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Fu wang Liquidity ratio 1. Current ratio analysis Current LIabilities (273497454) (387953799) (416085788) Current ratio 0.81:1.00 0.67:1.

00 0.69:1.00 Standard ratio Comment 2.00:1.00 2.00:1.00 2.00:1.00 poor Poor poor

Year Current Assets 2007 222716672 2008 261679767 2009 286641578

2.5 2 1.5 Current ratio 1 0.5 0 2007 2008 2009 Standard ratio

Analysis: It represents the margin of safety or cushion available to the creditors. It is an index of the firms financial stability. It is also an index of technical solvency and an index of the strength of working capital. That is why in general creditors would like to see a higher current ratio. A relatively low current ratio represents that the liquidity position of the firm is not good and the firm shall not be able to pay its current liabilities in time without facing difficulties. Above chart shows that the current ratio of Fu-wang is in a very poor condition.the ratio did not even rise higher then 1:1 in these three years. Reasons behind decreasing of current ratio1: We have observed from the balance sheet that the current liabilities have increased faster than the current assets every year. Specifically due to short term bank loans, accrued

Annual report 2007-20008,p14, Annual report 2010,p13

expences, liabilities to other creditors were paid more slowly in each year. This condition represents the difficulty in short term solvency of the company.

Recommendation:
-Paying some debts. -Increasing their current assets from loans or other borrowings with a maturity of more than one year. -Converting non-current assets into current assets. -Increasing their current assets from new equity contributions. -Putting profits back into the business.

2. Year Quick Assets

liquid ratio analysis Liquid ratio Standard ratio 1.00:1.00 1.00:1.00 1.00:1.00 Comment

Current Liabilities (273497454) (387953799) (416085788)

2007 2008 2009

57503043 72718632 104821767

0.21:1.00 0.187:1.00 0.25:1.00

Poor Poor poor

1.2

0.8 Liquid ratio Standard ratio 0.4

0.6

0.2

0 2007 2008 2009

Analysis:
The true liquidity refers to the ability of a firm to pay its short term obligations as and when they become due. Liquid ratio is more rigorous test of liquidity than the current ratio because it eliminates inventories and prepaid expenses as a part of current assets.. It measures the firm's capacity to pay off current obligations immediately and is more rigorous test of liquidity than the current ratio. In every year,their current assets are lower than their current liabilities

Reasons behind poor liquid ratio: Low cash and cash equivalents Increasing amount of short term credit Overall increase in accrued expenses Current liabilities has increased from 273.5mn to 416.09mn

Recommendation:

Collecting account receivables quickly to pay off its current liabilities without having to liquidate its inventory.

Paying off accrued expenses.

Negotiating longer payment terms with their vendors whenever possible to keep the money longer. Issuing loans and short term bonds

http://www.accountingformanagement.com/liquid_ratio.htm
http://www.entrepreneur.com/money/moneymanagement/financialmanagementcolumnistpamnewma n/article187606.html Quick asset = current assets - inventories

Current assets 222716672 261679767 286641578

Inventories 165213629 188961135 181819811

Quick assets 57503043 72718632 104821767

Asset Management/ Activity base Ratio


3. Year Receivables turnover ratio Net credit sales Average net receivables Nil
24329605.5 39469310.5

Receivables turnover ratio n/a


12.20 times 7.92 times

Standard ratio

Comment

2007 2008 2009

304433650 296667642 312617029

Average net receivables = (receivables of present year + receivables of last year)/2 Year 2007 2008 2009 receivables of present year Nil 36171186 42767435 receivables of last year Nil 12488025 36171186 Average net receivables n/a 24329605.5 39469310.5

Receivables turnover ratio


15 10 5 0 2007 2008 2009 Receivables turnover ratio

Analysis:
There was no receivables in 2006 and 2007 Net receivables has been increased in last two years

Net sales were not in any consistent trend But receivables turnover ratio decreased. This implies reduction of cash inflows from sales

Recommendations:

Reducing credit sales Receivables should be collected

4.

Inventory turnover ratio Year 2007 2008 2009 COGS 232235785 231137880 244158561 Avg. Inventories 143755853.5 177087382 185390473 Turnover ratio (times)
2.08 2.50 2.00

Turnover ratio (times)


3 2 1 0 2007 2008 2009 Turnover ratio (times)

Average Inventories = (Inventories of present year + Inventories of last year)/2 Year 2007 2008 2009 Inventories of last year 122298078 165213629 188961135 Inventories of present year 165213629 188961135 181819811 Average Inventories 143755853.50 177087382.00 185390473.00

Analysis: Both average and general inventory have increased every year. Inventory turnover ratio of 2009 is lower than last two years This ratio has increased in 2008, but deteriorate in 2009

COGS increased, decreasing the gross profit. Proportionate to current assets, there is high inventory, which is rising their holding cost. May be they are holding obsolete products.

Recommendation: The ratio does not show an increasing trend. They should operate an investigation, if their turnover ratio does not fall within their predetermined range. They should take proper step to increase turnover ratio because it is increasing their holding cost. Converting idle inventory into liquid asset is required. If they are holding any obsolete item, then they should sell those. Improvement in inventory management is recommended

5. Year 2007 2008 2009

Asset Turnover ratio Net Sales 304433650 296667642 312617029 Avg assets Asset turnover ratio

683648848.5 .45times 781067648 .38times 851422361 .36times

Average assets = (total assets of present year + total assets of last year)/2 Year 2007 2008 2009 total assets of present year 719960872 842174424 860670298 total assets of last year 647336825 719960872 842174424 Average assets 683648848.5 781067648 851422361

Asset turnover ratio


0.6 0.4 0.2 0 2007 2008 2009 Asset turnover ratio

Analysis: Trend of lower turnover ratio Asset and average assets have increased faster than sales. This indicates assets are not being utilized to generate sufficient sales. Asset turnover ratio is not satisfactory and decreased than last years.

Recommendation: Management should be concerned for increasing sales to improve this ratio Proper utilization of assets is required

6. Year

Fixed Assets Turnover Ratio = Sales / Fixed Assets

Net Sales

Fixed assets

turnover ratio .61times .51times .54times

Standard ratio

Comment

2007 2008 2009

304433650 296667642 312617029

497244200 580494657 574028720

turnover ratio
0.7 0.6 0.5 0.4 2007 2008 2009 turnover ratio

Analysis: Rise in sales and fixed assets. No significant improvement in turnover ratio Huge amount of fixed asset observed against sufficient generation of revenue. The fraction figure in turnover ratio indicates their quantity of sales is less than the value of their assets

Recommendation: Sales to be increased. Fixed assets to be more efficiently utilized. May lay off any old fixed assets

DEBT 7. Year .Debt ratio= Total liabilities/total assets Total liabilities Total assets Debt ratio Standard ratio Comment

2007 2008

(273497454) (409953799)

719960872
0.38 842174424 0.48

2009

(425901550)

860670298
0.49

Debt ratio
0.6 0.5 0.4 0.3 0.2 0.1 0 2007 2008 2009 Debt ratio

Analysis: Debt ratio was found stable but increasing. Further increase might signal the investors to be reluctant to lend the firm more money

Recommendation: The firm may pay off their huge bank loans by selling off some of their old fixed assets and inventories.

8. Year

Times Interest earned Earnings before interest & tax 42284199 34761078 31228704

*
Times Interest earned ratio Remarks

2007 2008 2009

Interest 30003889 46523871 32485474

1.41 times 0.74 times 0.96 times

Times Interest earned ratio


1.5 1 0.5 0 2007 2008 2009 Times Interest earned ratio

Analysis:

TIE ratio doesnt show any marked improvement. EBIT seems to be reducing. The fraction figure shows that the amount of interest is higher than EBIT. It also shows that the firm is failing to meet the obligation to cover its interest annually, possible resulting in bankruptcy. Lenders might not be willing to lend additional funds to the company

Recommendation:
The firm may look for issuing more equity instead of borrowing loans to finance its activities. It may control its administrative, selling and distributing expenses to increase the ratio.

It may finance its debts by selling some its old inventories/fixed assets.

EBIT was not given directly in income statement. It was calculated by adding operating profit and financial expense.

Profitability ratio
9. Net Profit Ratio

Net Profit Ratio = Net profit / Net Sales100

Year

Net profit

Net Sales

Net Profit ratio % 2.387 -2.507 0.815

Standard ratio

Comment

2007 2008 2009

7269320 (7439793) 2548103

304433650 296667642 312617029

Net Profit ratio %


3 2 1 0 -1 -2 -3 2007 2008 2009 Net Profit ratio %

Analysis: Alarming deterioration in net profit. Net sales decreased in 2008 and company faced net loss in that year Net sales increased into tk.312617029 in 2009 Company earned a very minimal percentage of net profit in 2009 Administrative ,financial & selling expense was high in 2008 COGS was huge Heavy use of debt causing higher interest is also a reason behind net loss in 2008 and low percentage of net profit ratio.

10.
2

Net Operating Profit Ratio = Operating Profit / Net Sales1002

Year

Operating profit

Net Sales

Net operating Profit ratio %


13.89 11.72 9.99

Standard ratio

Comment

2007 2008 2009

42284199 304433650 34761078 296667642 31228704 312617029

Net operating Profit ratio %


15 10 5 0 2007 2008 2009 Net operating Profit ratio %

Analysis: Net operating profit has decreased every year, which represents operational inefficiency Inefficient managerial performance to generate satisfactory operating profit. Higher administrative and selling expense also caused low profit.

11

Gross Profit Ratio

Year

Gross profit

Net Sales

Gr6ss operating Profit ratio 23.72% 22.09% 21.9%

Standard ratio

Comment

2007 2008 2009

72197865 65529762 68458468

304433650 296667642 312617029

Gr6ss operating Profit ratio


24.00% 23.50% 23.00% 22.50% 22.00% 21.50% 21.00% 20.50% 2007 2008 2009

Gr6ss operating Profit ratio

Gross Profit Ratio = Gross Profit / Net Sales100 Analysis: Net sales and gross profit increased in 2009 High COGS against sales Declining gross profit ratio expresses ineffective sales management. Selling price might have not increased at the same pace with COGS Gross profit ratio is not enough to build up reserves after paying all fixed interest, charges and dividends.

Recommendation for Net profit, Net operating profit and gross profit ratio:

If there are any decrease in the selling price of goods, without corresponding decrease in the
cost of goods sold, that must be considered to raise gross profit ratio. Improved ability of management to developed sales volume, or omission of sales is required to improve gross profit. Skilled management is needed to develop operating efficiency, incorporating all of the expenses of ordinary, daily business activity. administrative and selling expense is require to be decreased High interest charges will pull the net income down.in such case company should avoid heavy debts. Efficient use of working capital is needed

12.Return on assets Return on assets=net income/average assets Year Net Income Avg assets Return on Standard Comment

Asset % 2007 2008 2009 7269320 (7439793) 2548103


683648848.5 781067648 851422361 1.06 -0.95 0.29

ratio

Return on Asset %
1.5 1 0.5 0 -0.5 -1 -1.5 2007 2008 2009 Return on Asset %

Analysis: Recommendation: Management should be concerned for increasing profit to improve this ratio Proper utilization of assets is required. May sell off some old inventories or fixed assets. Trend of poor turnover ratio. In 2009 there was a negative figure.
The fraction figure shows that the net income is less than the value of assets.

Average assets have increased faster than sales. This indicates assets are not being utilized to generate sufficient profit. The value of assets also comprises of both debt and equity. The poor figure shows the investors that the firm is failing to convert its invested assets into net income.

13.Return on common equity=Net income/ common stock holders equity

Year

Net Income

com. Stock holders equity 446463418

ROE

Standard ratio

Comment

2007

7269320

1.63 2008 (7439793) 432220625 -1.72 2009 2548103 434768748 0.58

ROE
2 1 0 2007 -1 -2 2008 2009 ROE

Analysis: This ratio is saying that the company struggling hard , but improvement is very insignificant There was negative return on equity in 2008 Negligible development is seen the following years. Ordinary shareholders did not get any dividend in 2008 The firm is in a very vulnerable position It has a weak ability to generate cash flow Further investment is risky for investors.

Recommendation:

If no improvement is made ,than this situation can lead to bankruptcy. The company have a chance to face serious problems shortly. And that is because it wont be able to make its shareholders happy in a while. Necessary steps should be taken to improve net income Net income is required to be increased to a satisfactory level

14. Earnings per share = Net income/common share outstanding

Year

Net Income

common share outstanding 3000000 3000000 3000000

EPS

Standard ratio

Comment

2007 2008 2009

7269320 (7439793) 2548103

2.42 -2.48 .85

EPS
4 2 0 -2 -4 2007 2008 2009 EPS

Analysis: There was a big fall of EPS in 2008,net loss was the cause behind that Investment is risky in this company, by the investors. They have recovered a bit in 2009, which is very insignificant The EPS ratio is expressing low earning and profit making capability of the company.

Recommendation: They can borrow money to improve the situation, although that will not be a long term solution Increasing earnings or decreasing the number of shares can be a solution to increase EPS In order to increase earnings, a business has to increase revenues, reduce expenses or both. In order to decrease the number of shares, do a share buyback from shareholders.

15. Price Earning Ratio = Mkt. Price Per Share / EPS Year Mkt price per share EPS PE ratio Standard ratio Comment

2007

76.74

2.42

31.7 n/a3 444.59

2008 2009

151 378.79

(2.48) .852

PE ratio
500 400 300 200 100 0 2007 2008 2009 PE ratio

Analysis: Due to negative EPS no P/E ratio considered in 2008. High P/E artio observed in 2009. Investors are taking too many risks with high expectations while investing their money into this company

Negative PE ratio found in 2008 & 2009. Hence it is not considered in our analysis. Reference: www.dsebd.org, www.stockbangladesh.com

Recommendation: EPS to be further improved to ensure stable P/E. Shareholders should be careful before investing further in this company.

16.Market book value ratio=mkt price per share /book value per share Year Mkt price per share BVPS Ratio Standard ratio Comment

2007

76.74 148.821

0.51

2008 2009

151 378.79

144.073

1.05 2.613

144.923

Book value per share = common equity/shares outstanding Year Common Equity 446463418 432220625 434768748 Common Remarks shares outstanding BVPS 3000000 148.821 3000000 144.073 3000000 144.923

2007 2008 2009

Analysis: No of shares didnt increase over the period of time. Market price increased in three years whereas Book value didnt increase.

Recommendation: Management should re think its strategy especially how to use more efficiently its equity and optimize use of debt.

BVPS
150 149 148 147 146 145 144 143 142 141 2007 2008 2009

BVPS