Financial Analysis Project Work

Section -2
Group III

School of Postgraduate Studies

Admas University

Submitted to: Gidey G.(PH.D)

Group Members

Name of Students ID No.

1. Mulugeta Chekol----------------------PGMGB/1417 /22

2. Muluemebet Aklilu------------------PGMGB/1100/22
3. Feven Zewdie------------------------ PGMGB/ 1160/22
4. Mamit Derbie------------------------PGMGB/ 1137/22
5. Abebe Habtamu---------------------PGMGB/ 1355/22
6. Abebayehu Yifru--------------------PGMGB/ 1048/22
7. Rediet Tegegn-----------------------PGMGB/ 1389/22
8. Firew Takele-----------------------PGMGB/ 1371/22
9. Roman Tayine-----------------------PGMGB/ 1110/22

June, 2023

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 A) Liquidity ratios
2020 2019

-Current Ratio Current Assets = 780,606,413 = 2.27 675,615,077 = 2.14

Current Liabilities 344,164,969 315,484,656

-Quick (Acid-Test)
ratio Current Asset-Inventory= 780,606,413-190,554,976=1.71 675,615,077-109,283,798 = 1.80
Current Liabilities 344,164,969 315,484,656

-Industry Average
Current Ratio 1.75

- Industry Average
Quick Ratio 1.55

Industry Average:
 The current ratio of Lucy stars for the year 2020 has been 2.27 times, which is far better than the industry
average of 1.75 times
 And The Quick(Acid-Test ratio of Lucy stars for the year 2020 has been 1.71 times, which is better than the
industry average of 1.55 times

Interpretation and Recommendation:

 Current ratio shows the firm’s ability to pay its short term liabilities by converting currents assets in to cash
 The current ratio of Lucy Stars’ food processing is 2.27times in the year 2020 which is more than the
conventionally agreed ratio of 2:1 and there is an improvement from the previous year figure of 2.14 times.
 Quick(Acid-Test ratio) shows the firm’s ability to pay its short term liabilities by converting currents assets
except inventory in to cash
 Quick(Acid-Test ratio) of Lucy Stars which is 1.71 times in the year 2020 is more than the conventionally
agreed ratio of 1:1
 Quick(Acid-Test ratio) of Lucy Stars for 2020 has shown 1.71 which has a little reduction when compared
with the 2019 Quick(Acid-Test ratio) of 1.80, but it is still more than the conventionally agreed up on figure
of 1:1
 Hence, the Lucy Star’s current ratios shows that the company has the ability to meet its current(short term)
obligations by converting its current assets in to cash and Acid-Test ratio also shows the firms’ has the ability
to discharge the short term obligations by converting the current assets except inventory
 Therefore the Lucy Star’s food processing company has favorable current and Acid-Test ratios during the year
2020, the firm should keep this favorable status.

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 B) Assets Management Ratios
2020 2019

- Receivables Turnover Ratio Credit Sales = 1,142,169,763 = 16.67 Times 999,693,660 = 57.92 Times
Average Receivable (102,520,000+34,521,200)/2 (34,521,200+0)2

-Average Collection
Period (days) 365 days = 365 =21.9 days 365 = 6.30 days
Receivable turnover ratio 16.67 57.92

-Inventory Turnover Ratio Cost of goods Sold = 868,431,497 = 5.79 times 743,267,460 = 13.60 times
Average Inventory (190,554,976+109,283,798)/2) (109,283,798+0)2

-Days of holding 365 days = 365 =63.04 days 365 = 26.84 days
Inventory (Days) Inventory turnover ratio 5.79 13.60

- Fixed Assets Turnover Net Sales = 1,142,169,763 =6 times 999,693,660 =5.67 times
Ratio Net fixed assets 190,317,462 176,243,661

- Total Assets Turnover Net Sales = 1,142,169,763 =1.18 999,693,660 =1.17

Ratio Total assets 970,923,875 851,858,738

Industry Average of:

- Receivables Turnover Ratio 24
- Average Collection Period (days) 15.21
- Inventory Turnover Ratio 4.50
- Days of holding Inventory (Days) 81.11
- Fixed Assets Turnover Ratio 5.45
- Total Assets Turnover Ratio 0.95

Industry Average:
 The Receivables turnover ratio of Lucy stars’ for the year 2020 has been 16.67 times, which is lower than the
industry average of 24 times. This may indicate the Lucy stars food processing company has either liberal
credit policy, restrictive cash discount offer, less effort in receivable collection or poor credit selection system.
Therefore, the form should investigate its credit selling practice and the efforts made to collect the
receivables.
 The average collection period for Lucy stars’ for the year 2020 has shown 21.9 days as compared to the
industry average figure of 15.21 days, which is greater than the industry average. This may be the reflection of
the account receivable turnover ratio effect. The Lucy stars’ food processing company should work to
improve the no days it will take to collect the firm’s receivables.
 The inventory turnover of Lucy stars food processing company that is 5.79 times is more than the industry
average figure of 4.50 times. This implies the frequency the inventory of the Lucy stars food processing

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 company converted into sales during the year 2020 was 5.79 times and it has a good performance as it
compared with the industry average.
 The inventory holding period ratio of Lucy stars food processing company is 63.04 days and it is better than
the industry average figure of 81.11 days.
 Fixed asset turnover ratio of Lucy stars food processing company is 6 during the year 2020, and it is better
than the industry average ratio of 5.45 .
 Total asset turnover ratio of Lucy stars food processing company is 1.18 during the year 2020, and it is better
than the industry average ratio of 0.95.


Interpretation and Recommendation:

 The Lucy stars food processing company’s account receivables has converted in to cash 16.67times during
the year 2020, which is lower than the industry average and the account receivable turnover ratio of 2019 that
is 57.92 times. Therefore, Lucy stars food processing company should improve frequency the account
receivables converted in to cash, either by implementing restrictive credit policy, liberal cash discount offer,
and increase effort in receivable collection effort or proper credit selection system.
 The average days Lucy stars food processing company’s receivables stay outstanding during the year 2020
was 21.9 days, which far greater than the industry average figure of 15.21 days and the previous year same
period figure of 6.30 days. Therefore, the Lucy stars food processing company should work to decrease the
average days the receivables stays during the year.
 Lucy stars food processing company’s inventory on average sold out(turned over) 5.79 times during the year
2020, which is more than the industry average ratio of 4.50 times and lower than the previous year figure of
the firm that is 13.60 times. As the beginning inventory to calculate the inventory turnover ratio for the year
2019 is not known and the Lucy stars food processing company’s inventory turnover ratio is greater than the
industry average, the firm has good selling practice and improved profitability. On the other hand the firm
should care in the management of its inventory level.
 The period Lucy stars food processing company holds the average inventory in store during the year is 63.04
days, which is better than the industry average figure of 81.11 days and lower than the previous year result of
the firm that is 26.84 days. Therefore, the firm has good inventory management practice as it compared to the
industry average.
 Fixed asset turnover ratio shows the effective utilization of the firm’s fixed assets to generate sales and profit,
from the calculation above we can say that the Lucy stars food processing company’s one dollar investment in
fixed assets helps to generate 6 dollars in sales. Therefore, the firm is efficiently managing its fixed assets to
generate sales and profit.
 Total asset turnover ratio shows the overall efficient utilization of the firm’s assets to generate sales and the
Total asset turnover ratio of Lucy stars food processing company shows that the company efficiently uses its
total assets to generate sales better than the industry average ratio of 0.95 dollar and the previous year figure
of 1.17 dollar.

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 C) Debt Management R 2020 2019

- Debt Ratio Total Liabilities 472,653,396 = 0.49 420,492,104 = 0.49

Total Assets 970,923,875 851,858,738

-Debt-Equity Ratio Total Debt = 472,653,396 = 0.95 420,492,104 = 0.97

Total Equity 498,270,478 431,366,633

-Times-Interest
Earned Ratio Profit before Interest and Tax = 236,504,206 = 7.36 times 18,455,585 = 7.25 times
Interest Expense 32,132,540 30,125,120

Industry Average:
- Debt Ratio 0.54
- Debt-Equity Ratio 1.08
- Times-Interest Earned Ratio 6.50

Industry Average:
 The Debt ratio of Lucy stars for the year 2020 has shown 0.49, which is less indebted from that of the
industry average of 0.54 and it creates a favorable condition for Lucy Stars’ to generate additional finance
from creditors. This ratio shows the percentage of the firm’s assets financed through debt.
 The Debt-Equity ratio of Lucy stars for the year 2020 has shown 0.95, which shows the capital structure of the
Lucy stars’ company and it is shows almost equal figure between the numerator and the denominator. The
ratio shows the percentage claim of the creditors and the owners on the firms’ asset. And the Lucy star
company’s debt –equity ratio is almost similar with the previous year.
 The Times-Interest Earned ratio of Lucy stars for the year 2020 has shown 7.36 times, which is more than
the industry average figure of 7.25 times. So, the operating profit of Lucy stars’ is 7.36 times more than the
interest costs of the firm. Therefore, the Lucy stars’ company could cover the interest costs using the
operating profits.

Interpretation and Recommendation:

 Debt ratio- shows the proportion of the assets covered by creditors finance. In the case of the Lucy stars food
processing company 49% of the assets of the firm are covered through credit financing. And the rest 51% of
the assets of the firm are covered with owner’s finance.
 The Debt-Equity ratio shows the percentage claim of the owners and creditors on the firms’ assets. The Lucy
stars food processing company’s debt-equity ratio shows that almost half of the assets of the company is
claimed by the owners and creditors.

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  The operating profit of the Lucy stars food processing company is 7.36 times more than to cover the interest
expense of the firm.

D) Profitability Ratios
2020 2019

- Gross Profit Margin Gross Profit = 273,738,266 = 0.24 256,426,200 = 0.26

Net sales 1,142,169,763 999,693,660

-Net Profit Margin Net Income = 178,210,107 =0.16 166,194,214 = 0.17

Net Sales 1,142,169,763 999,693,660

-Return on Assets Net Income = 178,210,107 = 0.18 166,194,214 = 0.20

Net Assets 970,923,875 851,858,738

- Return on Equity Net Income available to common stocks 178,210,107 0.36 166,194,214 = 0.39
Stockholders’ Equity 98,270,478 431,366,633

Industry Average:
- Gross Profit Margin 0.15
- Net Profit Margin 0.12
- Return on Assets 0.22
- Return on Equity 0.42

Industry Average:
 The Gross profit margin ratio of Lucy Stars food processing company is 24%, which is better than the
industry average figure of 15% but less than the previous year same period figure of 26%.
 The Net profit margin ratio of Lucy Stars food processing company is 16%, which is better than the industry
average figure of 12% but less than the previous year same period figure of 17%.
 Return on assets ratio of Lucy Stars food processing company is 18%, which is less than the industry average
figure of 22% and the previous year same period figure of 20%.
 Return on Equity ratio of Lucy Stars food processing company is 36%, which is less than the industry average
figure of 42% and the previous year same period figure of 39%.

Interpretation and Recommendation:

 The Gross profit margin ratio of Lucy Stars food processing company is 24%, which is less than the previous
year same period figure of 26%. And it shows the percentage of gross profit per each unit net sales made by
the firm.
 The Net profit margin ratio of Lucy Stars food processing company is 16%, which is less than the previous
year same period figure of 17%. And it shows the percentage of net profit per each unit net sales made by the
firm.

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  Return on assets ratio of Lucy Stars food processing company is 18%, which is less than the previous year
same period figure of 20%. It shows net income found per unit of assets invested in the company.
 Return on Equity ratio of Lucy Stars food processing company is 36%, which is less than the previous year
same period figure of 39%. And it shows the percentage of return given for the common stock holders.

E) Market Value Ratios 2020 2019

- Earnings Per share

(Birr per share) Net Income = 178,210,107 = 435.67 166,194,214 = 483.90
Common Stockholders’ Equity 409,048 343,444

-Dividend per share Dividend paid-Dividend for preferred = 115,836,570 =283.19 108,026,238 = 314.54
Common Stockholders’ Equity 409,048 343,444

-Dividend Yield Ratio Dividend per share = 283.19 = 0.015 314.54 = 0.018
Current share Price 18,500 17,250

- Price-earnings Ratio Current share Price = 18,500 = 42.46 17,250 = 35.65

Earnings Per share 435.67 483.90

- Book Value per share Total Equity-Preferred Equity = (498,270,478-0) =1,218.12 (431,366,633-0) = 1,256.00
Common Stockholders’ Equity 409,048 343,444

Industry Average:
- Earnings Per share (Birr per share 235.50
- Dividend per share 195.50
- Dividend Yield Ratio 0.050
- Price-earnings Ratio 70.25
- Book Value per share 965.50

Industry Average:
 The Earnings per share of Lucy Stars’ during the year 2020 which was 435.67 has a significant increase when
compared to the industry average of 235.50. The Lucy stars’ firm has earned excess money of 200.17 during
the year 2020 when compared with the industry average.
 The dividend per share of Lucy Star food processing firm has an immense performance when compared with
the industry average. The dividend paid to the share holders by the Lucy Star food processing is more by
87.69 from the industry average. And one share investment in Lucy Stars’ food processing company has
generated 283.19 dollar as dividend.
 The dividend yield ratio figure of 1.5% for Lucy stars food processing company is less than the industry
average ratio of 5%, and this may be due to decrease in dividend per share or increase in the share price of
Lucy stars food processing company.

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  The price-earnings ratio of Lucy stars food processing company shows 42.46 for the year 2020, it is less than
the industry average figure of 70.25
 Book value per share for Lucy stars food processing company is 1,218.12 and it is better than the industry
average value of 965.50.

Interpretation and Recommendation:

 Earnings per share (EPS) indicate the monetary value of earnings per outstanding share of common stocks.
The Lucy Stars’ company during 2020 has earned a monetary value of 435.67 per share of outstanding
common stocks. And it is greater than the industry average figure and less than the previous year same period
figure.
 Dividends per share is a portion of the company’s earnings that is distributed to the shareholders on a per
share bases. The Lucy stars food processing company has distributed a divided of 283.19 to its share holders
on the per share bases. And it is greater than the industry average figure but less than the previous year same
period figure.
 Lucy stars food processing company has pays out 1.5% dividends in the year 2020 relative to its stock price. It
is less than the industry average figure of 5% and 1.8% figure of the company’s 2019 performance, this may
be due to the increase in the share price of Lucy stars’ food processing company.
 Investors to invest in the Lucy star food processing company’s should pay 42.46 per unit of earnings. Each unit of
earning at the Lucy stars food processing company are expected to be paid 42.46, and it is less than the industry average
figure of 70.25 and greater than the firm’s previous year figure of 35.65.
 Book value per share for Lucy stars food processing company is 1,218.12, it is less than the previous year
same period figure of 1,256. And it shows the value remaining for common stock holders and per common
stock level if the company is getting liquidated.