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INTERPRETATION Receivables turnover shows receivables which are outstanding by making credit sales annually. A higher receivables turnover ratio refers to a rapid collection. For FFC, the ratio is 96 times and the ratio improved to 146 times in fiscal year 2010.
INTERPRETATION This measures the number of days an organization has to wait for payments from debtors. In fiscal year 2009 days of sales outstanding is 3and reached to 4 days in fiscal year 2010.
INTERPRETATION Inventory turnover ratio shows the number of times the inventory has been turned over during the period so that inventory management see that whether inventory is in proper limit or not. Required range of inventory differs from sector to sector. In FFC, inventory turnover for fiscal year 2009 is 102 times while in 2010 it is improving and reached to 142 times.
2009 2010
3.5778 2.5655
INTERPRETATION: Days of inventory on hand shows the required average number of days to sell the inventory of a company. The inventory period of FFC in fiscal year 2009 is 3 days and in 2010 it decreased to 2 days.
INTERPRETATION: It is short-term liquidity measure used to quantify the rate at which a company pays off its suppliers. The measure shows investors how many times per period the company pays its
average payable amount. The higher the payable turnover the better it is. However, in our analysis this ratio is showing a declining trend from 19.7475 in 2009 to 19.0594 which is not a favorable sign.
NUMBER OF DAYS OF PAYABLES: Number of Days of Payables = 365 / Payables Turnover Ratio
INTERPRETATION: This shows the number of day the firm is taking to pay off its average payment amounts. Since we have already seen in the previous ratio that the payables turnover is declining, therefore it is clear that the number of days it take to pay off will also increase, as shown in the graph, from 18 in 2009 to 19 in 2010.
TOTAL ASSETS TURNOVER Total Assets Turnover = Revenues / Average Total Assets
Total Assets Turnover 2009 1.0263 2010 1.0997
INTERPRETATION: Total assets turnover signifies the amount of sales made by Investment per PKR in Average Total Assets of an organization. In FFC the activity shows an improving trend in its total assets turnover ratio from 1.02 in 2009 to 1.09 in 2010.
FIXED ASSET TURNOVER Fixed Asset Turnover = Revenues / Average Net Fixed Assets
Total Asset Turnover 2009 2010
2.7064 2.9989
INTERPRETATION: The fixed-asset turnover ratio measures a company's ability to generate net sales from fixed-asset investments - specifically property, plant and equipment - net of depreciation. A higher fixed-asset turnover ratio shows that the company has been more effective in using the investment in fixed assets to generate revenues. Thus we can see from the graph that our fixed asset turnover ratio has increased from 2.7064 in 2009 to 2.9989 in 2010.
WORKING CAPITAL TURNOVER: Working Capital Turnover = Revenue / Average Working Capital
INTERPRETATION: The working capital turnover ratio is used to analyze the relationship between the money used to fund operations and the sales generated from these operations. In a general sense, the higher the working capital turnover, the better because it means that the company is generating a lot of sales compared to the money it uses to fund the sales. As we can see that this ratio is negative for FFC, this is surely not a positive sign for the firm.
LIQUIDITY RATIOS
INTERPRETATION: Current ratio illustrates the availability of current assets to meet the current liabilities during an accounting period of 12 months. Financial year 2008, 2009 and 2010 shows an increasing trend as current ratio is increasing continuously. However it is still not satisfying the general acceptable benchmark level that is 1.5:1 to 2:1 of the current assets to current liabilities.
NET WORKING CAPITAL: Net Working Capital = Current Assets Current Liabilities
Net Working Capital 2008 -2114130 2009 -2937118 2010 -3354441
INTERPRETATION: It is a measure of both a company's efficiency and its short-term financial health. Positive net working capital means that the company is able to pay off its short-term liabilities. Negative net working capital means that a company currently is unable to meet its short-term liabilities with its current assets, which is the case of FFC, hence it may be forced into bankruptcy.
INTERPRETATION: Quick ratio illustrates the liquid assets which are available to meet the current liabilities during an accounting period of twelve months. Quick ratio of FFC shows a significant increase in fiscal year 2009 and a very negligible decrease in fiscal year 2010.
INTERPRETATION: The cash ratio is most commonly used as a measure of company liquidity. It can therefore determine if, and how quickly, the company can repay its short-term debt. A strong cash ratio is useful to creditors when deciding how much debt, if any, they would be willing to
extend to the asking party. However, in the case of FFC, we observe a declining trend in the ratio which is unfavorable. It falls from 0.21 in 2009 to 0.06 in 2010.
NET WORKING CAPITAL RATIO: Net Working Capital Ratio = Net Working Capital / Total Assets
Net Working Capital Ratio 2008 -0.0662 2009 -0.0762 2010 -0.0779
INTERPRETATION: In case of FFC, its current assets do not exceed its current liabilities, and then it may run into trouble paying back creditors in the short term. The worst-case scenario is bankruptcy. A declining working capital ratio over a longer time period could also be a red flag that warrants further analysis.
SOLVENCY RATIOS
DEBT TO EQUITY: Debt to Equity = Total Debt / Total Equity
INTERPRETATION: This ratio shows how many long-term funds are acquired by long-term loans. For FFC, debt to equity ratio in Financial Year 2008 was 1.6 and in the succeeding year 2009 it was 1.94 and then it improved to 0.67 in Financial Year 2010. This level of dependency on loans is not good. This shows that the risks of not being able to re-pay the debts or loans are high.
DEBT TO CAPITAL: Debt to Capital = Total debt/ (Total Debt+ Total Shareholder's Equity)
INTERPRETATION: The debt-to-capital ratio gives users an idea of a company's financial structure, or how it is financing its operations, along with some insight into its financial strength. The higher the debt-to-capital ratio, the more debt the company has compared to its equity. This tells investors whether a company is more prone to using debt financing or equity financing. This ratio has declined from 0.66 on 2009 to 0.40 in 2010 which shows a good sign for FFC.
INTERPRETATION: Since this ratio is showing a declining trend that means the debt of the company has been reduced in comparison to its assets hence, this is a position indication for the firm. It has reduced from 0.66 in 2009 to 0.64 in 2010.
INTERPRETATION It is a metric used to measure a company's financial risk by determining how much of the company's assets have been financed by debt. This is a very broad ratio as it includes short- and long-term debt as well as all types of both tangible and intangible assets. Declining trend in this ratio is a positive term for FCC.
LONG TERM DEBT RATIO: Long term Debt Ratio = Long Term Debt/ (Long Term Debt + Total Equity)
Long term Debt Ratio 2008 0.3887 2009 0.3679 2010 0.3129
INTERPRETATION:
INTERPRETATION: Like all debt management ratios, the equity multiplier is a way of examining how company uses debt to finance its assets also known as the financial leverage ratio or leverage ratio. A higher equity multiplier indicates higher financial leverage, which means the company is relying more on debt to finance its assets. Since this ratio has declined in 2010 in the case of FFC, it is therefore a favorable outcome.
FINANCIAL LEVERAGE: Financial Leverage = Average Total Assets/ Average Total Equity
INTERPRETATION: A leverage ratio summarizing the affect a particular amount of financial leverage has on a company's earnings per share (EPS). The higher the degree of financial leverage, the more volatile EPS will be, all other things remaining the same. This is our analysis the degree of financial leverage is showing an increasing trend from the year 2009 to 2010.
INTERPRETATION: This ratio shows how many times funds are available for paying off the interest charges for the year. The ratio is 15.32 in fiscal year 2008, 14.80 in 2009 and 19.82 in 2010. Fiscal year 2009 and 2010 signifies improving proficiency of CCF to pay off interest expenses.
INTERPRETATION:
An accounting ratio that helps measure a company's ability to meet its obligations satisfactorily. The better the assets "cover" the liabilities, the better off the company is. In this regard the company shows a favorable position in 2010.
FIXED CHARGE COVERAGE: Fixed Charge Coverage = EBIT+ Lease Payments/ (Interest Payments+ Lease Payments)
INTERPRETATION: A ratio that indicates a firm's ability to satisfy fixed financing expenses, such as interest and leases. This ratio has increased for the year 2010 in case of FFC thus, showing a positive sign for the company.
PROFITABILITY RATIOS
INTERPRETATION: Profit margin is very useful when comparing companies in similar industries. A higher profit margin indicates a more profitable company that has better control over its costs compared to its competitors. Since the profit margin of FFC is showing an increasing trend from the past 3 years, it is surely a good indication for the firm. GROSS PROFIT MARGIN: Gross Profit Margin = Gross Profit/ Revenue
INTERPRETATION: Gross Profit Margin of FFC was 40.5% in 2008 and then it increased to 43.2% in fiscal year 2009 and further increased to 43.6% in 2010. This is owing to the constant increase in sales in the financial years.
INTERPRETATION This is the profit earned after deducting companys operating expenses incurred during an accounting period. FFC shows continuously improving trend of operating profit charge i.e. from 31.67% (in Financial Year 2008) to 34.49% (in Financial Year 2009) to 34.81% (in Financial Year 2010).
INTERPRETATION:
It shows a company's earnings before tax as a percentage of total sales or revenues. The higher the pre-tax profit margin, the more profitable the company. The trend of the pretax profit margin is as important as the figure itself, since it provides an indication of which way the company's profitability is headed. In case of FFC this ratio has declined from 0.63 in 2009 to 0.36 in 2010 which is not a positive indiactor.
INTERPRETATION Return on Assets represents the return generated on average total assets of a company. The higher the return on assets better it is. Return on Assets for FFC improves and it shows a return of 25% in the Financial Year 2009 and increase that is 27% in 2010.
OPERATING RETURN ON ASSETS: Operating Return on Assets = Operating Income/ Average Total Assets
INTERPRETATION: This ratio is used to compare a businesss performance among other industry members. The ratio can be used internally by the company's analysts, or by potential and current investors. A high operating return on assets ratio can indicate that a higher return is to be expected. Since this ratio is increasing from the year 2009 to 2010 in case of FFC, we can expect a higher return.
RETURN ON TOTAL CAPITAL: Return on Total Capital = EBIT/ Average Total Capital
Return on Total Capital 2009 0.4503377 2010 0.6584872
INTERPRETATION: When the return on total capital is greater than the cost of capital, the company is creating value; when it is less than the cost of capital, value is destroyed. This ratio has increased from0.45 in 2009 to 0.66 in 2010, thus showing a positive position of the company FFC.
INTERPRETATION This ratio measures how many rupees are generated by one rupee of equity invested into the business. During Financial Year 2009 and 2010, the return on Equity increased well, reaching the highest level of 77.31% in Financial Year 2009 which was much higher than the previous Financial Year.
INTERPRETATION: This is the measure of earnings made by the organization for every ordinary share during an accounting period. As per the ratio analysis of three Financial Years (2008 to 2010); EPS rose from PKR 9.62 to PKR 13 to PKR 16.25 which quite decently reciprocated shareholders requirements.
INTERPRETATION: In general, a high P/E suggests that investors are expecting higher earnings growth in the future compared to companies with a lower P/E. However, the P/E ratio doesn't tell us the whole story by itself. It's usually more useful to compare the P/E ratios of one company to other companies in the same industry, to the market in general or against the company's own historical P/E. In our analysis we see that this ratio is declining over the past 3 years thus, we cannot expect any growth as compared to competitors.
MARKET TO BOOK RATIO: Market to Book Ratio = Market Value Per Share/ Book Value Per Share
INTERPRETATION: This ratio is used to compare a stock's market value to its book value. A lower P/B ratio could mean that the stock is undervalued. However, it could also mean that something is fundamentally wrong with the company. Since this ratio is constantly increasing from the past 3 years, we can say that is a good sign for FFC.
DU PONT IDENTITY: Du Pont Identity = ROE= Profit Margin* Total Asset Turnover* Equity Multiplier
INTERPRETATION:
DuPont analysis tells us that ROE is affected by three things: - Operating efficiency, which is measured by profit margin - Asset use efficiency, which is measured by total asset turnover - Financial leverage, which is measured by the equity multiplier DuPont analysis helps locate the part of the business that is underperforming. In our analysis we can see that it has slightly increased from 2009 to 2010. DIVIDEND PAYOUT RATIO: Dividend Payout Ratio = Cash Dividends/ Net Income
INTERPRETATION: This ratio shows what potion of our net income we pay out as dividend. The higher the dividend ratio the lower the addition to retained earnings. Thus, in case of FFC, the dividend payout ratio has increased from 0.73 in 2009 to 0.96 in the year 2010, indicating that it pays out almost all of its net income in the form of dividends.
INTERPRETATION: This ratio shows how much assets the company requires to generate the sale of $1, thus, we can see a positive sign in FFC because its capital intensity ratio has decreased in the year 2010, showing that it requires less assets not to generate sales of $1.