Ratio analysis: A tool used to interpret accounts to assess current performance/position to identify opportunities for improvement Classification of Ratios:

s: Profitability ratio Efficiency ratio Liquidity ratio Solvency ratio Investment ratio

Ratio analysis of BEXTEX LIMITED: 1. Profitability Ratio: Return on ordinary shareholders fund: Net profit after taxation and preference dividend (if any) Ordinary share capital + reserves 2008: (608,655,866) 1,882,846,251 + 779,879,705 = (22.86%) 933,446,920 4,056,065,030 +329,879,705 = 21.28% 2,031,786,679 329,879,705 + 4,664,474,770 = 40.68% *100 *100

2009:

*100

2010:

*100

Analysis: Higher ROSF is generally better, as it indicates higher profitability, BUT these returns are also affected by the levels of financial gearing. Higher levels of financial gearing also make this ratio higher. From the calculation above, we can see that the ratio has increased tremendously from last of 2008 to 2009 and gradually increased from last of 2009 to 2010. So it indicates the rising of higher profitability of the company.

Return on capital employed:

Net profit before taxation and interest *100 Ordinary share capital + reserves + non-current liabilities 2008: 1,409,417,014 1,882,846,251 + 779,879,705 + 7,826,848,879 = 13.43% 2,615,570,482 4,056,065,030 +329,879,705 + 683,261,956 = 24.28% *100

2009:

*100

2010:

4,537,899,826 329,879,705 + 4,664,474,770 + 5,792,982,042 = 42.067%

*100

Analysis: Higher ROCE indicates better financial performance. Last the previous case, this ratio has also got higher than the respective previous year which again indicates good improvement in companys financial performance. Net profit margin: Net profit before taxation and interest Sales 2008: 1,409,417,014 4,760,237,189 = 29.608% 2,615,570,482 7,866,257,822 = 33.25% 4,537,899,826 14,572,837,380 = 31.14% *100 *100

2009:

*100

2010:

*100

Analysis: A higher margin indicates more profitability and is therefore good. In 2009, the margin was 3.6% more but in 2010, the margin fell down 2.11% which indicates less profitability in 2010 than 2009.

Gross profit margin: Gross profit *100 Sales

2008:

1,670,052,302 *100 4,760,237,189 = 29.61%

2009: 2,929,567,673 *100 7,866,257,822 = 37.24% 2010: 5,118,971,985 14,572,837,380 = 35.127% Analysis: A higher margin indicates more profitability and is therefore good. Like the previous analysis, ratio increased from 2008 to 2009 but there is a sudden fall in 2010. So again it indicates less profitability in 2010 than 2009. 2. Efficiency Ratio: Average stock turnover period : Average stock held Cost of sales 2008: 2,733,063,864 4,760,237,189 = 209.57 days *365 days *365 days *100

2009: 2,742,675,600 *365 days 4,936,690,149 = 202.78 days 2010: 2,994,596,746 *365 days 9,453,865,395 = 115.61 days

Analysis: Companies normally prefer short inventory turnover period as holding inventories has a cost. From the analysis, we can recognize that the turnover period has lessened down from 2008 to 2009 and from 2009 to 2010 which shows that company has been successful in increasing its use of its inventories and therefore make good profits. Average settlement period for debtors: Trade debtors Credit sales 2008: *365 days *365 days

3,765,912,622 4,760,237,189 = 288.75 days 4,986,086,053 7,866,257,822 = 202.78 days 5,040,220,480 14,572,837,380 = 126.24 days

2009:

*365 days

2010:

*365 days

Analysis: Like the previous situation, companies prefer a shorter average settlement period as funds are being tied up that may be used for more profitable purposes. From the analysis above, we can say that company has been successful in receiving its credits quicker than the respective previous year. Average settlement period for creditors: Trade creditors Credit purchase 2008: *365 days *365 days

1.594,026,621 4,997,867,168 = 116.41 days 562,460,879 1,839,244,757 =111.62 days

2009:

*365 days

2010:

2,578,177,121 3,180,995,225 = 295.83 days

*365 days

Analysis: Trade creditors provide free source of finance for the business. It is not surprising that some companies attempt to increase their average settlement period for trade creditors. However it can cause loss to the goodwill of the company. From the analysis above, we can witness that there was a decrease in trade creditors period in 2009 but a huge increase in 2010. This indicates that the company might have purchased assets of high price or amount and it must pay for a long period as the amount is big. Sales of capital employed: Sales revenue Share capital + reserves + non-current liabilities 2008: 4,760,237,189 1,882,846,251 + 779,879,705 + 7,826,848,879 = 0.4538 2,615,570,482 4,056,065,030 +329,879,705 + 683,261,956 = 0.71 14,572,837,380 329,879,705 + 4,664,474,770 + 5,792,982,042 = 1.351

2009:

2010:

Analysis: A higher SRCE ratio indicates a more efficient use of capital employed. It indicates about the use of assets to generate revenue. The calculation above shows that BEXTEX has made an improvement in utilizing the asset as the ratio has increased from 2008 to 2009 and from 2009 to 2010.

Sales per employee: Sales Number of employee

2008: 4,760,237,189. 5230 =912179.19 2009: 7,866,257,822 7,189 = 1094207.515 2010: 14,572,837,380 8,055 = 1,809,166.63

Analysis: Generally, business would prefer to have higher value for this ratio, implying that company is using its staff efficiency. From 2008 to 2009, we can see that the ratio has increased and again from 2009 to 2010 the ratio increased in almost double. So it clearly shows that BEXTEX has been able to use its staff efficiency in a well manner. 3. Liquidity ratio: Current ratio: Current asset Current liabilities 2008: 7,230,982,538 7,906,937,639 = 0.9145

2009: 8,677,166,758 4,834,823,994 = 1.79 2010: 9,031,547,621 6,944,110,703 = 1.3

Analysis: As liquidity is the vital to the survival of a business, a higher current ratio might be preferable. From the above analysis, it can be inferred that the ratio has increased from 2008 to 2009. But it has decreased in 2010 by a small percentage which is not hat much matter of concern. Acid test ratio (quick ratio):

Current asset (excluding stock) Current liabilities 2008: 4,497,918,674 7,906,937,639 = 0.5689 2009: 5,934,491,158 4,834,823,994 =1.227 6,036,950,875 6,944,110,703 = 0.869

2010:

Analysis: Quick ratio >1 for manufacturing companies is a good indication. The calculation shows us that BEXTEX has increased its quick ratio almost double in 2009 but there was a decline in 2010 which is a matter of concern and company must take steps to stop further decline. Operating cash flows to maturing obligation: Cash generated from operations Current liabilities 2008: 147,299,395 7,906,937,639 = 0.0186:1

2009: 1,286,757,473 4,834,823,994 = 0.266

2010:

5,532,091,050 6,944,110,703 = 0.797

Analysis: The higher the ratio is, the better for the company. The ratios above are showing good indication about the profitability of its business of a year than its previous one. 4. Solvency ratio: Gearing ratio: Non-current liabilities Share capital + reserves + non-current liabilities 2008: *100 *100

7,826,848,879 1,882,846,251 + 779,879,705 + 7,826,848,879 = 74% 6,683,261,956 *100 4,056,065,030 +329,879,705 + 683,261,956 = 60.4% 5,792,982,042 329,879,705 + 4,664,474,770 + 5,792,982,042 = 53%

2009:

2010:

*100

Analysis: Financial gearing measures the level of financial risk a company has taken. A ratio of < 30% is often considered to indicate a safe level of gearing. Calculations above shows that, BEXTEX has a risk. But the ratio has fallen in 2009 and again fallen more in 2010 which is a sign of improvement. Interest cover ratio: Net profit before taxation and interest Interest payable 2008: 1,409,471,014 1,261,679,027 = 1.117

2009:

2,615,570,482 2,006,166,127 = 1.304 4,537,899,826 1,445,098,454 = 3.14

2010:

Analysis: This measures how easily operating profits cover interest expense. If this is < 1.0 then the companys profit is turned into a loss before tax. Safer levels are given by an interest cover of > 3 or 4. Interest cover is affected by both the companys level of debt and its profitability. The above calculation indicates that, BEXTEX again has not reached the safer level as the ratio of 2008 and 2009 are <3, but in 2010 it did reach the safer level, and the increase indicates the less risk of the company to cover its payables. 5. Investment ratio: Dividend per share: Dividend announced during the period Number of shares in issue 2008: 18828462 188284625 = 0.099 608,409,740 405,606,503 =1.499

2009:

2010: 699,671,215 466,447,477 = 1.499

Analysis: One would expect most shareholders to be happier with higher levels of DPS, although this may depend on their personal tax position. The analysis above shows that in 2008, the ratio was too low but it increased in 2009 and was relatively same in 2010. Dividend payout ratio: Dividend announced for the year Earning for the year available for dividend 2008: 18828462 *100 (608,655,866) = (30%) 608,409,740 933,446,920 = 65.179% 699,671,215 2,031,786,679 = 34.4% *100 *100

2009:

2010:

*100

Analysis: This measures how easily profit after tax covers the dividend charge for the year. Higher ratio indicates good chances of profit and also higher chance of paying dividends. In 2008,company incurred a net loss and therefore the ratio resulted in negative va Dividend yield ratio:

Dividend per share *100 Market value per share 2008: 0.099 23.90 = 0.41% 2009: 1.499 81.40 =1.84% 1.49 76.30 *100 *100

2010:

*100

= 1.96% Analysis: Earning per share: Earnings available for ordinary share holders Number of ordinary shares in issue 2008: (608,655,866) 188,284,625 = (3.23)

2009: 933,446,920 405,606,503 = 2.30 2010: 2,031,786,679 466,447,477 = 4.356

Analysis: Operating cash flows per share: Cash generated from operations preference dividend Number of ordinary shares in issue 2008: 147,299,395 188,284,625 = 0.78

2009: 1,286,757,473 405,606,503 = 3.17 2010: 5,532,091,050 466,447,477 =11.86

Analysis: Price/earning ratio:

Market value per share Earnings per share 2008: 23.90 (3.23) = (7.39) 2009: 81.40 4.16 = 19.56 2010: 76.30 4.356 =17.51

Analysis: