the financial position of the concern.

They are based on the recorded facts and are usually expressed in monetary terms. The financial
statement are prepared periodically that is generally for the accounting period. The term financial
statement has been widely used to represent two statements prepared by accountants at the end of
specific period. They are: Profit and loss a/c or income statement and balance sheet or statement
of financial position.

Ratio Analysis
Financial ratio can be designed to measure almost any aspect of a company performance. In
general analysts use ratio as tool in identifying areas of strength or weakness in a company.
Ratio; however tend to identify symptoms rather than problem (Pandey, 2007; 518).

6
According to Ross,Westerfield Jordan (2000) A ratio whose value is judged to be different or
unusually high or low may help identify significant event but will seldom provide enough
information in and of it, to identify the reasons for an event’s occurrence.

Major Categories of Financial Ratios

 Liquidity Ratios
 Debt Management Ratios /Leverage Ratios
 Asset Management Ratios
 Profitability Ratios
 Market Value Ratios

2.1 Liquidity ratios

Liquidity ratios are the ratios that measure a firm’s ability to pay off short-term debts to meet its
short term debt obligations. The liquidity ratios are a result of dividing cash and other liquid
assets by the short term borrowings and current liabilities. They show the number of times the
short term debt obligations are covered by the cash and liquid assets. They are useful for short-
term lenders.

Some analysts consider the debtors and trade receivables as relevant assets in addition to cash
and cash equivalents. The value of inventory is also considered relevant asset for calculations of
liquidity ratios by some analysts. Some Measures of Liquidity Include: Current ratio, Quick ratio
and Other Liquidity ratios. ( Ross,Westerfield Jordan. 2000)

2.1.1 Current ratio

Current ratio is balance-sheet financial performance measure of company liquidity. Current ratio
indicates a company's ability to meet short-term debt obligations. The current ratio measures
whether or not a firm has enough resources to pay its debts over the next 12 months.

The current ratio is balance-sheet financial performance measure of company liquidity. Potential
creditors use this ratio in determining whether or not to make short-term loans. The current ratio
can also give a sense of the efficiency of a company's operating cycle or its ability to turn its
product into cash. The current ratio is also known as the working capital ratio. The unit of
measurement is either dollars or times.

7
 a) Calculation (Formula)
The current ratio is calculated by dividing current assets by current liabilities:

The current ratio = Current Assets / Current Liabilities

Both variables are shown on the balance sheet (statement of financial position).

b) Interpretation
To a creditor, the higher the current ratio is the better. To the firm, a high current ratio indicates
liquidity, but it also may indicate an inefficient use of cash and other short-term assets. Absent
some extraordinary circumstances, we would expect to see a current ratio of at least 1 because a
current ratio of less than 1 would mean that net working capital (current assets less current
liabilities) is negative. This would be unusual in a healthy firm, at least for most types of
businesses. Current ratio of less than1 is undesirable but lenders commonly require a Current
ratio greater than 2.0.

The current ratio, like any ratio, is affected by various types of transactions. For example,
suppose the firm borrows over the long term to raise money. The short-run effect would be an
increase in cash from the issue proceeds and an increase in long-term debt. Current liabilities
would not be affected, so the current ratio would rise. Finally, note that an apparently low current
ratio may not be a bad sign for a company with a large reserve of untapped borrowing power.

2.1.2 Quick ratio.

The term quick ratio is also known as “Acid-test ratio”. The most basic definition of quick ratio
is that, “it measures current (short term) liquidity and position of the company”. To do the
analysis accountants weight current assets of the company against the current liabilities which
result in the ratio that highlights the liquidity of the company. .The proportion between quick
assets and current liability – Quick assets= Cash plus Receivables. It is a more conservative
measure of liquidity. ( Ross,Westerfield Jordan. 2000)

a) Formula:
Quick ratio = (Current Assets – Inventory) / Current liabilities

8
This concept is important as if the company’s financial statements (income statement, balance
sheet) get through the analysis of the acid-test ratio, then the short term debts can be paid by the
company.

b) Interpretation

Inventory is often the least liquid current asset. It’s also the one for which the book values are
least reliable as measures of market value because the quality of the inventory isn’t considered.
Some of the inventory may later turn out to be damaged, obsolete, or lost. More to the point,
relatively large inventories are often a sign of short-term trouble. The firm may have
overestimated sales and overbought or overproduced as a result. In this case, the firm may have a
substantial portion of its liquidity tied up in slow-moving inventory.

More to the point, relatively large inventories are often a sign of short-term trouble. The firm
may have overestimated sales and overbought or overproduced as a result. In this case, the firm
may have a substantial portion of its liquidity tied up in slow-moving inventory.

Notice that using cash to buy inventory does not affect the current ratio, but it reduces the quick
ratio. Again, the idea is that inventory is relatively illiquid compared to cash
(www.investopedia.com).

2.1.3 Other Liquidity Ratios

2.1.3.1 Cash Ratio
Cash ratio (also called cash asset ratio) is the ratio of a company's cash and cash equivalent
assets to its total liabilities. Cash ratio is a refinement of quick ratio and indicates the extent to
which readily available funds can pay off current liabilities. Potential creditors use this ratio as a
measure of a company's liquidity and how easily it can service debt and cover short-term
liabilities. Cash ratio is the most stringent and conservative of the three liquidity ratios (current,
quick and cash ratio). It only looks at the company's most liquid short-term assets – cash and
cash equivalents – which can be most easily used to pay off current obligations. A more
conservative measure of liquidity ( Ross,Westerfield Jordan. 2000)

9
 Formula
Cash ratio is calculated by dividing absolute liquid assets by current liabilities. It is the
proportion between quick assets and current liability.

Cash ratio = Cash and cash equivalents / Current Liabilities

Both variables are shown on the balance sheet (statement of financial position).

a) Interpretation
Cash ratio is not as popular in financial analysis as current or quick ratios, its usefulness is
limited. There is no common norm for cash ratio. In some countries a cash ratio of not less than
0.2 is considered as acceptable. But ratios that are too high may show poor asset utilization for a
company holding large amounts of cash on its balance sheet. How good or bad the ratio is
determined by the benchmark used.(www.investopedia.com)

2.1.3.2 Net Working capital

Net Working capital is the amount by which the value of a company's current assets exceeds its
current liabilities. It was also called net working capital. Sometimes the term "Net working
capital" is used as synonym for "current assets" but more frequently as "net working capital", i.e.
the amount of current assets that is in excess of current liabilities. Working capital is frequently
used to measure a firm's ability to meet current obligations. It measures how much in liquid
assets a company has available to build its business.

Working capital is a common measure of a company's liquidity, efficiency, and overall health.
Decisions relating to working capital and short term financing are referred to as net working
capital management. These involve managing the relationship between entities short-term assets
(inventories, accounts receivable, cash) and its short-term liabilities. ( Ross,Westerfield Jordan.
2000)

a) Formula
Working capital (net working capital) = Current Assets - Current Liabilities

Both variables are shown on the balance sheet (statement of financial position).

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 b) Interpretation
The larger this ratio the better the liquidity of a firm as a healthy firm should have a positive
NWC. The number can be positive (acceptable values) or negative (unsafe values), depending on
how much debt the company is carrying. Positive working capital generally indicates that a
company is able to pay off its short-term liabilities almost immediately. In general, companies
that have a lot of working capital will be more successful since they can expand and improve
their operations. Companies with negative working capital may lack the funds necessary for
growth. Analysts are sensitive to decreases in working capital; they suggest a company is
becoming overleveraged, is struggling to maintain or grow sales, is paying bills too quickly, or is
collecting receivables too slowly. Though in some businesses (such as grocery retail) working
capital can be negative (such business is being partly funded by its suppliers).
(www.investopedia,com)

2.1.3.3 Interval measure

Interval Measure (Defensive Interval): tells us for how long a firm can keep on paying for its
operating costs with existing resources Defensive Interval. The interval measure (or something
similar) is also useful for newly founded or start-up companies that often have little in the way of
revenues. For such companies, the interval measure indicates how long the company can operate
until it needs another round of financing. ( Ross,Westerfield Jordan. 2000)

Formula

Interval measure (Defensive Interval) = Current Asset/ Average Daily Operation Costs

a) Interpretation
The average daily operating cost for start-up companies is often called the burn rate, meaning the
rate at which cash is burned in the race to become profitable.

2.2 Debt Management Ratios/ Financial Leverage Ratios

Financial leverage tells us the extent of debt usage in a firm and the magnitude of its financial
risk. In other words, financial leverage ratios measure the long-term solvency of a firm-long term
debt paying ability of a firm. These ratios include debt ratio and times interest earned.(Ibid)

11
 2.2.1 Debt ratio

The total debt ratio takes into account all debts of all maturities to all creditors.

It measures the extent of debt usage/or How the firm’s assets are financed?

Total Debt Ratio The total debt ratio takes into account all debts of all maturities to all creditors.
It can be defined in several ways, the easiest of which is this:

Total debt ratio= Total assets - Total equity /Total Assets

• One variety is Total Debt Ratio (TDR): – TDR= Total Debt/Total Assets

Debt–equity ratio = Total debt/Total equity

Equity multiplier =Total assets/Total equity or (Total equity + Total debt)/Total equity

Frequently, financial analysts are more concerned with a firm’s long-term debt than its short-
term debt because the short-term debt will constantly be changing. Also, a firm’s accounts
payable may reflect trade practice more than debt management policy. For these reasons, the
long-term debt ratio is often calculated as follows:

Long-term debt ratio = Long-term debt /Long-term debt +Total equity

To complicate matters, different people (and different books) mean different things by the term
debt ratio. Some mean a ratio of total debt, some mean a ratio of long-term debt only, and,
unfortunately, a substantial number are simply vague about which one they mean. This is a
source of confusion, so we choose to give two separate names to the two measures. The same
problem comes up in discussing the debt–equity ratio. Financial analysts frequently calculate this
ratio using only long-term debt.

Another variety is Debt-Equity Ratio, or D/E ratio. – D/E ratio= Total Debt/Total Owners’
Equity

A related measure of the extent of use of financial leverage is Equity Multiplier (EM). – EM=
Assets/Equity or EM= 1 + D/E – Also, EM= 1/(1-D/A) =1/(E/A) – When D>0, EM is >1; When
D=0, EM=1. • The higher the equity multiplier the higher is the debt usage by a firm and the

12
greater its financial risk. The higher debt usage, the higher the financial risk and the greater
expected rate of return to the owners of a business. ( Ross,Westerfield Jordan. 2000)

2.2.2 Times Interest Earned

Another common measure of long-term solvency is the times interest earned (TIE) ratio. Once
again, there are several possible (and common) definitions, but we’ll stick with the most
traditional. As the name suggests, this ratio measures how well a company has its interest
obligations covered, and it is often called the interest coverage ratio.

Times interest earned ratio = Earnings before Income Tax (EBIT)/ Interest

Cash Coverage ratio

A problem with the TIE ratio is that it is based on EBIT, which is not really a measure of cash
available to pay interest. The reason is that depreciation, a noncash expense, has been deducted
out. Because interest is definitely a cash outflow (to creditors), one way to define the cash
coverage ratio is this: Cash coverage ratio = EBIT + Depreciation /Interest(Ibid).

2.3 Asset Management Ratios

The measures in this section are sometimes called asset utilization ratios .It measures the value of
a company's sales or revenues relative to the value of its assets The specific ratios we discuss can
all be interpreted as measures of turnover. What they are intended to describe is how efficiently
or intensively a firm uses its assets to generate sales. The higher the asset turnover ratio, the
more efficient a company is at generating revenue from its assets. so A relatively high turnover
is desirable. ( Ross,Westerfield Jordan. 2000)

2.3.1 Evaluating inventory

2.3.1.1 Inventory Turnover Ratio (ITR)

Inventory Turnover Ratio (ITR) is the rate at which a company replaces inventory in a given
period due to sales. It Measures how fast a company sells its inventory.

a) Formula
ITR= Cost of Goods Sold/Inventory

13
 b) Interpretation
There is no general norm for the inventory turnover ratio; it should be compared against industry
averages. A relatively low inventory turnover may be the result of ineffective inventory
management (that is, carrying too large an inventory) and poor sales or carrying out of-date
inventory to avoid writing off inventory losses against income. Normally a high number
indicates a greater sales efficiency and a lower risk of loss through un-saleable stock.

However, too high an inventory turnover that is out of proportion to industry norms may suggest
losses due to shortages, and poor customer-service. A high value for inventory turnover usually
accompanies a low gross profit figure. This means that a company needs to sell a lot of items to
maintain an adequate return on the capital invested in the company.(www.investopedia.com)

2.3.1.2 Days’ Sales in Inventory (DSI)

Days’ Sales in Inventory (DSI) - is a financial ratio that indicates the average time in days that a
company takes to turn its inventory, including goods that are a work in progress, into sales.

a) formula
DSI= 365 days/ITR or DSI= Inventory/Average Daily CGS

b) Interpretation
Inventory Turnover Ratio and Days’ Sales in Inventory are inversely related. The higher the ITR,
the better, since high inventory turnover typically means a company is selling goods quickly and
there is considerable demand for their products. Low inventory turnover, on the other hand,
would likely indicate weaker sales and declining demand for a company’s products. A high DSI
can indicate that a firm is not properly managing its inventory or that it has inventory that is
difficult to sell. The higher ITR and the lower DSI is desirable.(www.investopedia.com)

2.3.2 Evaluating Receivables

2.3.2.1 Receivable Turnover Ratio (RTR)

Receivable Turnover Ratio (RTR) - is measure used to quantify a company's effectiveness in

collecting its accounts receivable. It tells us how fast the company collects credit sales.

14
 a) Formula
RTR= Credit Sales/Receivables

2.3.2.2 Days’ Sales in Receivables (DSR):

Days’ Sales in Receivables (DSR): It measures the average collection period (ACP) for a credit
sale.

a) Formula
DSR= Receivable/Avg. Daily Credit Sales or DSR= 365 days/RTR

b) Interpretation
Receivable Turnover Ratio and Days’ Sales in Receivables are inversely related. A high
receivables turnover ratio may indicate that a company’s collection of accounts receivable is
efficient and that the customers pay their debts quickly. A low receivables turnover ratio could
be the result of inefficient collection. A high DSR number suggests that a company is
experiencing delays in receiving payments of credit sales. A low DSR indicates that the company
is getting its payments quickly. So the higher RTR and the lower DSR is desirable.
(www.investopedia.com)

2.3.3 Evaluating Fixed Assets

It is essential to evaluate how efficiently or productively a firm is using its fixed assets. A poplar
measure of this attribute is Fixed Asset Turnover Ratio (FATOR). ( Ross,Westerfield Jordan.
2000)

Formula

FATOR= Sales/Net Fixed Assets

a) Interpretation
A higher ratio implies that management is using its fixed assets more effectively. So high fixed
asset turnover ratio is desirable.(www.investopedia.com)

15
 2.3.4 Evaluating Total Assets

The overall efficiency in utilizing a company’s assets is measured by Total Assets Turnover
(TATO). ( Ross,Westerfield Jordan. 2000)

a) Formula
TATO= Sales/Total Assets

b) Interpretation
The higher the total asset turnover ratio, the better and the more efficiently you use
your asset base to generate sales so a relatively high value is desirable because it boosts profit.
(www.investopedia.com)

2.4 Profitability ratios

Profitability ratios are intended to measure how efficiently a firm uses its assets and manages its
operations. The focus in this group is on the bottom line, net income. Profit measures include
Profit Margin, Return on Assets (ROA) and Return on Equity (ROE). ( Ross,Westerfield Jordan.
2000)

2.4.1 Profit Margin

It is the percentage of sales that goes to net profit. All other things being equal, a relatively high
profit margin is obviously desirable. This situation corresponds to low expense ratios relative to
sales. However, we hasten to add that other things are often not equal. For example, lowering
our sales price will usually increase unit volume but will normally cause profit margins to shrink.
Total profit (or, more important, operating cash flow) may go up or down; so the fact that
margins are smaller isn’t necessarily bad. After all, isn’t it possible that, as the saying goes, “Our
prices are so low that we lose money on everything we sell, but we make it up in volume?”(Ibid)

a) Formula
Profit margin = Net income / Sales

16
 b) Interpretation
This tells us that in an accounting sense, the amount of cents/dollar that generates profit for every
dollar in sales. A relatively high profit margin is desirable. Beware in comparing firms that
significantly differ in business strategy and capital structure based on Profit Margin.
(www.investopedia.com)

2.4.2 Return on Assets (ROA)

Return on assets (ROA) is a measure of profit per dollar of assets. It is the average profitability
of investment in assets. ( Ross,Westerfield Jordan. 2000).

a) Formula
ROA= Net Income/Total Assets

Another technique can be used when firms significantly differ in capital and tax structure Basic
Earning Power (BEP). BEP= EBIT/Total Asset

b) Interpretation
The higher this value is the better.

2.4.3 Return on Equity (ROE)

Return on equity (ROE) is a measure of how the stockholders fared during the year. Because
benefiting shareholders is our goal, ROE is, in an accounting sense, the true bottom-line measure
of performance.

Because ROE and ROA are usually intended to measure performance over a prior period, it
makes a certain amount of sense to base them on average equity and average assets, respectively.
The rate of return on owners’ investment- that it is the value that matters to owners.
( Ross,Westerfield Jordan. 2000)

a) Formula
ROE= Net Income/ Total Equity

17
 b) Interpretation
For every dollar in equity, amount of cents in profit; but again this is correct only in accounting
terms.

2.5 Market Value Ratio

Measure or indicate how investors in the market regard/value the firm. They link book value
figures in the Financial Statements to market values.

Market value measures our final group of measures is based, in part, on information not
necessarily contained in financial statements—the market price per share of stock. Obviously,
these measures can be calculated directly only for publicly traded companies. An earnings per
share (EPS) is calculated by dividing the net income to shares outstanding.(Ibid)

EPS = Net income / Shares outstanding

Market value includes price-earnings and market/book ratios.

2.5.1 Price–Earnings Ratio (PE Ratio)

Price –earnings ratio indicates how much investors in the market are willing to pay per one birr
of earnings of the company. The first of our market value measures, the price–earnings (PE) ratio
(or multiple), is defined here: ( Ross,Westerfield Jordan. 2000)

PE ratio = Price per share /Earnings per share

2.5.2 Market/Book Ratio (M/B)

Tells us how much investors are will to pay on average for every birr of book equity.

a) Formula
M/B ratio= Price per share/Book value per share

b) Interpretation
Note that a relatively higher value is desirable for both P/E and M/B ratios as they show how
investors in the market regard or perceive the firm in question.(www.investopedia.com)

18
 CHAPTER III

3. Objective of the study

3.1 General objective

The general objective of the study is to analyze the financial performance of Berhanena Selam
Printing Enterprise by using financial ratios.

3.2 Specific objectives

In order to achieve the general objective, the study also has the following specific objectives:

 To analyze the liquidity, leverage and profitability ratio of the enterprise

 To analyze the management of assets in the enterprise
 To evaluate, interpret and identify the strengths and weakness of the enterprise
 To suggest conclusion and recommendations based on the findings.

19
 CHAPTER IV

4. Methodology

4.1 Study Area

The study area was in Arada subcity, wereda 09, at Berhanena selam printing enterprise

4.2 Study design and period

In this study both descriptive and analytical analyses have been used by the researcher to
describe the result of the analysis on financial statements. Both qualitative and quantitative data
have been used for the study. The study period was from April up to June 10, 2022.

4.3 Population, sample size and sampling technique

This study was mainly based on secondary data of the five years audited financial reports of the
enterprise from the year 2017 to 2021. For this purpose, the researcher has used judgmental
sampling technique.

4.4 Data collection procedures

The data has been collected from five years audited financial statements in the form of document
analysis. The documents include mainly balance sheet and income statements.

4.5 Data source and types

The secondary data has been used for the study. The audited annual financial reports for the
enterprise during the year 2017 to 2021 were the area of focuses as a source of secondary data.
The other sources like literatures from various books, journals and websites were also used as a
source of secondary data..

4.6 Data analysis technique

Financial ratios analyses were used for evaluating financial performance of the enterprise. The
researcher has used descriptive analysis technique through the use of the following basic
financial ratios:

20
 4.6.1 Ratio analysis

a) Liquidity ratio
b) Leverage ratio.
c) Asset management ratio
d) Profitability ratio
e) Market value ratio

4.6.2 Trend analysis

Trend analysis has been considered to evaluate performance of enterprise’s to compare present
ratios with past ratio. The data has been analyzed through table, graph and percentage.

4.7 Ethical consideration

The ethical approval for this study has been obtained from Addis Ababa university school of
commerce.

21
 CHAPTER V

5. DATA ANALYSIS AND INTERPRETATION

5.1 Introduction
Data analysis and interpretation is that the method of assigning meaning to the data collected and
determining the conclusions, significance, and implications of the findings. It is a crucial and
exciting step within the process of research. In most of the research studies, analysis follows data
collection.

Analysis and interpretation of financial statements are an attempt to determine the significance
and meaning of the financial statement data so that a forecast may be made of the prospects for
future earnings, ability to pay interest, debt maturities, both current as well as long term, and
profitability of sound dividend policy.

The main function of financial analysis is the pinpointing of the strength and weaknesses of a
business undertaking by regrouping and analysis of figures contained in financial statements, by
making comparisons of various components and by examining their content.

5.2 Financial Ratio Analysis

In this study the analysis of collected data is based on financial ratios. The financial ratios
include Liquidity ratios, Financial /Leverage ratios, Asset management ratios, Profitability ratios
and Market value ratios.

5.2.1 Liquidity Ratios

Liquidity ratios analyze the ability of a company to pay off both its current liabilities as they
become due as well as their long-term liabilities as they become current. In other words, these
ratios show the cash levels of a company and the ability to turn other assets into cash to pay off
liabilities and other current obligations. Liquidity is not only a measure of how much cash a
business has. It is also a measure of how easy it will be for the company to raise enough cash or
convert assets into cash. Assets like accounts receivable, trading securities, and inventory are
relatively easy for many companies to convert into cash in the short term. Thus, all of these

22
assets go into the liquidity calculation of a company. The most common liquidity ratios are
current ratio, quick ratio, cash ratio, and net working capital ratio.

5.2.1.1 Current Ratio

Current ratio is a measure of short-term liquidity. It is the proportion between current assets and
current liabilities.

Current Ratio = Current Asset / Current Liability

Table 5.1. Current Ratio

Year Current Current Current

Asset Liabilities Ratio

Sene 30,2009 E.C July 7,

2017 643,169,162 692,412,325 0.9289

Sene 30,2010 E.C July 7,

2018 745,914,232 184,509,895 4.0427

Sene 30,2011 E.C July 7,

2019 863,879,434 182,860,421 4.7243

Sene 30,2012 E.C July 7,

2020 848,971,444 119,035,441 7.1321

Sene 30,2013 E.C July 7,

2021 1,003,761,759 83,901,119 11.9636

23
 Current Ratio
1,200,000,000

1,000,000,000

800,000,000

600,000,000

400,000,000

200,000,000

0
Sene 30,2009 E.C Sene 30,2010 E.C Sene 30,2011 E.C Sene 30,2012 E.C Sene 30,2013 E.C
July 7, 2017 July 7, 2018 July 7, 2019 July 7, 2020 July 7, 2021

Current Ratio
14
11.9636
12

10

8 7.1321

6
4.7243
4.0427
4

2
0.9289

0
Sene 30,2009 E.C Sene 30,2010 E.C Sene 30,2011 E.C Sene 30,2012 E.C Sene 30,2013 E.C
July 7, 2017 July 7, 2018 July 7, 2019 July 7, 2020 July 7, 2021

Figure 5.1. Current Ratio

Analysis

24
From the above table information, current ratio was 0.9289, 4.0427, 4.7243, 7.1321 and 11.9636
for the past five budget years 2009,2010,2011,2012 and 2013 E.C consecutively. This shows
that current ratio has been continuously increasing from the previous year from 2009 to 2010E.C
by 335 %, from 2010 to 2011 E.C by 16.86 %, from 2011 to 2012 E.C by 50.96 % and from
2012 to 2013E.C by 67.74 %. The increment is continuous and huge.

Interpretation

The standard current ratio is to be at least 1 and above. Therefore, the enterprise’s current ratio
for 2009 was nearly one and for others years the enterprise has satisfied the standard and had
greater ratio. This shows that the enterprise has great borrowing and investment potential. It is
highly liquid company. It has no problem to meet current business obligations.

5.2.1.2 Quick or Acid-test Ratio:

It is to further evaluate liquidity. The quick or acid-test ratio is computed just like the current
ratio, except inventory is omitted.

Quick Ratio = Quick Assets / Current Liabilities

The enterprise’s quick ratio is calculated and presented in the following table.

Table 5.2.Quick Ratio

Quick Current Quick

Budget year Assets=Curren Liabilities Ratio
t Assets-
Inventories
Sene 30,2009 E.C 378,167,712 692,412,325 0.5462
July 7, 2017
Sene 30,2010 E.C 442803520 184,509,895 2.3999
July 7, 2018
Sene 30,2011 E.C 571,441,152 182,860,421 3.1250
25
 July 7, 2019
Sene 30,2012 E.C 463,942,048 119,035,441 3.8975
July 7, 2020
Sene 30,2013 E.C 638,004,736 83,901,119 7.6042
July 7, 2021

Quick Ratio
800,000,000

700,000,000

600,000,000

500,000,000

400,000,000

300,000,000

200,000,000

100,000,000

0
Sene 30,2009 E.C Sene 30,2010 E.C Sene 30,2011 E.C Sene 30,2012 E.C Sene 30,2013 E.C
July 7, 2017 July 7, 2018 July 7, 2019 July 7, 2020 July 7, 2021

Quick Ratio
8 7.6042

5
3.8975
4
3.125
3 2.3999

1 0.5462

0
Sene 30,2009 E.C July Sene 30,2010 E.C July Sene 30,2011 E.C July Sene 30,2012 E.C July Sene 30,2013 E.C July
7, 2017 7, 2018 7, 2019 7, 2020 7, 2021

26
 Figure 5.2. Quick Ratio

Analysis

In the analysis the quick ratio for the enterprise shows that in the year 2009 it was 0.5462, and
for the next four years it had 2.3999, 3.1250, 3.8975 and 7.6042 for the years 2010, 2011, 2012,
and 2013 consecutively. This shows that the enterprise’s quick ratio is increasing from year to
year.

Interpretation

The standard quick ratio is 1. The enterprise had below one quick ratio only for the 2009E.C year
but for other four years it has higher than the standard ratio. The liquidity position of the
enterprise’s asset is good to run the current operations.

5.2.1.3 Cash Ratio

Cash Ratio = Cash + Cash equivalent / Liabilities

Table 5.3.Cash Ratio

27
 Cash + Cash
Current
Budget Year Equivalent(Rece Cash Ratio
Liabilities
ivables)
Sene 30,2009 E.C
356,922,112 692,412,325 0.5155
July 7, 2017
Sene 30,2010 E.C
434,469,504 184,509,895 2.3547
July 7, 2018
Sene 30,2011 E.C
557,590,912 182,860,421 3.0493
July 7, 2019
Sene 30,2012 E.C
454,108,736 119,035,441 3.8149
July 7, 2020
Sene 30,2013 E.C
621,156,096 83,901,119 7.4034
July 7, 2021

Cash Ratio
800,000,000

700,000,000

600,000,000

500,000,000

400,000,000

300,000,000

200,000,000

100,000,000

0
Sene 30,2009 E.C Sene 30,2010 E.C Sene 30,2011 E.C Sene 30,2012 E.C Sene 30,2013 E.C
July 7, 2017 July 7, 2018 July 7, 2019 July 7, 2020 July 7, 2021

28
 Cash Ratio
8 7.4034

5
3.8149
4
3.0493
3
2.3547

1 0.5155

0
Sene 30,2009 E.C July Sene 30,2010 E.C July Sene 30,2011 E.C July Sene 30,2012 E.C July Sene 30,2013 E.C July
7, 2017 7, 2018 7, 2019 7, 2020 7, 2021

Figure 5.3. Cash Ratio

Analysis

In the analysis the cash ratio for the enterprise shows that in the year 2009 it was 0.5155, and for
the next three years it had 2.3547, 3.0493, 3.8149 and 7.4034 for the years 2010, 2011, 2012, and
2013 consecutively. This shows that the enterprise’s quick ratio is increasing from year to year.

Interpretation

The standard cash ratio is 1. The enterprise had below one which was 0.5155 only for the
2009E.C year but for other four years it has higher than the standard ratio. The liquidity position
of the enterprise’s asset is good to run the current operations.

5.2.1.4 Net Working Capital to Total Asset

Net Working Capital = Current Assets – Current Liabilities

Table 5.4.Net Working Capital

29
 NWC/
Current Current Net Working
Budget Year Total Assets Total
Assets (CA) Liabilities(CL) Capital(NWC)
Assets

Sene 30,2009 E.C

643,169,162 692,412,325 -49,243,200 938,560,976 -0.053
July 7, 2017

Sene 30,2010 E.C

745,914,232 184,509,895 561,404,352 1,059,897,295 0.5297
July 7, 2018

Sene 30,2011 E.C

863,879,434 182,860,421 681,019,013 1,182,174,556 0.5761
July 7, 2019

Sene 30,2012 E.C

848,971,444 119,035,441 729,936,003 1,165,601,685 0.6262
July 7, 2020

Sene 30,2013 E.C

1,003,761,759 83,901,119 919,860,640 1,310,529,932 0.7019
July 7, 2021

30
 Figure 5.4. Net Working Capital

Analysis

The analysis shows that the enterprise had -0.0525, 0.5297, 0.5761, 0.6262 and 0.7019(NWC)
for the years 2009, 2010, 2011, 2012 and 2013E.C consecutively. The amount has been
increasing from to year continuously.

Interpretation

The larger this ratio the better the liquidity of a firm as a healthy firm should have a positive
NWC. Since the enterprise had only negative NWC in 2009E.C and other four years positive
NWC, it is more liquid and healthy business enterprise. This means the enterprise could run its
operation without financial problem.

5.2.2 Financial Leverage Ratio

5.2.2.1 Debt to Equity Ratio (DR)

The debt-to-equity ratio is a financial, liquidity ratio that compares a company's total debt to total
equity. The debt-to-equity ratio shows the percentage of company financing that comes from

31
creditors and investors. A higher debt to equity ratio indicates that more creditor financing is
used than investor financing (shareholders).

The debt-to-equity ratio is calculated by dividing total liabilities by total equity. The debt-to-
equity ratio is considered a balance sheet ratio because all of the elements are reported on the
balance sheet.

Total Debt Ratio = Total Debt/Total Assets

Table 5.5.Debt to Equity Ratio

32
 Debt to
Total
Budget Year Total Equity Equity
Liability
ratio

Sene 30,2009 E.C

785,655,896 152,905,080 5.1382
July 7, 2017

Sene 30,2010 E.C

256,355,346 803,541,950 0.319
July 7, 2018

Sene 30,2011 E.C

234,728,263 947,446,293 0.2477
July 7, 2019

Sene 30,2012 E.C

119,035,441 1,046,566,244 0.1137
July 7, 2020

Sene 30,2013 E.C

142,099,106 1,168,430,826 0.1216
July 7, 2021

Debt to Equity ratio

1,400,000,000

1,200,000,000

1,000,000,000

800,000,000

600,000,000

400,000,000

200,000,000

0
Sene 30,2009 E.C Sene 30,2010 E.C Sene 30,2011 E.C Sene 30,2012 E.C Sene 30,2013 E.C
July 7, 2017 July 7, 2018 July 7, 2019 July 7, 2020 July 7, 2021

33
 Debt to Equity ratio
6
5.1382
5

1
0.319 0.2477 0.1137 0.1216
0
Sene 30,2009 E.C July Sene 30,2010 E.C July Sene 30,2011 E.C July Sene 30,2012 E.C July Sene 30,2013 E.C July
7, 2017 7, 2018 7, 2019 7, 2020 7, 2021

Figure 5.5. Debt to Equity Ratio

Analysis

The above table shows that the enterprise had 5.1382, 0.3190, 0.2477, 0.1137 and 0.1216 debt to
equity ratio for the years 2009, 2010, 2011, 2012 and 2013E.C years consecutively. This also
shows that the ratio of debt to equity was 5:1, 0.32:0.68, 0.25:0.75, 0.11:0.89, and 0.12:0.88.

Interpretation

The enterprise had used more creditors’ money in the year 2009E.C. But the amount of debt that
the enterprise had been using was decreasing for the last consecutive four years. This is because
of the growth rate of total debt is less than the growth rate of total asset. This indicates that the
enterprise’s trend showed financial strengthen by using more equity financing than debt
financing.

5.2.3 Asset Management Ratio

This ratio measures the enterprise’s efficiency and how the enterprise’s assets are used in
producing revenue. It includes evaluating of inventories, receivables and fixed assets.

34
 5.2.3.1 Evaluating Inventories

This evaluation includes inventory turnover ratio and days’ sales in inventory.

a) Inventory Turnover Ratio (ITR)

This ratio measures how fast the enterprise sells its inventory. It is calculated by dividing the cost
of goods sold to inventory.

ITR = Costs of Goods Sold/ Inventory

Table 5.6.Inventory Turnover Ratio

Inventory
Costs of
Budget Year Inventory Turnover
Goods Sold
Ratio
Sene 30,2009 E.C
286,347,081 265,001,432 1.0805
July 7, 2017
Sene 30,2010 E.C
230,963,409 303,110,734 7.6199
July 7, 2018
Sene 30,2011E.C
246,178,273 292,438,229 0.8418
July 7, 2019
Sene 30,2012 E.C
193,480,450 385,029,413 0.5025
July 7, 2020
Sene 30,2013 E.C
243,627,400 365,756,993 0.0667
July 7, 2021

35
 Inventory Turnover Ratio
450,000,000

400,000,000

350,000,000

300,000,000

250,000,000

200,000,000

150,000,000

100,000,000

50,000,000

0
Sene 30,2009 E.C Sene 30,2010 E.C Sene 30,2011E.C Sene 30,2012 E.C Sene 30,2013 E.C
July 7, 2017 July 7, 2018 July 7, 2019 July 7, 2020 July 7, 2021

Inventory Turnover Ratio

9

8 7.6199

2
1.0805 0.8418
1 0.5025
0.0667
0
Sene 30,2009 E.C July Sene 30,2010 E.C July Sene 30,2011E.C July Sene 30,2012 E.C July Sene 30,2013 E.C July
7, 2017 7, 2018 7, 2019 7, 2020 7, 2021

Figure 5.6. Inventory Turnover Ratio

Analysis

As it is shown in the above table, the inventory of Berhanena Selam Printing Enterprise has been
sold out and turned over 1.08, 7.62, 0.84, 0.50 and 0.07 times for the last five years of 2009,
2010, 2011, 2012 & 2013E.C respectively. This shows that the turnover ratio as compared to the

36
2009 base year, it was increased by 605 % for 2010 but it had a big and significant percentage of
decrease from year 2011 to 2013E.C.

Interpretation

This shows that the enterprise was able to turnover its inventory more efficiently in year 2009
and 2010 as compared with five years trend,. In general, on average the enterprise’s turnover of
its inventory was 2.0 times

b) Days’ Sales in Inventory (DSI)

This tells us how many days’ supply of goods, on average, the enterprise carries in its warehouse
at a time.

DSI= 365 Days/Inventory Turnover Ratio or

= inventory/Average Daily CGS

37
 Table 5.7.Days’ Sales in Inventory

Cost of Inventory Average Daily Day's

Budget Year Inventory Goods Sold Turnover CGS (Total Sales in
(CGS) Ratio CGS/365 Days) Inventory

Sene 30,2009 E.C

265,001,432 286,347,081 1.0805 784,513 377.8
July 7, 2017

Sene 30,2010 E.C

303,110,734 230,963,409 7.6199 632,776 479
July 7, 2018

Sene 30,2011 E.C

292,438,229 246,178,273 0.8418 674,461 433.58
July 7, 2019

Sene 30,2012 E.C

385,029,413 193,480,450 0.5025 530,083 726.4
July 7, 2020

Sene 30,2013 E.C

365,756,993 243,627,400 0.0667 667,472 547.9
July 7, 2021

38
 Day's sales in Inventory
450,000,000

400,000,000

350,000,000

300,000,000

250,000,000

200,000,000

150,000,000

100,000,000

50,000,000

0
Sene 30,2009 E.C Sene 30,2010 E.C Sene 30,2011 E.C Sene 30,2012 E.C Sene 30,2013 E.C
July 7, 2017 July 7, 2018 July 7, 2019 July 7, 2020 July 7, 2021

Day's sales in Inventory

800
726.4
700

600 547.9
479
500
433.58
377.8
400

300

200

100

0
Sene 30,2009 E.C Sene 30,2010 E.C Sene 30,2011 E.C Sene 30,2012 E.C Sene 30,2013 E.C
July 7, 2017 July 7, 2018 July 7, 2019 July 7, 2020 July 7, 2021

Figure 5.7. Days’ Sales in Inventory

Analysis

The table indicates that days’ sales inventory ratio was 377.8, 479.0, 433.6, 726.4 and 547.9 for
the years 2009, 2010, 2011, 2012 and 2013 respectively.

39
Interpretation

The enterprise’s average days’ sales inventory ratio was 513. It shows 27 % and 67 % increase
for the years 2010 and 2012 E.C but 10% and 25% decrease for the years 2011 and 2013 E.C
respectively. A high DSI can indicate that a firm is not properly managing its inventory or that it
has inventory that is difficult to sell. The higher ITR and the lower DSI is desirable.

5.2.3.2 Evaluating Receivables

In this evaluation and analysis the study has assessed how fast the enterprise has been collecting
its credit sales, To evaluate this, receivable turnover ratio and Day’s sales in receivable are used.

a) Receivable Turnover Ratio (RTR)

This ratio is used to evaluate how fast the enterprise is to collect its credit sales. It is calculated as
follows. It is noted that 85 % of total yearly sales is credit sales.

RTR = Credit Sales/Receivables

Table 5.8.Receivables Turnover Ratio

Credit RTR
Budget Year Total Sales Receivables
Sales(85%of (CS/Rec.)
Sene 30,2009 E.C
615,116,186 522,848,758 157,893,917 3.3114
July 7, 2017
Sene 30,2010 E.C
510,588,005 433,999,804 223,228,462 1.9442
July 7, 2018
Sene 30,2011 E.C
547,062,828 465,003,404 180,008,675 2.5832
July 7, 2019
Sene 30,2012 E.C
429,956,555 365,463,072 80,563,860 4.5363
July 7, 2020
Sene 30,2013 E.C
541,394,223 460,185,090 91,451,998 5.032
July 7, 2021

40
 Recivabel turnover ratio
6

5.032
5
4.5363

4
3.3114

3 2.5832

1.9442
2

0
Sene 30,2009 E.C July Sene 30,2010 E.C July Sene 30,2011 E.C July Sene 30,2012 E.C July Sene 30,2013 E.C July
7, 2017 7, 2018 7, 2019 7, 2020 7, 2021

Figure 5.8. Receivables Turnover Ratio

41
 Analysis

The above table shows that the enterprise’s receivable turnover ratio was 3.31, 1.94, 2.58, 4.54
and 5.03 for the years 2009, 2010, 2011, 2012 and 2013 E.C respectively. The average
receivable turnover ratio for the last five years was 3.48.

Interpretation

The analysis shows that the enterprise had high receivable turnover ratio. This implies that a high
receivables turnover ratio may indicate that a enterprise’s collection of accounts receivable is
efficient and that the customers pay their debts quickly.

b) Days’ Sales in Receivables (DSR)

This measures the average collection period for the credit sales. It is calculated by receivables to
average daily credit sales or 365 days to receivable turnover ratio.

DSR = Receivable / Average Daily Credit Sales Or

= 365 Days / Receivable Turnover Ratio (RTR)

Table 5.9. Days’ Sales in Receivables

Average DSR
Budget Year Receivable Credit Sales Daily credit RTR Rec/ 365
Sales (Credit Avg. days/RT
Sales/365 Daily R
days) Credit
Sales
Sene 30,2009
E.C July 7, 157,893,917 522,848,758 1,432,462 3.3114 110.22 110.22

42
 2017
Sene 30,2010
E.C July 7, 223,228,462 433,999,804 1,189,040 1.9442 187.74 187.74

2018
PSene
30,2011 E.C 180,008,675 465,003,404 1,273,982 2.5832 141.30 141.30

July 7, 2019
Sene 30,2012
E.C July 7, 80,563,860 365,463,072 1,001,269 4.5363 80.46 80.46

2020
Sene 30,2013
E.C July 7, 91,451,998 460,185,090 1,260,781 5.0320 72.54 72.54

2021

Day's sales in receivable

600,000,000

500,000,000

400,000,000

300,000,000

200,000,000

100,000,000

0
Sene 30,2009 E.C Sene 30,2010 E.C PSene 30,2011 E.C Sene 30,2012 E.C Sene 30,2013 E.C
July 7, 2017 July 7, 2018 July 7, 2019 July 7, 2020 July 7, 2021

43
 Day's sales in receivable
200 187.74
180

160
141.3
140

120 110.22

100
80.46
80 72.54

60

40

20

0
Sene 30,2009 E.C Sene 30,2010 E.C PSene 30,2011 E.C Sene 30,2012 E.C Sene 30,2013 E.C
July 7, 2017 July 7, 2018 July 7, 2019 July 7, 2020 July 7, 2021

Figure 5.9. Days’ Sales in Receivables

Analysis

The above table shows that the enterprise’s day’s sales in receivables ratio was 110, 188, 141,
80 and 73 for the years 2009, 2010, 2011, 2012 and 2013 E.C respectively. The average
receivable turnover ratio for the last five years was 118.

Interpretation

The analysis shows that the enterprise had a low day’ sales in receivables ratio. This implies that
a day’ sales in receivables ratio may indicate that the enterprise’s getting its payment is efficient
and that the customers pay their debts quickly. A high DSR number suggests that a company is
experiencing delays in receiving payments of credit sales. A low DSR indicates that the company
is getting its payments quickly.

44
 5.2.3.3 Evaluating Fixed Assets

It is essential to evaluate how efficiently or productively a firm is using its fixed assets. A poplar
measure of this attribute is Fixed Asset Turnover Ratio (FATOR).

FATOR= Sales/Net Fixed Assets

Table 5.10.Fixed Assets Turnover Ratio

Fixed
Budget Year Sales
FATOR
Assets
Sene 30,2009 E.C
615,116,186 288,878,842 2.1293
July 7, 2017
Sene 30,2010 E.C
510,588,005 307,365,191 1.6612
July 7, 2018
Sene 30,2011 E.C
547,062,828 312,801,025 1.7489
July 7, 2019
Sene 30,2012 E.C
429,956,555 307,746,183 1.3971
July 7, 2020
Sene 30,2013 E.C
541,394,223 296,315,135 1.8271
July 7, 2021

Fixed Asset turnover ratio

700,000,000

600,000,000

500,000,000

400,000,000

300,000,000

200,000,000

100,000,000

0
Sene 30,2009 E.C Sene 30,2010 E.C Sene 30,2011 E.C Sene 30,2012 E.C Sene 30,2013 E.C
July 7, 2017 July 7, 2018 July 7, 2019 July 7, 2020 July 7, 2021

45
 Fixed Asset turnover ratio
2.5
2.1293

2 1.8271
1.7489
1.6612

1.5 1.3971

0.5

0
Sene 30,2009 E.C Sene 30,2010 E.C Sene 30,2011 E.C Sene 30,2012 E.C Sene 30,2013 E.C
July 7, 2017 July 7, 2018 July 7, 2019 July 7, 2020 July 7, 2021

Figure 5.10. Fixed Assets Turnover Ratio

Analysis

The above table shows that fixed asset turnover ratio for the enterprise was 2.1, 1.7, 1.7, 1.4 and
1.8 for the year 2009, 2010, 2011, 2012 and 2013 E.C consecutively.

Interpretation

As it was shown in the above table, the enterprise’s FATO was decreased by 19% for the year
2010 and also the same for the 2011 and also decreased by 17 % for the 2012 and finally
increased by 29 % for the year 2013 E.C, The enterprise’s fixed asset turnover ratio looks
decreasing due to the decrease in sales. In general, the average fixed asset turnover ratio is 1.74
which implies that from the amount of 1 birr investment in fixed asset, the enterprise earns 1.74
birr in sales on average. This shows the company fixed asset turnover is in a good position.

5.2.3.4 Evaluating Total Assets

The overall efficiency in utilizing an enterprise’s assets is measured by Total Assets Turnover
(TATO).

TATO= Sales/Total Assets

46
 Table 5.11.Total Assets Turnover Ratio

Budget Year Sales Total Assets TATO

Sene 30,2009 E.C
July 7, 2017 615,116,186 938,560,976 0.6554

Sene 30,2010 E.C

July 7, 2018 510,588,005 1,059,897,295 0.4817

Sene 30,2011 E.C

July 7, 2019 547,062,828 1,182,174,556 0.4628

Sene 30,2012 E.C

July 7, 2020 429,956,555 1,165,601,685 0.3689

Sene 30,2013 E.C

July 7, 2021 541,394,223 1,310,529,932 0.4131

Total asset turnover

1,400,000,000

1,200,000,000

1,000,000,000

800,000,000

600,000,000

400,000,000

200,000,000

0
Sene 30,2009 Sene 30,2010 Sene 30,2011 Sene 30,2012 Sene 30,2013
E.C July 7, 2017 E.C July 7, 2018 E.C July 7, 2019 E.C July 7, 2020 E.C July 7, 2021

47
 Total asset turnover
0.7 0.6554

0.6

0.4817
0.5 0.4628
0.4131
0.4 0.3689

0.3

0.2

0.1

0
Sene 30,2009 E.C Sene 30,2010 E.C Sene 30,2011 E.C Sene 30,2012 E.C Sene 30,2013 E.C
July 7, 2017 July 7, 2018 July 7, 2019 July 7, 2020 July 7, 2021

Figure 5.11. Total Assets Turnover Ratio

Analysis

The above table information shows that the enterprise’s total asset turnover ratio for the last five
years was 0.7, 0.5, 0.5, 0.4 and 0.4 for the years 2009, 2010, 2011, 2012 and 2013 E.C. The ratio
has been slightly decreasing.

Interpretation

The TATO ratio of the enterprise was decreased by 29 % for 2010 and was the same for the year
2011 and also decreased by 20 % for the year 2012 and remained the same for the year 2013E.C.
This shows the total asset turnover decreases for the last four years. In general, from the amount
of Birr 1 investment in total asset the company earns only 0.5 birr in sales on average. This
indicates that the enterprise total asset turnover is in decreasing position and it needs additional
work to increase the volume of sales.

5.2.4 Profitability Ratios

These ratios are intended to measure how efficiently an enterprise uses its assets and manages its
operations. A firm’s profitability is affected by its success in managing its debts and assets.

48
 A variety of profitability measures are available. Mainly three ratios are considered in this
paper. They are Profit Margin, Return on Assets and Return on Equity.
a) Profit Margin (Net Profit Margin)

This ratio shows the percentage of sales that goes to net profit. Companies pay a great deal of
attention to their profit margins.

Profit Margin = Net Income / Sales

Table 5.12.Profit Margin Ratio

Budget Year Sales Net Income Profit

Margin

Sene 30,2009 E.C 615,116,18 177,439,111 0.2885

July 7, 2017 6

Sene 30,2010 E.C 510,588,00 138,139,452 0.2705

July 7, 2018 5

Sene 30,2011 E.C 547,062,82 143,904,344 0.2630

July 7, 2019 8

Sene 30,2012 E.C 429,956,55 99,119,951 0.2305

July 7, 2020 5

Sene 30,2013 E.C 541,394,22 121,864,582 0.2251

July 7, 2021 3
Figure 5.12.
Profit Margin Ratio

49
Analysis

From the above table the profit ratio of the enterprise was 0.29, 0.27, 0.26, 0.23 and 0.22 for the
year 2009, 2010, 2011, 2012 and 2013 E.C respectively. The profit margin of enterprise has
been slightly decreasing by 7 % from 2009 to 2010E.C, from 2010 to 2011 by 4 % , from 2011
to 2012 by 12 % and from 2012 to 2013E.C by 4 .

Interpretation

The average profit margin of the enterprise was 25 %. This indicates that the enterprise had
higher profit margin and was efficient in resource utilization .The enterprise has potential to
increase its sales volume by lowering its price and profit margin.

b) Return on Assets (ROA)

Return on assets (ROA) is a measure of profit per birr of assets. It is the average profitability of
investment in assets.

ROA= Net Income/Total Assets

Table 5.13.Return on Assets

Budget Year Net Income Total Assets ROA

Sene 30,2009 E.C July 7, 2017 177,439,111 938,560,976 0.1891

Sene 30,2010 E.C July 7, 2018 138,139,452 1,059,897,29 0.1303

5

Sene 30,2011E.C July 7, 2019 143,904,344 1,182,174,55 0.1217

6

Sene 30,2012 E.C July 7, 2020 99,119,951 1,165,601,68 0.0850

50
 5

Sene 30,2013 E.C July 7, 2021 121,864,582 1,310,529,93 0.0930

2

Return on Asset
1,400,000,000

1,200,000,000

1,000,000,000

800,000,000

600,000,000

400,000,000

200,000,000

0
Sene 30,2009 E.C Sene 30,2010 E.C Sene 30,2011E.C Sene 30,2012 E.C Sene 30,2013 E.C
July 7, 2017 July 7, 2018 July 7, 2019 July 7, 2020 July 7, 2021

51
 Return on Asset
0.2 0.1891

0.18

0.16

0.14 0.1303
0.1217
0.12

0.1 0.093
0.085
0.08

0.06

0.04

0.02

0
Sene 30,2009 E.C Sene 30,2010 E.C Sene 30,2011E.C July Sene 30,2012 E.C Sene 30,2013 E.C
July 7, 2017 July 7, 2018 7, 2019 July 7, 2020 July 7, 2021

Figure 5.13. Returns on Assets

Analysis

The above table shows that the enterprise’s ROA for the last five years was 0.19, 0.13, 0.12, 0.09
and 0.09 for the years 2009, 2010, 2011, 2012 and 2013 E.C respectively.

Interpretation

The average ROA of the enterprise was 12.4 % but it was in a decreasing trend. The enterprise’s
earning power is not sufficient and the company’s not utilize its asset efficiently. The return on
asset was very much low for all the years. The enterprise must take measures to improve the
situation. This indicates that the company was not efficient in resource utilization since the
portion of net income for sales is low. This may be because the company did not control cost and
expenses efficiently or the company’s gross profit margin on price is too low. Creating a higher

52
return can be achieved by cutting expenses and/or increasing the revenue but it is a very stiff task
for most of the companies

c) Return On Equity

It is the rate of return on owners’ investment. It is also the value that matters to owners. Return
on equity (ROE) is a measure of how the stockholders fared during the year. Because benefiting
shareholders is the goal of business. ROE is, in an accounting sense, the true bottom-line
measure of performance. ROE is usually measured as follows:

ROE= Net Income/ Total Equity

Table 5.14.Return on Equity

Budget Year Net Income Total Equity ROE

Sene 30,2010 E.C 177,439,111 152,905,080 1.1605

July 7, 2017

Sene 30,2011 E.C 138,139,452 803,541,950 0.1719

July 7, 2018

Sene 30,2012 E.C 143,904,344 947,446,293 0.1519

July 7, 2019

Sene 30,2012 E.C 99,119,951 1,046,566,244 0.0947

July 7, 2020

53
 Sene 30,2013 E.C 121,864,582 1,168,430,826 0.1043
July 7, 2021

Return on Equity
1,400,000,000

1,200,000,000

1,000,000,000

800,000,000

600,000,000

400,000,000

200,000,000

0
Sene 30,2010 E.C Sene 30,2011 E.C Sene 30,2012 E.C Sene 30,2012 E.C Sene 30,2013 E.C
July 7, 2017 July 7, 2018 July 7, 2019 July 7, 2020 July 7, 2021

Return on Equity
1.4

1.2

0.8

0.6

0.4

0.2

0
Sene 30,2010 E.C Sene 30,2011 E.C Sene 30,2012 E.C Sene 30,2012 E.C Sene 30,2013 E.C
July 7, 2017 July 7, 2018 July 7, 2019 July 7, 2020 July 7, 2021

Figure 5.14. Returns on Equity

54
Analysis

The analysis result in the above table shows that ROE of Berehanena Selam Printing Enterprise
has been 1.16, 0.17, 0.15, 0.09, and 0.10 for the years 2009, 2010, 2011, 2012 and 2013 E.C
respectively.

Interpretation

The enterprise’s ROE was continuously decreasing from year to year. The percentage of
decrease was 85 %, 11 %, 40 %, from year 2010 to 2012 E.C. This needs management focus and
improvement actions to increase ROE of the enterprise. Return on Equity should be compared
not only with the historical ROE of the company but also with the industry’s ROE. Looking
merely at ROE of the company can be misleading and hinder from getting a complete picture of
the enterprise.

5.2.5 Market Value Ratios

These ratios measure how the investors in the market regard or value the enterprise. They also
link book value figures in the financial statements to market values. These include Price per
Earning Ratio and Market/Book Ratio

a) Price/Earnings Ratio (P/E)

This indicates how much investors in the market are willing to pay per one birr of earnings of the
company.

P/E= Price per share/Earnings per share

b) Market/Book Ratio(M/B)

This tells us how much investors are will to pay on average for every birr of book equity.

M/B ratio= Price per share/Book value per share

55
These two measures are based on information not necessarily contained in financial statements
and measures can be calculated directly only for publicly traded companies.

Since Berehanena Selam Printing enterprise is state owned public enterprise, there is no
information regarding number of shares issued and sold. The analysis using these ratios was not
conducted due to unavailability of data and because of the nature of operation and ownership of
the enterprise.

CHAPTER VI

6. Findings, Conclusion and Recommendation

This part of the paper consists of the findings of the study based on the result of ratio analysis of
collected data in the previous chapter. It also includes the conclusion and recommendation of the
study based on the findings and objectives of the study. The financial performance of the
enterprise has been analyzed by evaluating the five years financial statements. From the financial
statement analysis using financial ratios in the previous part of the study, the following findings
are obtained.

6.1 Findings

6.1.1 Liquidity Ratios

 The Current Ratio of the enterprise’s for 2009 was nearly one and for others four years
it was greater than one. It is highly liquid company. It has no problem to meet current
business obligations.

56
  The enterprise’s quick ratio was below one only for the 2009E.C year but for other four
years it had more than one and higher ratio. It is above the standard and the liquidity
position of the enterprise’s asset is good to run the current operations.
 The enterprise’s cash ratio was below one which was 0.52 only for the 2009E.C year but
for the remaining other four years it was greater than one and higher. The enterprise is
more liquid to execute its current obligations.
 The larger the Net Working Capital is the better the liquidity of a firm. A healthy firm
should have a positive NWC. Since the enterprise had only negative NWC in 2009E.C
and other four years positive NWC, it is more liquid and healthy business enterprise. This
means the enterprise could run its operation without financial problem.

6.1.2 Financial Leverage Ratio

 The enterprise’s Debt to Equity Ratio (DR) ratio was above one. This shows that the
enterprise had used more creditors’ money in the year 2009E.C. But the amount of debt
that the enterprise had been using was drastically decreasing for the last consecutive four
years.

6.1.3 Asset Management Ratio

In this asset management evaluating; inventories, receivables, fixed assets and total assets ratios
are considered and the following findings are obtained.

 On average the enterprise’s inventory turnover ratio was 2.0 times. This shows that the
enterprise was able to turnover its inventory more efficiently in year 2009 and 2010 as
compared with five years trend,
 The enterprise’s average days’ sales inventory (DSI) ratio was 513. It shows 27 % and
67 % increase for the years 2010 and 2012 E.C but 10% and 25% decrease for the years
2011 and 2013 E.C respectively. A high DSI can indicate that a firm is not properly
managing its inventory or that it has inventory that is difficult to sell. The higher ITR and
the lower DSI is desirable. In the case Berehanena Selam Printing enterprise since it is
printing service on the basis of customers demand, the inventories are mainly related with
raw materials and inputs not finished goods for sale.

57
  The analysis shows that the enterprise had high receivable turnover (RTR) ratio. This
implies that a high receivables turnover ratio may indicate that a enterprise’s collection of
accounts receivable is efficient and that the customers pay their debts quickly.
 The analysis shows that, the enterprise had a low day’ sales in receivables (DSR) ratio.
This may indicate that the enterprise’s getting its payment is efficient and that the
customers pay their debts quickly. A high DSR number suggests that a company is
experiencing delays in receiving payments of credit sales. A low DSR indicates that the
company is getting its payments quickly.
 The enterprise’s Fixed Assets Turnover (FATO) was decreased by 19% for the year
2010 and also the same for the 2011 and also decreased by 17 % for the 2012 and finally
increased by 29 % for the year 2013 E.C, The enterprise’s fixed asset turnover ratio looks
decreasing due to the decrease in sales. In general, the average fixed asset turnover ratio
is 1.74 which implies that from the amount of 1 birr investment in fixed asset, the
enterprise earns 1.74 birr in sales on average.
 The Total Assets Turnover (TATO) ratio of the enterprise was decreased by 29 % for
2010 and was the same for the year 2011 and also decreased by 20 % for the year 2012
and remained the same for the year 2013E.C. This shows that the total asset turnover
decreases for the last four years. In general, from the amount of Birr 1 investment in total
asset the company earns only 0.5 birr in sales on average. This indicates that the
enterprise total asset turnover is in decreasing position and it needs additional work to
increase the volume of sales.

6.1.4 Profitability Ratios

In profitability evaluation Profit Margin, Return on Assets and Return on Equity are considered.

 The enterprise’s Profit Margin ranges from 23 to 29 % for the last five years. The
average profit margin of the enterprise was 25 %. This indicates that the enterprise had
higher profit margin and was efficient in resource utilization .The enterprise has potential
to increase its sales volume by lowering its price and profit margin.
 The enterprise’s Return on Assets (ROA) ranges from 9 to 19 % for the last five years.
The average ROA of the enterprise was 12.4 % but it was in a decreasing trend. The

58
 enterprise’s earning power is not sufficient and the company’s not utilize its asset
efficiently.
 The enterprise’s Return on Equity (ROE) was ranges from 10 to 17 % for the last five
years but it was continuously decreasing from year to year. The percentage of decrease
was 85 %, 11 %, 40 %, from year 2010 to 2012 E.C. This needs management focus and
improvement actions to increase ROE of the enterprise. Return on Equity should be
compared not only with the historical ROE of the company but also with the industry’s
ROE. Looking merely at ROE of the company can be misleading and hinder from getting
a complete picture of the enterprise.

6.2 Conclusion

As indicated in chapter III, the objective of the study is to analyze the financial performance of
the enterprise by evaluating liquidity, leverage, profitability and assets management using
financial ratios and identify strengths and weakness of the enterprise. Based on this objective and
findings mentioned above at 6.1, the researcher draws the following conclusion.

6.2.1 Liquidity position of the enterprise

Liquidity position of the enterprise is good because its

 Current and quick ratios are greater than one and above the standards
 Cash position of enterprise is adequate
 The enterprise has positive net working capital which enables to meet current
obligations and to run operations of the enterprise.
 Business is healthy because it is more liquid.

6.2.2 Leverage Position of the enterprise

Leverage Position of the enterprise is good because the amount of debt that the enterprise is
using is very low. This shows that the growth rate of total debt is less than the growth rate of
total asset. This indicates that the enterprise’s trend showed financial strengthen by using more
equity financing than debt financing.

59
 6.2.3 Profitability of the enterprise

The enterprise is profitable. Because

 Its profitability has been maintained for the last five years.
 The average profitability was greater than 25 % which is greater than the standards
(20 %)
 The average ROA of the enterprise was 12.4 % but it was in a decreasing trend.
 The enterprise’s ROE was ranges from 10 to 17 % for the last five years but it was
continuously decreasing from year to year.

6.2.4 Assets Management of the enterprise

The Assets Management of the enterprise is somewhat efficient but needs improvements.

 On average the enterprise’s inventory turnover ratio was 2.0 times.

 The days’ sales inventory (DSI) ratio was 513. It shows 27 % and 67 % increase for the
years 2010 and 2012 E.C but 10% and 25% decrease for the years 2011 and 2013 E.C
respectively. A high DSI can indicate that a firm is not properly managing its inventory.
 The enterprise had high receivable turnover (RTR) ratio.
 The enterprise’s fixed asset turnover ratio looks decreasing
 The total asset turnover ratio has been decreasing for the last four years.

6.3 Recommendations

The researcher proposes the following recommendations for the enterprise in order to sustain the
strengths and improve weaknesses.

 The enterprise has implemented IFRS accounting reporting systems and it has up to date
financial audited financial reports. These show the strength of the enterprise. They should
be sustained and continued.
 The enterprise should manage its excess cash and working capital for generating
additional income.

60
  The enterprise should practice effective management for its excess inventories.
 The enterprise must implement proper credit policy to manage well its receivables.
 Since the enterprise has low debt , it can borrow money for additional investment to
increase its income and profit
 The enterprise must take measures on improving sales.
 The enterprise should take proper measures to effective and efficient utilization of its
fixed and total assets to increase income and profit.
 Since the enterprise did not make detailed financial ratio analysis, the enterprise should
regularly make financial ratio analysis to take proper corrective management decisions
and also assess competitors’ performance and financial ratios in order to understand the
industry average and to compare its performance against industry average.

The overall financial performance of Berhanena Selam Printing enterprise was good. It should be
further strengthened.

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