Financial Analysis

The following ratio analysis is used to conduct a comprehensive analysis regarding the financial
performance and the financial position of the company from year 2015 to 2017.

Profitability ratios present how efficiently the management of the organization has utilized the
company’s resources in order to make profits to the company within the considered period.

Gross profit Margin

Gross profit margin suggests that the size of the margin from the revenue of the company after
reducing the cost of sales of the company. When considering the financial data for past 3 years it
is very clear that the company has faced for a sudden decrease for the company revenue by
38.74% from 2016 to 2017 where it has been clearly seen in the gross profit as well with a
sudden decrease of 41.12%. This has been more severe with an increase of cost of sales of the
company by a huge rate of 107.25% from 2016 to 2017. Due to these both reasons the company
gross profit also has become reduces from where it was in 2016 (99.97%) to 96.1% in 2017.

The other major observation is the magnitude of the gross profit ratio where it is very large
figure which is very much closer to 100% as it varies between 96% and 99.99% in the
considered period where it suggests a very small cost of sales for the company. So a very large
part of the company’s revenue can be saved for operational expenditures and profit making.

Revenue
250000000

200000000

150000000

100000000

50000000

0
2015 2016 2017
 Gross profit Margin
101.0000%
99.9780%
100.0000%
99.9997%
99.0000%
98.0000%
97.0000%
96.1042%
96.0000%
95.0000%
94.0000%
2015 2016 2017

Net profit margin

The same decline of the operational performance of the firm in the latter part of the period can be
seen in the net profit margin indicator as well where the net profit margin has a 10% of decline
with compared to the 2016 and 12% decline with compared to 2015. It is clear that, this has
directly affected by the sudden decline of revenue as the operational expenses also has a huge
decline of 22.3% with this net profit margin decrease. So the main reason for this should be the
sudden decline of revenue where the possible worsen condition has been significantly managed
through the efficient control of operational expenses of the company by the management.

Net profit margin

45.00%
40.00% 37.99%
35.00% 39.11%
30.00%
27.25%
25.00%
20.00%
15.00%
10.00%
5.00%
0.00%
2015 2016 2017
Return on Assets

Return on assets suggests that the amount of return or profit earn by the company for its total
assets where the decline of the profitability condition of the company has been reflected in this
ratio as well. According to the financial data available, there is a huge decline of ROA by
67.38% where this has been mainly due to the huge decline of the revenue of the company as
well as the increase of the company’s total asset base by 34.9% from 2016 to 2017. However this
is not a good indicator that the company has continuously reduced the return for its assets where
it suggest a poor utilization of its assets for the profit making activities

Return on Assets
40.00%
35.00% 36.12%
32.81%
30.00%
25.00%
20.00%
15.00%
10.00% 10.70%

5.00%
0.00%
2015 2016 2017

Return on Equity

Return on Equity suggests that, how efficiently the company has generated returns for its equity
share holders or the owners. So according to the financial performance of the past three years the
ROE of the company presents a continuous decline where it is 50.5% and 55.4% from 2015 to
2016 and from 2016 to 2017 respectively. So the main reason for this is the decline of the
revenue of the company where it made a declined net profit for the company within past three
year’s period. This would not be a good indicator as the potential share holders of the company
would be discouraged by such an indicator of the company where this would be a reason for
declined market prices for company’s shares.
 Return on Equity
70.00%
66.38%
60.00%
50.00%
40.00%
30.00% 32.81%
20.00%
14.61%
10.00%
0.00%
2015 2016 2017

Liquidity ratio is used to find out how soon the company will be able to convert their acquired
assets into cash (the most liquid asset). This is mainly found to see how healthy the company is
on paying up their debtors on time without affecting their profits

Current Ratio

This suggests whether the available assets will be able to cover up the current liabilities. The
ideal position for a company to be in this ratio is to have more than one asset to cover up one
liability. According to the results the company is in a very good liquidity position as the ratio far
exceeds the benchmark should be. So the company would not be in a difficulty to cover up its
short term obligations and to maintain an insolvent position in the short run. More importantly
the company has further grown its current ratio continuously showing a growing healthy short
run financial healthiness of the company.

Current Ratio
5.0000

4.0000 3.8275
3.0000 3.5774

2.0000 1.9291
1.0000

0.0000
2015 2016 2017
Quick ratio

This ratio is used to mainly have a better or more effective idea about the liquidity of the
company. This is found by not considering the least liquid asset (Inventory). The benchmark for
this ratio is also one, where there should be at least 1: 1 ratio for slow moving inventory
companies and could cater to lower value than one for fast moving inventory holding companies.
According to the results again it proves that the company is free from liquidity problems in short
term as well as further it suggests that the least liquid asset composition of the current assets of
the company is at a very small level as the both ratios of current and quick are very closer in
value to each other.

Quick Ratio
5.0000
4.0000 3.8101
3.0000 3.5708
2.0000
1.9232
1.0000
0.0000
2015 2016 2017

Debtor Turnover Ratio

Debtor Turnover Ratio

5
4.696781554
4
3.556719891
3

2
1.769767605
1

0
2015 2016 2017
This suggests that how many times per year the debtors are settled their outstanding balance of
credit sales where high ratio shows a speed collection of debtor payment of the company. In the
company the ratio was 3.5 and 4.5 in the years of 2015 and 2016 where it suggests a slow
collection speed as it represents nearly 100 days of collection delay once the credit sale is made.
This has been worsen in the year 2017 as it has been reduced up to 1.76 representing more than
200 days of payment delay by the debtors. Even though the company has a very good liquidity
position, this would make a long run cash flow issue as the time lag between cash outflows and
cash inflows from the operations are very wide.

Creditor Settlement Ratio

Creditor Settlement Ratio

5.000000000
4.000000000 4.00
3.000000000
2.000000000
1.000000000
0.000000000 0.000012899 0.125
2015 2016 2017

Creditor settlement period/ ratio explain how advantageously creditor payments can be delayed
to gain cash flow advantageous to the company from operational activities. According to the
results it has been in a level where it is less than 1 in 2015, but has been increased up to 4 in
2016 and again it has been reduced until 0.12 in 2017. Lower the ratio is better to the company
as it gives more time to delay the payment for creditors. In this condition, even though it has a
sudden increase in 2016 allowing a company to have only 90 days of credit period, in 2017 it has
become a larger period as it was in 2015 making the company to handle its cash flows
advantageously in short run.
Asset Turnover Ratio

Asset turnover ratio suggests that how efficiently the company’s assets are utilized to generate
revenue to the company where a higher value is an indication of efficient use of the assets
towards the revenue generation. Even though the asset base of the company has increased during
the period the asset turnover ratio has been recorded a drastic decline of 54% as the revenue has
been declined by 38.74%. The increase of asset base has made this decrease more significant
from year 2016 to 2017.

Asset Turnover Ratio

100.00%
86.37%
80.00% 92.35%
60.00%

40.00%
39.28%
20.00%

0.00%
2015 2016 2017

Debt ratio

Debt ratio
2.50%

2.00% 1.93%

1.50%

1.00%

0.50%

0.00% 0 0
2015 2016 2017
Debt ratio indicates the composition of debt capital in the capital structure of the company where
in this company it has been very small where it is 2% in 2015 indicating its 98% of the capital
structure is included with the equity capital. In 2016 and 2017 the debt composition has been
reduced until 0% where currently the company is operated by 100% equity capital and it further
suggests that the company is currently free from debt burden where the whole profit is owned by
the equity holders.

Market Price per Share

Market Price per Share

14
11.5
12
10 8.0
8
6 5.9
4
2
0
2015 2016 2017

When analyzing the market price per share, the company has experienced a continuous decline
where it is 30% in 2016 and 26% decline in 2017. The main reason behind this decline would be
the declined profits of the company as well as the declined ROE of the company continuously.
At the same time within the past 3 year’s period the company has not declared any dividends
making the future prospects of the company unclear to the investors.

EPS

Earnings per share is the portion of the profit attributable to the ordinary share holders taken by
one particular share where the company’s EPS has been reduced in between 2015 and 2016 even
though it was at considerably a high position. The reason may be the most significant and the
common reason which affected the most of the aspects of the company, which the decline of
profits over the decline of the revenue of the company. The number of shareholders are almost
have been unchanged where the most significant reason would be the declined profits of the
company for this adverse move of EPS over the period.

EPS
0.7
0.65
0.6
0.5 0.52
0.4
0.3 0.29
0.2
0.1
0
2015 2016 2017