RATIO ANALYSIS

For the assessment of the financial resources of the Mitchell's we use the ratio analysis in order to get a clear vision with simple interpretation. For this purpose we can analysis the financial statements following ways:
o o o o

Analyzing Performance Analyzing Risk Analyzing Efficiency Analyzing Liquidity

Analyzing Performance
ROCE:
As compare to the previous year 2009, the return on capital employed is increasing at higher rate; it shows that profit available to total investment is high in 2010 as compared to 2009.

ROE:
The Return on Equity measures the return earned on the owner s investment in the firm. The higher this return, the better off is the owner. Mitchell's ROE is 26.69% in 2009 and it is grow up as compare to last year and 2010 it is 34.88%.

RFCE:
The return fixed capital employed is considered an indicator of how effectively a company is using its fixed assets. The higher this return, the better off is the owner. Both the year 2009, 2010 it is maintain at 1.41 times.

ROTA:
The return on total assets ratio is considered an indicator of how effectively a company is using its assets. Mitchells return on total assets is increasing 6% as compared to last year return. In 2009 it was 1.93% but in 2010 it is 7.07% which is favorable for company.

GROSS PROFIT:
The gross profit ratio measures the percentage of sales remaining after the firm has paid for its goods. The higher the gross profit margin, the better. Mitchell's gross profit margin is 18.72% in 2009 and in 2010 it is improve and at 20.03%.

NET PROFIT:
The net profit ratio measures the percentage of sales remaining after all costs and expenses, including interest and taxes, have been deducted. Mitchell's net profit margin is 1.11% in 2009 but it is increases in 2010 as compared to last year and it is 3.37%. The higher the firm s net profit margin, the better.

Ratio
ROCE ROE RFCE ROTA Gross Profit Net Profit

2009
22.48 % 26.69 % 1.42 Times 1.93 % 18.72 % 1.11 %

2010
27.95 % 34.88 % 1.41 Times 7.07 % 22.03 % 3.37 %

Trend
Increase Increase Maintain Increase Increase Increase

Analyzing Efficiency
FIXED ASSET TURNOVER:
Higher fixed asset turnovers are preferred, because they reflect greater efficiency of fixed asset utilization. Mitchell's fixed assets turnover is 3.8 in 2009 but in 2010 it is increase and 4.4.This means the company turns over its net fixed assets 4.4 times a year.

INVENTORY TURNOVER:
Inventory turnover commonly measure the activity, or liquidity, of a firm s inventory. A common inventory turnover for a manufacturer would be 4.0. Mitchell's inventory turnover is 3.92 in 2009 and 4.56 in 2010; this figure is excellent for firm.

DEBTOR AGE:
Debtor age of Mitchell s is decrease in 2010, 10.79 times as compare to last year 17.06 times; it is good sign for Mitchell s. The less is the age of debtor will increase the effciency of the company, and vice virsa.

CREDITORS AGE:
The creditor age period represents the number of days by the firm to pay its creditors. The more the creditor age is better for firm. Creditor age of Mitchell s is increase in 2010 and at 109.6 days. The more is the age of creditors will increase the effciency of the company, and vice virsa.

Ratio
Fixed Asset Turnover Inventory Turnover Labour Asset Turnover Debtor Age Creditor Age

2009
380 % 93 Days 7.21 17.06 Times 96 Days

2010
440 % 77 Days 9.62 10.79 Times 109.6 Days

Trend
Increase Decrease Increase Decrease Increase

Analyzing Risk
GEARING RATIO:
It is commonly used to measure the degree of financial leverage of the firm. Mitchell s gearing ratio in 2009 is 18.8% and in 2010 it is 24.7% which means that company borrow more money in 2010.

INTEREST COVER:
As compare to the previous year the interest cover ratio is increase. That is good for firm. In 2009 it is 135% but in 2010 it is increase 284%, it means that company has a profit to pay its interest charges efficiently.

INTEREST GEARING:
Interest Gearing measures the firm s exposure to default through non-payment of interest. It is simply the ratio of interest paid or payable. It is increases in 2010 that means firm does not pay interest over debt.

Ratio
Gearing Ratio Interest Cover Interest Gearing Beaver Failure

2009
169.8 % 135 % 5.04 0.08

2010
114 % 284 % 8.14 0.445

Trend
Decrease Increase Increase Increase

Analyzing Liquidity
CAR (CURRENT ASSET RATIO):
A current ratio of 1.0 might be unacceptable for a manufacturing firm. Mitchell s current ratio is increase as per last year, but company does not meet the standard which is 2:1 in manufacturing firms. In 2010 Mitchell s current ratio is 1.25.

ACID TEST:
A rule of thumb is that figure of 1.00 or more is good and indicates a good financial position of the company. The Mitchell's has its quick ratio is 0.41 in 2010 which is more than 0.34 in 2009.

CASH EXHAUSTION RATIO:

This ratio shows the efficiency of cash as compare to the liabilities of the company, how much cash is fruitful in the company, in 2010 the ratio is 0.029 and in 2011 it is 0.03.

Ratio
Current Asset Ratio Acid Test Ratio Cash Exhaustion Ratio Operating Cash Flow To Maturing Obligation

2009
0.98 0.34 Times 0.03 8.9 %

2010
1.25 0.41 Times 0.029 56.8 %

Trend
Increase Increase Maintain Increase

Z-Score Analysis
The Altman s Z score model of 2.7 or more indicates non failure and a Z score of 1.8 or less indicated failure. Values of the Z score variables between 1.8 and 2.7 were inconclusive. In this company the overall Z score limit is 5.6 which shows that the company is indicating non failure and is strong in its financial working, the company has no need to worry about the financial position.