ASSIGNMENT COVER PAGE

Assignment:

Ratio Analysis
( Porfitablity Ratio )

SUBJECT:

Analysis of Financial
Statements

COURSE:

MBA 2011

STUDENT NAME:

1.Muhammad Farooq
2.Mohsin Aziz
3.Noman Lashari
4.Zohaib Azhar
5.Khurram Mengal

Submitted to :

Sir Arif

Due date:

July 5, 2011

Sr#

Description

Data

The Company

Condensed Income Statement

National Foods Limited

A. Net sales
B. Gross profit
C. Operating profit
D. Profit before tax
Net profit

Condensed Balance Sheet

2006
1,847,700
571,263
133,393
106,471
70,364
2006
595518
6568
365,874

2007
2,391,058
818,484
213,285
191,722
129,292
2007
689,469
691,476
493,444

2008
3,061,746
985,777
285,691
233,947
156,546
2008
1,104,692
1,106,700
635,325

3,758,706
1,126,451
308,677
220,702
139,461
2009
1,256,941
1,258,950
614,004

Total assets

2009

708,731

967960

1,188,458

1,746,655

1,911,776

A. Total short-term liabilities

435491
11,808
78,331
525,630

514710
11,467
526,177
1,052,354

626,815
35,357
662,172
1,324,344

1,033,710
70,758
1,104,468
2,208,936

1,115,911
3,027,687
4,143,598
655,386

Total liabilities and owner's

708,731

967960

1,188,458

1,746,655

1,911,776

Profitability Ratio
1. Gross Profit Margin
Gross Profit
Net Sales
Years

2005

2006

2007

2008

2009

Gross Profit

397,152,000

571,263,000

818,484,000

985,777,000

1,126,451,000

Net Sales

1,533,879,000

184,770,000

2,391,058,000

3,061,746,000

3,758,706,000

2005
2006
2007
Gross Profit Margin
26%
31%
34%
Values in % Age

2005
1,533,879
397,152
57,021
42,271
30,653
2005
475,727
477,732
226,575

40%
35%
30%
26%
25%
20%
15%
10%
5%
0%
2005

31%

34%

32%

2008
32%

30%
Series1
Series2
Series3
Series4

2006

2007
Years

2008

2009

Series5

2009
30%

Interpretation:
The ratio tends to rise whenever cost of goods sold decreases and gross profit rise and
when sales decreases. Gross profit margin decline because of number of factors like when
selling prices have declined due to competition, when cost of buying inventory increases
more rapidly than selling prices, when sales are not recorded (the cost of goods sold
figure in relation to the sales figure is very high).
Greater this ratio greater will be firm profitability. this ratio has increased from 2005 to
2007 and than decreased in 2008 and 2009.this ratio shows highest profitability in 2007.
The reason behind decrease in 2008 and 2009 is that cost of good sold has increased and
gross profit has decreased,

2. Operating Profit Margin

2005

Operating Profit
Net Sales

2006

2007

57,021.000

133,393,000

213,285,000

285,691,000

308.677,000

1,533,879,000

184,770,000

2,391,058,000

3,061,746,000

3,758,706,000

2005
3.7%

2006
7.2%

Operating Profit Margin

Values In % Age

10.00%
9%

8.00%

2007
8.9%

2008
9.3%

9.30%
8.20%

7.20%

Series1
Series2

6.00%
4.00%

2008

Series3
3.70%

Series4
Series5

2.00%
0.00%
2005

2006

2007
Years

2008

2009

2009
8.2%

2009

Interpretation:
It measures the operating profit of firm. It measures profit remaining before paying
interest and taxes. A firm must at least earn operating profit to survive. Greater this ratio
greater will be the firm profitability. The graph shows that operating profit margin has
increased from 2005 to 2008 and than decreased in 2009.the firm largest profitability in
2008.
The decrease in 2009 is that firms operating expenses has increased and operating profit
has decreased. Moreover sales are not growing as compared to last years.

3. Profit Before Tax Margin

2005

2006

2007

2008

2009

Profit Before Tax

42,271,000

106,471,000

191,722,000

233,947,000

220,702,000

Net Sales

1,533,879,000

184,770,000

2,391,058,000

3,061,746,000

3,758,706,000

2005
2.7%

2006
5.8%

2007
8.0%

2008
7.6%

Profit before Tax Margin

Value in % Age

10.00%
8.00%

8.00%

6.00%

7.60%
5.90%

5.80%

4.00%
2.00%

2.70%

0.00%
2005

Series1
Series2
2006

2007
Years

2008

2009

Series3
Series4
Series5

2009
5.9%

Interpretation:
This ratio measures the profit of the firm before paying taxes. Greater this ratio greater
will be the profitability of firm. The graph shows that profit before tax margin has
increased from 2005 to 2007 and than decreased in next two years. This ratio shows
highest profitability in 2007.
The decrease in 2009 is that firms operating expenses has increased and operating profit
has decreased. Moreover sales are not growing as compared to last years.

4. Net Profit Margin

2005

2006

2007

2008

2009

Net Profit

30,653,000

70,364,000

129,292,000

156,546,000

139,461,000

Net Sales

1,533,879,000

184,770,000

2,391,058,000

3,061,746,000

3,758,706,000

2005
2.0%

2006
3.8%

2007
5.4%

2008
5.1%

Net Profit Margin

Value in % Age

6.0%

5.4%

5.0%
4.0%

5.1%

3.8%

3.7%

3.0%
2.0%

2.0%

Series1

1.0%
0.0%
2005

Series2
Series3
2006

2007
Years

2008

2009

Series4
Series5

2009
3.7%

Interpretation:
This ratio measures the net income generated by sales after paying all expenses. This is
desirable that this ratio to be high for more profitability we can see from graph that ratio
is increasing from 2005 to 2007 and than decreasing in 2008 and 2009.maximum profit is
in 2007.
Net profit has decreased because companys interest and tax expenses have increased and
firms sales are not growing so rapidly.

5. Return On Assets:
Net income
Avg. total assets
Years
Net income

2005

2006

30,653,000

Avg. total assets 708,731,000

2005
4.3%

2007

2008

2009

70,364,000

129,292,000

156,546,000

139,461,000

838,345,500

1,078,209,000

1,467,556,500

1,829,215,500

2007
2008
11.99% 10.67%

2009
7.6%

2006
8.3%

Value in % Age

Return On Assets
15
11.99

10
5

10.67

8.3

7.6

Series1

4.3

0
2005

2006

2007

2008

2009

Years

Interpretation:
This ratio measures the firm ability to utilize its assets to create profits by comparing
profits with assets that generate profits, higher this ratio greater will be the firm
profitability. The graph shows that return on assets has increased from 2005 to 2007 and

than decreased in 2008 and 2009.it means that firm has generated maximum return on
assets in 2007.
Here firm has not utilized its assets efficiently thats why there is low profitability in
2008 and 2009.

6. Return on equity:
Net Income Preferred Dividend
Average Total Equity
Years

Net Income

2005

2006

2007

30,653,000

70,364,000

129,292,000

2008
156,546,000

2009
139,461,000

Preferred Dividend

Average Total Equity

183,101,000

247,089,000

367,880,000

515,925,000

655,386,000

2005
16%

2006
33%

2007
42%

2008
35%

2009
24%

Return On Equity

Value In % Age

50
42

40
30
20
10

35

33

24

Series1

16

0
2005

2006

2007

2008

2009

Years

Interpretation:
This measures the return to both common and preferred share holders.
The graph shows the value increases from 2005 to 2007 and than decreasing in 2008
and 2009, which is not favorable for the firm. The highest ROE is in 2007.

7. Return on Investment

Net Income + [(Interest)(1 Tax Rate)]

2005

2006

2007

2008

2009

Net Income

30,653,000

70,364,000

129,292,000

156,546,000

139,461,000

Interest Expenses

16,006,000

24,850,000

32,675,000

56,238,000

86,841,000

Tax Rate

0.35

0.35

0.35

0.35

0.35

Average LTD

6,000,000

132,500,000

166,000,000

121,500,000

80,000,000

Average Equity

183,101,000

215,095,000

307,484,500

441,902,500

585,655,500

2005

2006

2007

2008

2009

22%

25%

32%

34%

29%

Values In % Age

Return On Investm ent

25

2006

32

2007

34

2008

29

Series1

2009

Years

Interpretation:
This ratio measures the ability of the firm to reward those who provide the long term
debt and attract the providers of future funds.
It measures the earning performance of the firm without regard to the way investment
is financed. Higher this ratio higher the profitability of the firm. It also indicates that
how well a firm is utilizing its assets base.

8. Operating Assets Turnover:

Operating Profit
Avg. operating assets
Years

2005

Operating Profit

2006

57,021.000

Avg. operating
assets

664,844,000

2005
8.58%

2007

133,393,000
7,296,075,000

2008

213,285,000

285,691,000

916,040,500

1,356,777,00

2006
2007
2008
1.83% 23.28% 21.05%

2009
308,677,000
1,769,707,500

2009
17.44%

Operating Asset Turnover

Vaue in % Age

25

23.28

20

21.05
17.44

15
10

Series1
8.58

5
0
2005

1.83
2006

2007

2008

2009

Years

Interpretation:
This ratio measures the ability of operating assets to generate sales. Greater this ratio
greater will be the ability of the firm to generate sales. This ratio is increasing from 2005
to 2007 and than decreasing in 2008 and 2009.
It shows the firms low efficiency of operating assets to generate sales. Firm has not
utilized its operating assets efficiently to generate sales.