Assignment on

Financial Ratio Analysis of Lane Toy Manufacturing Co.

Course: Working Capital Management & Short term financing F!" #$%&

'repare( For )r Su*it Saha

'repare( +y M(. Akramul +huiyan %,$#-..#

)ate: %% /cto0er1 ,.%$

Return on Asset 2R/A3

This ratio indicates how profitable a company is relative to its total assets. The return on asset (ROA) ratio illustrates how well management is employing the company's total assets to make a profit. The higher the return the more efficient management is in utili!ing its asset base. Return on Asset (ROA) " #arnings After Ta$es % Total Assets Ratio R/A Analysis: ,n this analysis we showed that ROA decreases gradually year to year due to more assets are employed to generate profit. Fi8e( Asset Turno9er Ratio. This ratio is measure the productivity of a company's fi$ed asset with respect to generating sales. The annual turnover ratio is designed to reflect a company's efficiency in managing these significant assets. The higher the yearly turnover rate the better the performance is. -i$ed Assets Turnover " .ales % /et -i$ed Assets %45# &'.()* %456 &&.&&* %457 &&.)+*

Ratio FAT Analysis:

%45# &.0) times

%456 &.0) times

%457 &.0) times

,n this analysis we showed that year to year 1ane Toy generates same revenue per dollar against fi$ed asset investment. The -AT tells that company is efficient in managing its fi$ed asset. :ear to :ear Sales ;ro<th. ,t measures the company2s performance with a competitive advantage. The higher the growth rate the higher the market shares.

Ratio ;ro<th Rate Analysis:

%457 3ase 4ear

%456 (.''*

%45# +.''*

Analysis shows that sales growth rate is decreased from previous year. ,t means company may lose its market share. ,t is necessary to take initiative to improve company2s sales. )e0t to Total Asset Ratio. The debt ratio compares a company's total debt to its total assets. ,t highlights the percentage of the total assets of the firm that is supported by debt financing. The higher the percentage is the greater the financial risk the lower the percentage the lower the financial risk. 5ebt to Total Asset Ratio " Total 5ebt % Total Assets Ratio )e0t to Asset Analysis: ,n this analysis we showed that year to year 1ane Toy reduces its financial risk by utili!ing its alternative source of financing e.g. e9uity in employing total assets. %45# 6(.+0* %456 67.)0* %457 68.0(*

Current Ratio. This ratio indicates the e$tent to which current liabilities are covered by those assets e$pected to be converted to cash in the near future. :urrent Ratio " Total Assets % Total 1iabilities Ratio %45# %456 %457

Current Ratio Analysis:

(.;8 times

6.)8 times

6.&0 times

Analysis shows :urrent Ratio is increasing over the last three years. ,t means company is in strong position to meet its liability. 3ut ratio is too high. A high ratio may indicate an e$cessive amount of current assets and management's failure to utili!e the firm's resources properly.

Recei9a0les Turno9er Ratio. The receivable turnover ratio measure how successful the firm to collect its receivables. The higher the turnover the shorter the time between sales and cash collection. Receivable Turnover Ratio " .ales % Accounts Receivable Ratio Recei9a0le Turno9er Analysis: -rom this analysis we get that the ratio is continuously decreasing from &80( to &807. ,t means that account receivable is increasing day by day which is very bad for the company because it has tied up a lot of cash money which can be used in other business activity. This decreasing turnover means the company is following la$ collection policy as well as the management has failed to use account receivable efficiently. %45# ).+& times %456 7.+7 times %457 0.++ times

!n9entory Turno9er Ratio. The ratio is regarded as a test of efficiency and indicates the rapidity with which the company is able to move its merchandise. ,nventory Turnover Ratio " :O<. % ,nventory Ratio !n9entory Turno9er Analysis: Analysis shows a gradual declination of ,nventory Turnover Ratio over the last three years. 5eclining inventory turnover commonly indicates that the company is not being able to flush its inventory very well as it was doing in the previous years. ,t means that more money is involved in the form of inventory. %45# +.;' times %456 +.7( times %457 6.+( times

Conclusion: 1ane Toy faces cash shortage because it is not so efficient in receivable and inventory management. ,nventory is tide up with overstocking where money is involved as well as receivables is not properly turned into cash against sales. 3esides these 1ane Toy paid ta$es and dividends in cash from its continuing operations.

Thank you