Loan Application essay sample
Introduction about the company. 3
Details about the loan application. 5
Financial calculations …………………………………………………………………………………………………………………………….20
Lists of Tables
Figure 1: Cash flow statement ……………………………………………………………………………………12
Figure 2: Income statement………….. ……………………………………………………………………………13
Figure 3: Balance sheet…………………………… ……………………………………………………………14
Purpose of the project/paper
The purpose of the project is to analyze company x’s financial information to come up with a decision concerning their loan application. Company x has provided its income statement, balance sheet, and cash flow statement. The company has also offered its historical background involving its operations, business segment, products and services, and its market share information. In addition to the information, the company has promised to repay the loan based on the assumption of attaining substantial liquid assets, inventory, and sales in regards to high demand for its products and services. It’s upon the loan officer to analyze the company’s information. The analyses will involve the use of financial ratios to assess the company’s suitability to acquire the loan.
Introduction about the company
Almarai Company is a conglomerate based in Saudi Arabia, with its main offices located in Riyadh. The company specializes in producing and distributing beverages and food. The company was founded by Paddy McGuckian and Irish Agri Pioneers Alastair. According to the Almarai literature, the company started with only 350 cows and later expanded its operations at a first speed for the past three decades. Currently, the company is the largest integrated dairy company in the world, and it’s responsible for over 200,000 cows. In 2009, the company partnered with Pepsico, which has enabled it to acquire a large number of businesses (Singh & Hagahmoodi, 2017). In the early years of the history of Almarai Company, it’s recorded that there was less production of milk. So with the help of Prince Sultan Bin Mohammed, Almarai was set up that helped local farmers produce and distribute milk. The company experienced reinvestment and restructuring in the early 1990s that took it from a decentralized structure to a centralized one. At that time, a centralized processing plant replaced five decentralized processing plants, and four large dairy farms replaced ten small dairy farms. By 2005, the Company had transformed into a joint-stock company from limited liability. The move was caused by the company floating 30% of its shares on the Saudi Arabian Stock Market. Since 2006, a quarter of the company shares are owned in Savola while the rest left for the market.
In 2006, the company started to push for more sales on other dairy products and not just milk. An instance is when it held a cheddar cheese promotion around the Middle East. In its expansion, the company also signed a memorandum of understanding with legitimate companies in Global services company bakeries and Western Bakeries Company to acquire up to 100% of the ownership of the company. The acquisition helped the company to raise its capital to 1.090 million Saudi riyals. In 2009, Pepsico and Almarai claimed to form a joint venture known as International dairy and juice limited (Walia, Fanas, Akbar, Eddin, & Adnan, 2017). The companies later announced their acquisition of an international company based in Egypt for Agro-Industrial Projects. The company deals in juice and dairy products, including flavored yogurt, cheese, and flavored ultra-high temperature milk. The same year Almarai also ventured into the poultry market. These were enabled through the acquisition of the Hail Agricultural Development Company that was purchased for 253.2 million dollars in stock and cash. As part of their partnership with Pepsico, the company also started venturing into Jordanian drinks. This venture was preceded by the international dairy and Juice Company, acquiring a 75% stake in Teeba, which is a leading Jordanian Dairy producer. Almarai’s growth and expansion of dairy products continued into 2010 when it announced it was launching its operations into Pakistan.
Almarai’s joint venture with Pepsi continued to grow. The announcing of the company urged to invest a total of 345 million dollars in Egypt in 2011 seemed like a positive move for them following the country’s economic turmoil. In the same year, the company also announced its interest in acquiring a farming company in Argentina. Later in 2016, the company announced that it was going to buy land in the United States to expand its farming operations. In 2018, the company was published as the most popular brand in the United Kingdom for the third year in a row. In 2017, the kingdom’s sovereign wealth fund announced that it was going to acquire a large share of Almarai to increase its share to 16.32%.
The company products and brands include Dietary supplement for mothers, unique formula, infant food, Formulation of Growth stage milk, nutritional supplement for children, fresh whole chicken, ready to cook chicken, fresh chicken, croissant, Suez roll, cake bar, pies, pick rolls, cupcake, bread, burger bun, sandwich roll, pancakes, liquid dairy, juices, yoghurt and desserts. Don't use plagiarised sources.Get your custom essay just from $11/page
In 2018, Almarai had revenue of 13,722.8 million Saudi riyals, which is a decrease from 13,935.53 million Saudi riyals in 2017. The company’s total liabilities and shareholders’ equity was 32,679.14 million Saudi riyals in 2018, an increase from 32,298.31 million Saudi riyals in 2017. The net income in 2018 was 2008.87 million Saudi riyals, which is a decrease from 2,182.29 million Saudi riyals in 2017. As of 2018, Almarai assets are total to 32,679.14 million Saudi riyals, the company has made zero losses for the last five years. The company’s market stock price as of 2019 is 49.25 per share. The company’s earnings per share are 1.95, with a 1,000 million Saudi riyal dividends. The company’s major competitors include Yapaa and mother, First cry, baby, and child Expo India.
Details about the loan application
Company (X) is asking for an SR 50 million line-of-credits for 18 months. This company is promising to repay the loan based on an assumption of a strong base of liquid assets, inventory and sales for the coming 3 years and an efficient management of all its expenses and short-term (current liabilities) –due to an increased demand on its products, robust pricing strategies, increased market share and high level of accounts receivable during the last 3 years which is and will reflect in increased sales and revenues.
Company (X) has an outstanding loan with another bank = SR 20 million for five years, and it matures this current year (the current year is the last year of your analysis). The loan remaining maturity is the end of the current year (the current year is the final year of your analysis). At the end of the current year, the company must pay back SR 500,000 of its long-term debt (annual interest payments) and SR 20 million (the principal amount).
Company (X) is unhappy with its existing banking relationship.
The company has provided background information about its historical background, its products, its business segment, its operations, its products and services, its major competitors in the Saudi market, and its market share. The company also provided its balance sheet statements, income statements, and cash flow statement for the last four years that’s from 2014 to 2018.
Financial ratio analysis of the loan application of the company
The ratios used for the report include the operating cycle, which consists of the number of days of inventory ratio, number of days of receivables ratio, Number of payables ratio, Operating cycle, and Net operating cycle. The operating cycle is the number of days taken by a company to convert its inventory into cash. It refers to the number of days taken to sell stock in addition to the time taken to recover some money (Chen, Shen, Kao & Yeh, 2018). The ratios were used because they are significant in indicating the company’s asset utilization and liquidity. In general, companies that have longer operating cycles require higher sales returns to compensate for the higher opportunity cost. The Almarai’s net operating cycle is 223.29. This operating cycle is reasonable because it’s less than a year but still not favorable since its more than 90 days. A good operating should range between 90 to 120 days. Since the company also has a higher sales return, then the operating income can’t be disadvantageous.
Secondly is the Liquidity ratios, which consist of the current ratio, quick ratio, and networking capital to sales ratio. Liquidity ratios help to determine the ability of a company to pay off its existing debt obligations without the need to raise any external capital (Niari & Khaki, 2016). These are done by calculating the ratio, as mentioned above, that also helps to determine a company’s margin of safety. Liquidity is the easiness of converting assets to cash quickly and cheaply. Generally, a company with a high liquidity ratio shows how more liquid the company is and hence has better coverage of its outstanding debt. An excellent way to analyze a company’s liquidity ratio is by calculating for more than one period. The current ratio evaluates a companies ability to pay off its current liabilities using its current assets. The higher the current ratio, the better the liquidity position of the company. Almarai has a current ratio of 1.29. The company’s current ratio is average, which means it has an average ability to convert its existing assets into cash. The quick ratio, on the other hand, determines a company’s ability to pay off its short-term debt with its most liquid assets, excluding the inventory. Almarai’s liquidity ratio is 0.5 for the year ending 2018. This ratio is below average, which points to inadequate liquidity; hence, with 0.5 dollars in assets can not be rapidly converted into cash.
The third consideration is the profitability ratios, which consist of the gross profit margin, operating profit margin, and the net profit margin. These ratios are used to determine a company’s ability to generate income relative to its operating costs, total assets, shareholders’ equity, and its revenue (Laitinen & Laitinen, 2018). For the profitability ratios, they indicate a company doing well when it has a higher value as compared to the previous period value. These are mostly useful for companies that experience seasonable sales. But since for Almarai, the products are basic needs in human life, hence on one-year calculation was used to determine its profitable ratio. The gross profit margin determines how much a company can go above its cost of goods sold. Almarai’s gross profit margin is 0.35, which is favorable for the company. Operating margin is the percentage of the sales excluding the operating expenses. Almarai’s operating margin is 0.179, which is desirable.
Another financial ratio used is the activity ratio, which is determined by calculating the inventory turnover, accounts receivable turnover, total asset turnover, and fixed asset turnover. These ratios evaluate a company’s ability to convert various accounts within its balance sheet into sale or cash. They measure a company based on its leverage, the use of its assets, or other related items on the balance sheet. These ratios help to determine the rate at which the company is using its resources well to generate cash or revenues (Purgstaller, Konrad, Dietzel, Immenhauser & Mavromatis, 2017). Many companies tend to convert their production into sales or cash as quick as possible with the belief that it will lead to higher incomes. Since most businesses operate using inventory, debt, and materials, activity ratios evaluate on how well the organization manages them. They indicate an organization’s operational efficiency. These ratios are analyzed as one of the organization’s key performance indicators. Accounts receivable turnover determines how well a company collects its money for debtors.
Given that Almarai does not have any credit sales on the provided income statement, then it’s a good indicator of how well the company manages to collect its money from investors. Inventory turnover ratio evaluates how often the remaining inventory is sold in a given period. Higher values indicate how quickly the stock is sold. Almarai’s inventory turnover is 2.3, which is a much better value and an indicator of how well the company manages to sell the balance inventory in a given accounting period. The asset turnover ratio measures how well the assets are used to make a sale. When the asset ratios are smaller, its an indicator of how a company is holding a higher level of stock instead of selling. Almarai’s asset turnover is 0.4, which is favorable, and a sign of how well the company is doing in utilizing its assets.
Financial leverage ratio was also used, which consists of the total debt to assets ratio, long term debt to asset ratio, total debt to equity ratio, equity multiplier, times – interest – coverage ratio and fixed- charge coverage ratio. These ratios determine how much capital is raised in the form of debt and asses the ability of a company to repay it (Hussein, Shahid & Akmal, 2016). These ratios are important because debt and equity are significant sources of finance for companies, and knowing the amount of money owed is essential in evaluating whether it can make the payment. Banks are the most leverage institutions to limit lending risks. The leverage ratios are often reviewed. A higher debt to equity ratio indicates that a company has been financing most of its operations with debt. Generally, a debt to the ratio that’s more than 2 is a risk to a company. Almarai debt to equity ratio is 1.35, which is slightly below two; hence, a favorable debt to equity ratio. Although it is still not low enough. Almarai equity multiplier is 2.35, although it is not high enough, the company still funds most of its operations using debt.
Second lastly is the shareholder ratios which consist of the earnings per share ratio, dividends per share ratio, dividend payout ratio, and price-earnings ratio. These ratios help to asses the rate of return received by the shareholders of a company (Albada, Soo-Wah, Yong, Nassir, Kamarudin & Anwar, 2019). The dividend per share ratio determines how much dividend is paid per share. Almarai dividend per share is 1.95. The dividend yield, on the other hand, compares the current market stock price with the dividend paid to shareholders.
Lastly is the return ratios, which consist of the operating return on asset ratio, return on assets, and return on equity. Return ratios indicate a companies ability to generate income for its shareholders (Gultom, Purba, Zepria & Sinaga, 2019). Return on assets determines the efficiency by which a company can make profits. On the other hand, return on the equity measures how well a company can use its capital.
Financial Ratios as at 12 December 2018
| Liquidity ratios | |
| Quick ratios | 0.5 |
| Current ratio | 1.29 |
| Networking capital to sale ratio | 0.1 |
| Operating cycle ratios | |
| Number of days inventory | 158.58 |
| Number of days receivables | 34.27 |
| Number of days payables | 30.44 |
| Operating cycle | 192.85 |
| Net operating cycle | 223.29 |
| Profitability | |
| Gross profit margin | 0.35 |
| Operating profit margin | 0.179 |
| Net profit margin | 0.146 |
| Activity | |
| Inventory turnover | 2.3 |
| Accounts receivable turnover | 10.65 |
| Total asset turnover | 0.41 |
| Fixed asset turnover | 0.54 |
| Financial leverage | |
| Total debt to asset ratio | 0.575 |
| Long term debt to asset ratio | 0.366 |
| Total debt to equity ratio | 1.35 |
| Equity multiplier | 2.35 |
| Time – interest – Multiplier | 1,259.2 |
| Shareholder ratios | |
| Earnings per share | 1.953 |
| Dividends per share | 1.953 |
| Dividend payout ratio | 0.142 |
| Price-earnings ratio | 25.25 |
| Return ratios | |
| Operating income | 0.075 |
| Return on assets | 0.06 |
| Return on equity | 0.145 |
Final Decision
Most commercial banks have developed their lending policies, which enables them to reach a loan decision. Regarding the commercial bank, the requirements to acquire a loan include the following. A good credit score, Almarai has been in business for a longer time; hence, the company has a good credit score. Another factor is the age of the business. Almarai company has been in operation for a more extended period hence an excellent company to offer a loan. The company’s annual revenue is above average and good enough to pay off its debt, which is another factor considered when giving out a loan (Zhan & Yin, 2018). Another factor is the debt to credit ratio. As calculated below, the company’s debt to credit ratio is favorable; hence, it has a source to turn to incase it makes losses. Almarai’s operating income has been growing over the years, with only a few hickups. Its overall growth has been at a higher level since it began. Hence the company has a higher chance of getting a loan. When it comes to assets, the company has better assets. The most commonly considered ratios when determining a company’s loan eligibility include operating margin, debt to equity ratio, current ratio, and inventory ratio. All these ratios were considered and other ratios that can strengthen the analysis. The company applied the loan based on the assumption that it will attain a strong base of the liquid asset, sales, and inventory for the coming three years and efficient management of its expenses and short term liabilities. With the financial ratio analysis was done for 2018 and the comparable overview of the companies financial statements for the last four years, it is evident that it is in a position to attain their expectations. Looking at its history and the market on how most investors are attracted to invest in the company, it is evident that the company will experience an increase in its growth. The bank decided to lend the company the 50million but for a period of 24 months.
|
LOAN AGREEMENT This loan agreement is entered into on (Date), between ALMARAI COMPANY and THE BANK. ADDRESS ……….. This where the borrower is interested in borrowing a fixed amount of money This is where the lender is interested in lending a fixed amount of money With regard to the covenants, agreements, and promises contained herein, the parties pledge as follows; Loan amount. Amount agreed upon 50,000,000 Interest rate. Interest rate agreed upon by the parties is 5% to be paid monthly Loan term. The loan period agreed upon by the parties is 24 months Repayment. The repayment agreed upon by the parties where the lender shall pay the bank on the 5th of every month Principal. 2,083,333 Interest. 104,166 Penalties shall be applied in case of late payments of 2% on the monthly installment Name…………… Sign……………… Date……………. |
Conclusion
In conclusion, Almarai is a fast-growing company with high growth and expansion of its operations. Looking at the company’s financial statements that are the income statement, balance sheet, and cash flow statement, the figures are right. The company is competing with some of the leading companies in the Middle East and Asia, which gives it a good credit. Despite its financial books looking good, it has a good reputation, and its need to expand its business across other countries increases its credibility. The bank’s decision to offer the loan for 24 months was based on the decrease in the company’s income.
References
Albada, A., Soo-Wah, L., Yong, O., Nassir, A. M., Kamarudin, F., & Anwar, N. A. M. (2019). Heterogeneity of Opinion, Shareholder Retention Ratio, and Lockup Period: Malaysian Evidence. International Journal of Economics and Management, 13(1), 231-248.
Chen, Y. K., Shen, C. H., Kao, L., & Yeh, C. Y. (2018). Bank liquidity risk and performance. Review of Pacific Basin Financial Markets and Policies, 21(01), 1850007.
Gultom, M. L., Purba, D. P., Zepria, Z., & Sinaga, R. (2019). PENGARUH CURRENT RATIO (RASIO LANCAR), RETURN ON EQUITY DAN TOTAL ASSET TURN OVER (TATO) TERHADAP HARGA SAHAM PADA SECTOR CONSUMER GOODS INDUSTRY DI BURSA EFEK INDONESIA. JURNAL GLOBAL MANAJEMEN, 8(1), 35-44.
Hussein, M., Shahid, H., & Akmal, M. (2016). Effect of Profitability and Financial Leverage on Capita Structure in Pakistan Textile Firms. Arabian J Bus Manag Review, 6(222), 2.
Laitinen, E. K., & Laitinen, T. (2018). Financial reporting: profitability ratios in the different stages of life cycle. Archives of Business Research, 6(11).
Niari, M. H., & Khaki, A. A. (2016). The Effect of Inflation and Operating Cycle on Cash Holdings. International Business Management, 10(6), 874-877.
Purgstaller, B., Konrad, F., Dietzel, M., Immenhauser, A., & Mavromatis, V. (2017). Control of Mg2+/Ca2+ activity ratio on the formation of crystalline carbonate minerals via an amorphous precursor. Crystal growth & design, 17(3), 1069-1078.
Singh, A., & Hagahmoodi, S. O. (2017). Performance Measurement of Almarai Products and Customer Satisfaction. International Journal of Management Science, 4(1), 1-12.
Walia, T., Fanas, S. A., Akbar, M., Eddin, J., & Adnan, M. (2017). Estimation of fluoride concentration in drinking water and common beverages in United Arab Emirates (UAE). The Saudi dental journal, 29(3), 117-122.
Zhan, Q., & Yin, H. (2018, March). A loan application fraud detection method based on knowledge graph and neural network. In Proceedings of the 2nd International Conference on Innovation in Artificial Intelligence (pp. 111-115). ACM.
Figure 1: Almarai Cash flow statement
| Period Ending: | 2018 31/12 | 2017 31/12 | 2016 31/12 | 2015 31/12 | |||||||||||||||||||||||||||||||||||||||||||||
| Period Length: | 12 Months | 12 Months | 12 Months | 12 Months | |||||||||||||||||||||||||||||||||||||||||||||
| Net Income/Starting Line | 2007.22 | 2159.96 | 2150.1 | 1915.69 | |||||||||||||||||||||||||||||||||||||||||||||
| Cash From Operating Activities | 3557.73 | 4614.15 | 4472.54 | 4931.94 | |||||||||||||||||||||||||||||||||||||||||||||
| |||||||||||||||||||||||||||||||||||||||||||||||||
| Cash From Investing Activities | -2340.34 | -3310.47 | -4981.39 | -4408.95 | |||||||||||||||||||||||||||||||||||||||||||||
| |||||||||||||||||||||||||||||||||||||||||||||||||
| Cash From Financing Activities | -1850.54 | -240.99 | -717.22 | 731.7 | |||||||||||||||||||||||||||||||||||||||||||||
| |||||||||||||||||||||||||||||||||||||||||||||||||
| Foreign Exchange Effects | 0.62 | 9.34 | -30.98 | -12.71 | |||||||||||||||||||||||||||||||||||||||||||||
| Net Change in Cash | -632.53 | 1072.03 | -1257.05 | 1241.99 | |||||||||||||||||||||||||||||||||||||||||||||
* In Millions of SAR (except for per share items)
Figure 2: Almarai income statement
| Period Ending: | 2018 31/12 | 2017 31/12 | 2016 31/12 | 2015 31/12 | ||||||||||||||||||||||||||||||
| Total Revenue | 13722.8 | 13935.53 | 14338.58 | 13794.62 | ||||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||
| Cost of Revenue, Total | 8916.52 | 8934.79 | 9434.76 | 9026.31 | ||||||||||||||||||||||||||||||
| Gross Profit | 4806.27 | 5000.74 | 4903.81 | 4768.31 | ||||||||||||||||||||||||||||||
| Total Operating Expenses | 11261.44 | 11352.18 | 11820.8 | 12074.51 | ||||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||
| Operating Income | 2461.36 | 2583.35 | 2517.78 | 1720.11 | ||||||||||||||||||||||||||||||
| Interest Income (Expense), Net Non-Operating | -387.39 | -378.55 | -287.73 | -266.94 | ||||||||||||||||||||||||||||||
| Gain (Loss) on Sale of Assets | – | – | – | -31.7 | ||||||||||||||||||||||||||||||
| Other, Net | 3.75 | -2.59 | -5.61 | 442.93 | ||||||||||||||||||||||||||||||
| Net Income Before Taxes | 2077.72 | 2202.21 | 2224.44 | 1864.4 | ||||||||||||||||||||||||||||||
| Provision for Income Taxes | 70.5 | 42.24 | 74.34 | 65.73 | ||||||||||||||||||||||||||||||
| Net Income After Taxes | 2007.22 | 2159.96 | 2150.1 | 1798.66 | ||||||||||||||||||||||||||||||
| Minority Interest | 1.65 | 22.32 | -2.31 | 117.03 | ||||||||||||||||||||||||||||||
| Equity In Affiliates | – | – | – | – | ||||||||||||||||||||||||||||||
| U.S GAAP Adjustment | – | – | – | – | ||||||||||||||||||||||||||||||
| Net Income Before Extraordinary Items | 2008.87 | 2182.29 | 2147.79 | 1915.69 | ||||||||||||||||||||||||||||||
| Total Extraordinary Items | – | – | – | – | ||||||||||||||||||||||||||||||
| Net Income | 2008.87 | 2182.29 | 2147.79 | 1915.69 | ||||||||||||||||||||||||||||||
| Total Adjustments to Net Income | -55.59 | -71.14 | -65.39 | -50.06 | ||||||||||||||||||||||||||||||
| Income Available to Common Excluding Extraordinary Items | 1953.28 | 2111.14 | 2082.39 | 1865.63 | ||||||||||||||||||||||||||||||
| Dilution Adjustment | – | -1.14 | -2.39 | – | ||||||||||||||||||||||||||||||
| Diluted Net Income | 1953.28 | 2110 | 2080 | 1865.63 | ||||||||||||||||||||||||||||||
| Diluted Weighted Average Shares | 1000 | 1000 | 1000 | 1000 | ||||||||||||||||||||||||||||||
| Diluted EPS Excluding Extraordinary Items | 1.95 | 2.11 | 2.08 | 1.87 | ||||||||||||||||||||||||||||||
| DPS – Common Stock Primary Issue | 0.85 | 0.75 | 0.72 | 0.69 | ||||||||||||||||||||||||||||||
| Diluted Normalized EPS | 1.5 | 1.71 | 1.58 | 1.92 | ||||||||||||||||||||||||||||||
* In Millions of SAR (except for per share items)
Figure 3: Almarai Balance sheet
| Period Ending: | 2018 31/12 | 2017 31/12 | 2016 31/12 | 2015 31/12 | |||||||||||||||||||||||||||||||||||||||||||||
| Total Current Assets | 7071.96 | 6778.9 | 5381.84 | 6154.99 | |||||||||||||||||||||||||||||||||||||||||||||
| |||||||||||||||||||||||||||||||||||||||||||||||||
| Total Assets | 32679.14 | 32298.31 | 29194.44 | 27371.03 | |||||||||||||||||||||||||||||||||||||||||||||
| |||||||||||||||||||||||||||||||||||||||||||||||||
| Total Current Liabilities | 5495.72 | 5818.62 | 4915.94 | 4806.64 | |||||||||||||||||||||||||||||||||||||||||||||
| |||||||||||||||||||||||||||||||||||||||||||||||||
| Total Liabilities | 18798.5 | 17866.1 | 16137.22 | 15312.59 | |||||||||||||||||||||||||||||||||||||||||||||
| |||||||||||||||||||||||||||||||||||||||||||||||||
| Total Equity | 13880.64 | 14432.21 | 13057.22 | 12058.44 | |||||||||||||||||||||||||||||||||||||||||||||
| |||||||||||||||||||||||||||||||||||||||||||||||||
| Total Liabilities & Shareholders’ Equity | 32679.14 | 32298.31 | 29194.44 | 27371.03 | |||||||||||||||||||||||||||||||||||||||||||||
| Total Common Shares Outstanding | 992.27 | 992.27 | 993.99 | 994.9 | |||||||||||||||||||||||||||||||||||||||||||||
| Total Preferred Shares Outstanding | – | – | – | – | |||||||||||||||||||||||||||||||||||||||||||||
* In Millions of SAR (except for per share items)
FINANCIAL RATIOS CALCULATIONS
LIQUIDITY RATIOS
1] Quick ratio
Determines the ability of a company to pay off its current liabilities with current assets
= Total current assets – Inventory – Prepaid expenses/ Current liabilities.
Current assets= 7,071.96
Prepaid expenses = 476.18
Inventory = 3,874.19
Current liabilities = 5,495.72
7,071.95 -476.18 – 3,874.19 = 2, 721.58/ 5,495.72
= 0.5
2] Current ratio
= Current assets / Current liabilities
Current assets= 7,071.96
Current liabilities = 5,495.72
= 7,071.96/5,495.72 = 1.29
3] Net working Capital to sale ratio
= Current assets – Current liabilities / Sales
Current assets= 7,071.96 Current liabilities = 5,495.72
Sales = 13,722.8
= 7,071.96 – 5,495.72 = 1,576.24/ 13,722.8 = 0.1
OPERATING CYCLE
1] Number of days of inventory
= Inventory/ Average days of Cost of Goods sold
Average days of cost of goods sold = Cost of goods sold / 365
Cost of goods sold = 8,916.52 = 8,916.52 / 365 = 24.43
Inventory = 3,874.19
3,874.19/ 24.43 = 158.58
2] Number of days of receivables
= Accounts receivable/ Sales on credit /365
Accounts receivable = 1,288.26
Sales on credit = 13, 722.8 = 13,722.8 / 365 = 37.59
= 1,288.26 / 37.59 = 34.27
3] Number of days of payables
= Accounts payable/ Purchases
= Purchases = Cost of goods sold + Ending inventory + Beginning inventory
8,916.52 + 3,874.19 + 3,121.9 = 15,912.61/ 365 = 43.59
Accounts payable = 1,326.87/ 43.59 = 30.44
4] Operating cycle
= Number of days of inventory + Number of days of receivables =
= 158.58 + 34.27 = 192.85
5] Net operating cycle
= Number of days of inventory + Number of days of receivables + Number of days of purchases
= 158.58 + 34.27 + 30.44 = 223.29
PROFITABILITY
1] Gross profit margin
= Gross income / Sales
Gross income = 4,806.27 Sale = 13,722.8
= 4,806.27/ 13,722.8 = 0.35
2] Operating profit margin
= Operating income / sales
Sale = 13,722.8 Operating income = 2,461.36
= 2,461.36/ 13,722.8 = 0.179
3] Net profit margin
= Net income / Sales
Net income = 2,008.87 Sale = 13,722.8
= 2,008.87 / 13,722.8 = 0.146
ACTIVITY
1] Inventory turnover
= Cost of goods sold / Inventory
Cost of goods sold = 8,916.52 Inventory = 3,874.19
8,916.52 / 3,874.19 = 2.30
2] Accounts receivable turnover
= Sales on credit / Accounts receivable
Sale = 13,722.8 Accounts receivable = 1,288.26
= 13,722.8 / 1,288.26 = 10.65
3] Total asset turnover
= Sales / Total assets
Sale = 13,722.8 Total assets = 32,679.14
= 13,722.8 / 32, 679.14 = 0.4199
4] Fixed asset turnover
= Sales / Fixed assets
Sales = 13,722.8 Fixed assets = 25,607.18
= 13,722.8 / 25, 607.18 = 0.536
FINANCIAL LEVERAGE
1] Total debt to asset ratio
= Total debt / Total assets
Total assets = 32,679.14 Total debt = 18,798.5
= 18,798.5 / 32,679.14 = 0.575
2] Long term debt to assets ratio
= Long term debt/ Total assets
Total assets = 32,679.14 Long term debt = 11,969.71
= 11,969.71 / 32,679.14 = 0.366
3] Total debt to equity ratio
= Total debt / Total shareholders’ equity
Total debt = 18,798.5 Total shareholders’ equity = 13,880.64
= 18,798.5 / 13,880.64 = 1.35
4] Equity multiplier
= Total assets / Shareholders equity
Total assets = 32,679.14 Total shareholders’ equity = 13,880.64
= 32,679.14 / 13,880.64 = 2.35
5] Times – interest – coverage ratio
= Earnings before interest and taxes / interest
Earnings before interest and taxes = 2,077.72 interest = 1.65
= 2,077.72 / 1.65 = 1,259.2
6] Fixed – charge coverage ratio
= Earnings before interest and taxes + lease payment / Interest + Lease payment
Earnings before interest and taxes = 2,077.72 interest = 1.65
Lease payment = 317.74
2,077.72 + 317.74 = 2,395.46 2,395.46/319.39 = 7.5
1.65 + 317.74 = 319.39
SHAREHOLDER RATIOS
1] Earnings per share
= Net income available to shareholders / Number of shares outstanding
Net income available to shareholders = 1,953.28 Number of shares outstanding = 1,000
= 1,953.28/1,000 = 1.953
2] Dividends per share
= Dividends paid to shareholders / Number of shares outstanding
Dividends paid to shareholders= 1,953.28 Number of shares outstanding = 1,000
= 1,953.28 / 1,000 = 1.953
3] Dividend payout ratio
= Dividends / Earnings
Dividends = 1,953.28 Earnings = 13,722.8
= 1,953.28 / 13,722.8 = 0.142
4] Price – earnings ratio
= Market price per share / Earnings per share
Market price per share = 49.25 Earnings per share = 1.95
= 49.25 / 1.95 = 25.25
RETURN RATIOS
1] Operating return on assets / Basic earning power ratio
= Operating income / Total assets
Total assets = 32,679.14 Operating income = 2,461.36
2,461.36 / 32,679.14 = 0.075
2] Return on assets
= Net income / Total assets
Total assets = 32,679.14 Net income = 2,008.87
2,008.87 / 32,679.14 = 0.06
3] Return on equity
= Net income / Shareholders equity
Net income = 2,008.87 Total shareholders’ equity = 13,880.64
= 2,008.87 / 13,880.64 = 0.145