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FMA - Assignment 2 Final

This document analyzes various financial ratios for Zebra Share Company for the years 2021 and 2022. [1] It discusses liquidity ratios like current and quick ratios, activity ratios such as total asset and fixed asset turnover ratios, and leverage ratios including debt to asset and debt to equity ratios. [2] It also examines profitability ratios like gross profit margin, operating profit margin, and net profit margin. [3] The analysis finds that Zebra Share Company's liquidity, asset usage, and debt levels were generally better in 2022 compared to 2021, while maintaining stable profitability.

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hule
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48 views

FMA - Assignment 2 Final

This document analyzes various financial ratios for Zebra Share Company for the years 2021 and 2022. [1] It discusses liquidity ratios like current and quick ratios, activity ratios such as total asset and fixed asset turnover ratios, and leverage ratios including debt to asset and debt to equity ratios. [2] It also examines profitability ratios like gross profit margin, operating profit margin, and net profit margin. [3] The analysis finds that Zebra Share Company's liquidity, asset usage, and debt levels were generally better in 2022 compared to 2021, while maintaining stable profitability.

Uploaded by

hule
Copyright
© © All Rights Reserved
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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Ratio analysis and Appropriate Interpretation of Zebra Share Company

MBA SECTION ONE GROUP – 4 STUDENTS

There are two approaches of financial analysis which are cross sectional and time series.

 Cross sectional :- comparing certain firms in relationship with same compotators

whereas

 Time series :- evaluating performance based on overtime

Bench marks are standards analysis and Historical standards

Financial ratio Liquidity ratio (Current ratio and Quick ratio)


Activity ratio
Leverage ratio
Profitability ratio and
Market Value ratio
A) Liquidity ratio, it is ratio between liquid asset and the liabilities of the institutions

or company.

I). Current ratio and Quick ratio: - measures certain companies’ ability to pay

current mature liabilities

Current ratio = Current asset


Current Liability

CR2021= 57,600/38,100

 1.51 Or 151%which implies that the company has Birr 1.51 o pay currently

matured birr 1.

CR2022= CA/CL thus 51,000/33,300

1.53 Or 153% which implies that the company has Birr 1.53 o pay

currently matured birr 1

 Generally, year 2022 liquidity position of the company is better than year

2021.

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Ratio analysis and Appropriate Interpretation of Zebra Share Company
MBA SECTION ONE GROUP – 4 STUDENTS

ii) Quick ratio

Current asset - Inventory


Current Liability

CA-Inventory /CL thus,

QR2021 =57,600 -24,900/38,100

=32,700/38,100

=0.8582

 0.85 Or 85% it means without inventory the company has birr 0.85 to settle

current mature liability of Birr 1

QR2022= 51, 000-23,700/33,300

=27,300/33,300

=0.819

 0.819 Or 81.9%

 It means there is Birr 0.819 to settle current mature liability of Birr 1

B) Activity ratio

1) Total asset turnover ratio: - it measures the efficiency how well a company uses assets

to produce sales.

Total asset turnover ratio =Net sales /Total asset

196,200,000/153,900,000

1.27 Or 127%

Interpretation: - Zebra Share Company generates 1.27 cents from each dollar of assets.

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Ratio analysis and Appropriate Interpretation of Zebra Share Company
MBA SECTION ONE GROUP – 4 STUDENTS

2). Fixed Asset Turnover Ratio; -

 Measures how effectively the firm uses its asset to generate sales and profit.

 Fixed Asset Turnover = Net sale


Net fixed asset

=196,200,000/85,800,000

= 2.28

Interpretation: - Zebra Share Company generates 1.27 cents from each dollar of existing

fixed assets.

C) Debt management ratio

 This includes debt to asset, debt to equity and Long term debt to equity

I) Debt to Asset Ratio

Total liability /Total Asset so,

Debt to asset for the year 2021 =98,100/153,900

 0.63 Or 63% this implies that out of the total asset 63% of the company’s asset is

financed from own sources.

Debt to asset for the year 2022=93, 300,000/136,800,000

 0.68 Or 68% this implies that out of the total asset 68% of the company’s asset is

financed from own sources and accordingly year 2022 asset formation of the

company is better than preceding year.

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Ratio analysis and Appropriate Interpretation of Zebra Share Company
MBA SECTION ONE GROUP – 4 STUDENTS

ii) Debt to equity Ratio

o Formula Total liability /total equity or capital

Thus Debt to equity ratio for 2021

98,100,000/55,800,000=1.75 Or 175%

Debt to equity ratio for 2022

93, 300,000/43,500= 2.14 or 214%

iii) Times interest earned Ratio

It measures a company’s ability to meet its debt obligations on a periodic basis. This ratio
can be calculated by dividing a company’s EBIT by its periodic interest expense. The ratio
shows the number of times that a company could, theoretically, pay its periodic interest
expenses should it devote all of its EBIT to debt repayment.

=10,500,000/3,000,000

= 3.5 X

Interpretation: - This means that the company is three and one-half times the
amount of its interest expense and this company is within its debt capacity with a low risk
of not paying interest on its debt.

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Ratio analysis and Appropriate Interpretation of Zebra Share Company
MBA SECTION ONE GROUP – 4 STUDENTS

D) Profitability ratio
Gross profit ratio
Operating profit ratio
Net profit ratio

i) Gross profit ratio

A) Gross profit margin =Gross profit /Net sales

36,600,000 /196,200,000=0.186 or 18.6%

 it means the company has 0.186 gross profits on 1 Birr net sale

B) Operating profit margin =Earnings before interest tax /Net sale

7,500,000/196,200,000= 0.038 or 3.8%

C) Net profit margin =Net income /Net sale

3,900,000/196,200,000= 0.0198

 It means from one birr sales the company can obtain 0.0198 net profits.

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