ANALYSIS OF FINANCIAL STATEMENTS FOR THE PERIOD FROM 2008 TO 2010 AL GHADEER EGG TRAYS FACTORY

Analysis of Financial Statements

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Table of Contents
ANALYSIS OF BALANCE SHEET....................................................................................................................... 3 Liquidity Ratios .......................................................................................................................................... 3 1. 2. 3. Current Ratio ................................................................................................................................. 3 Quick Ratio .................................................................................................................................... 3 Inventory Turnover Ratio .............................................................................................................. 4

ANALYSIS OF INCOME STATEMENT .............................................................................................................. 5 Profitability Ratios..................................................................................................................................... 5 Expenses Ratios......................................................................................................................................... 6 ANALYSIS OF CASH FLOWS............................................................................................................................ 7 Net Profit and Cash Flow .......................................................................................................................... 7 CONCLUSION................................................................................................................................................. 8

Analysis of Financial Statements

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ANALYSIS OF BALANCE SHEET

Liquidity Ratios
Liquidity ratios are calculated to assess fulfillment of working capital requirements of any organization. Current Ratio and Quick Ratio are two widely used ratios to assess this measurement. 1. Current Ratio

Current ratio is derived by dividing total current assets with current liabilities of the organization. Acceptable range for any organization is between 70 to 100%. In case of Al Ghadeer Factory, as shown in below table their current ratio was not in accordance with acceptable standards for first two years but it is improved in 2010 which depicts that organization is continuously improving with its working capital management and their current ratio improved from 37.40% in 2008 to 79.89% in 2010.
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Description Current Ratio

2008 37.40%

2009 45.53%

2010 79.89%

2.

Quick Ratio

Quick ratio is also used to assess liquidity position of any organization and in this ratio we measure liquidity by dividing all current assets except inventories with total current assets of the organization. Acceptable range for any organization is between 60 to 100%. Analysis of Al Ghadeer Factorys three year financials shows that their quick ratio is constantly improving each year and by starting with only 20.26% in 2008 it has reached to 68.56% in 2010 which depicts that company is well aware with their working capital requirements and if continues with this trend it will achieve 100% threshold in coming years.
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Description Quick Ratio

2008 20.26%

2009 33.65%

2010 68.56%

Analysis of Financial Statements

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3.

Inventory Turnover Ratio

While working with liquidity ratios, inventory turnover ratio is also used to assess management efficiency regarding working capital management that how much days management take for sale of inventories held in stock.
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Description Inventory Turnover (Days)

2008 90

2009 64

2010 42

As shown in the graph, Inventory turnover was 90 days in 2008 and it reduces to 42 days in 2010. This reduction in inventory turnover days shows that management is continuously making effort to reduce inventory of goods so that available funds may be used to meet other working capital requirements of the company.

Inventory Turnover (Days)

100 80 60 40 20 0 2008 2009 2010

Analysis of Financial Statements

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ANALYSIS OF INCOME STATEMENT

Profitability Ratios
Profitability ratios are used to assess performance of any organization over the period. GP ratio, operating profit ratio and net profit ratios are used to assess profitability. Profitability ratios are calculated by dividing profits with total revenue. Horizontal and vertical analyses are also applied to assess these ratios more accurately. In case of horizontal analysis profitability ratios of any particular organization is compared with other companies in the same industry. In case of vertical analysis profitability ratios of same company are compared with previous years and this comparison reflects actual trend of growth or decline in profitability ratios of the company.
Description GP Ratio Operating Profit Ratio Net Profit Ratio 2008 21.35% 4.26% 4.80% 2009 21.77% 7.18% 7.21% 2010 35.26% 18.24% 18.62%

In case of Al Ghadeer Factory, vertical analysis is carried out for previous three years. This analysis shows that all above three ratios are continuously improving over the period of three years. This increase in profitability ratios show reflect companys better performance and if the company continues this performance in the future.

Analysis of Financial Statements

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Expenses Ratios
Expenses ratios are also used to assess performance of any organization. Different expenses are compared with total revenue of the company to know their percentages of total revenue. Following expenses to sales ratios are calculated for Al Ghadeer factory as shown in the table
Description General Expenses Ratio Selling Expenses Ratio Financial Expenses Ratio 2008 5.43% 10.98% 0.44% 2009 5.12% 8.79% 0.14% 2010 7.38% 7.83% 1.62%

Analysis of expenses of Al Ghadeer Factory reflects that company manages to reduce its selling expenses over the period of three years i.e. reused from 10.98% in 2008 to 7.83% in 2010. Whereas, general expenses and financial expenses are on higher side in 2010 although these were slightly lower in 2009 but there is significant increase in these expenses in 2010. Company should try to look and investigate reason of these increases in 2010. The trend of movement in these expenses is also reflected in below chart.
12.00% 10.00% 8.00% 6.00% 4.00% 2.00% 0.00% 2008 2009 2010 1.80% 1.60% 1.40% 1.20% 1.00% 0.80% 0.60% 0.40% 0.20% 0.00%

General Exp. Ratio

Selling Exp. Ratio

Financial Exp. Ratio

Analysis of Financial Statements

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ANALYSIS OF CASH FLOWS

Net Profit and Cash Flow
Cash flow analysis is carried out to ascertain flow of cash in the business over the period so that one could analyze flow of cash with increase in profits of the company. This analysis also helps to assess whether business is generating cash with increase in profits or only credit sales are booked to show extra profits of the business.
Description Net Profits of the year Cash Flows of the year 2008 598.997 (120.877) 2009 1,009.581 144.468 2010 3,133.401 282.966

3,500.000 3,000.000 2,500.000 2,000.000 1,500.000 1,000.000 500.000 -

Net Profits for the year

Cash Flows for the year

350.000 300.000 250.000 200.000 150.000 100.000 50.000 (50.000) (100.000) (150.000)

Analysis of cash flows with net profits reflects that company has grown in actual and with the increase in net profits, cash flows also improves over the period and with negative figure of 120.877 in 2008 it reaches to 282.966 net inflows in 2010. This analysis reflects strong financial position with every passing year.

Analysis of Financial Statements

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CONCLUSION
Analysis of financial statements reflects that company is growing every year and it is able to manage its assets in a better way. Only one area where company needs to concentrate is to reduce general & admin expenses and to control financial expenses of the company.

Analysis of Financial Statements

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