Term paper
on
Firms Performance, Stability, and Liquidity Condition on Five (05)
DSElisted Companies: A Time Series Analysis
Submitted to:
Dr. Muhammad Shahin Miah CPA
Assistant Professor of Accountancy
Department of International Business
University of Dhaka
Submitted by:
Mohammad Sarower
ID No: ZR 45
Department of International Business
University of Dhaka
Date of Submission: 08 April (Sunday) 2018
INTRODUCTION
Financial ratios illustrate relationships between different aspects of a company's operations and
provide relative measures of the firm's conditions and performance. Ratio analysis is used to
evaluate a number of issues with an entity, such as its liquidity, efficiency of operations, and
profitability. This type of analysis is particularly useful to analysts outside of a business,
since their primary source of information about an organization is its financial statements.
Financial ratios may provide clues and symptoms of the financial condition and indications of
potential problem areas. The financial ratios generally hold no meaning unless they are compared
against something else, like past performance, another company, competitor or industry average.
Thus, the ratios of firms in different industries, which face different conditions are usually hard
to compare. Financial ratios can be an important tool for small business owners and managers to
measure their progress toward reaching company goals, as well as toward competing with larger
companies within an industry. In addition, tracking various ratios over time is a powerful way to
identify trends. Ratio analysis, when performed regularly over time, can also give help small
businesses recognize and adapt to trends affecting their operations.
Review of Literature
Review of Literature refers to the collection of the results of the various researches relating to
the present study. It takes into consideration the research of the previous researchers which arerel
ated to the present research in any way. Here are the reviews of the previous researches related
with the present study:
Bollen (1999)
conducted a study
on Ratio Variables on which he found three different uses of ratio variables in
aggregate data analysis: (1) as measures of theoretical concepts, (2) as a means to control an
extraneous factor, and (3) as a correction for heteroscedasticity. In the use of ratios as indices
of concepts, a problem can arise if it is regressed on other indices or variables that
contain a common component. For example, the relationship between two per capita
measures may be confounded with the common population component in each
variable. Regarding the second use of ratios, only under exceptional conditions will ratio
variables be a suitable means of controlling an extraneous factor. Finally, the use of ratios to
correct for heteroscedasticity is also often misused. Only under special conditions will
the common form forgers soon with
ratiov a r i a b l e s c o r r e c t f o r h e t e r o s c e d a s t i c i t y . A l t e r n a t i v e s t o r a t i o s f o r e a c h
o f t h e s e c a s e s a r e discussed and evaluated.
Cooper (2000)
conducted a study
on Financial Intermediation on which he observed that the quantitative behavior of
business-cycle models in which the intermediation process acts either as a source of fluctuations
or as a propagator of real shocks. In neither case do we find convincing evidence that
the intermediation process is an important element
of aggregate fluctuations. For a n e c o n o m y d r i v e n b y i n t e r m e d i a t i o n s h o c k s , c
o n s u m p t i o n i s n o t s m o o t h e r t h a n o u t p u t , investment is negatively correlated with
output, variations in the capital stock are quite large, and interest rates are procyclical. The model
economy thus fails to match unconditional moments for t h e U . S . e c o n o m y . W e a l s o
structurally estimate parameters of a model economy in which
intermediation and productivity shocks are present, allowing for the propagate the real
shock. The unconditional correlations are closer to those observed only when the intermediation
shock is relatively unimportant.
Research Methodology
Main data for our ratio analysis are the annual financial reports of the five companies in 2015 to
2016. When we measurement the ratio analysis for any company, we must be used in annual
financial report otherwise we don’t measurement. We have also used two main financial
statements for ratio analysis of each company such as; Balance Sheet and an Income Statement.
3.1 Sample
We were given 5 DSE listed companies to do ratio analysis for the period of 2015-2016. Total
sample will be 10 firm-year observations. The name of the 5 DSE listed companies are –
Company Name Period
1. KAY AND QUE 2013-2014
2. KBPPWBIL 2015-2016
3.KEYACOSMET 2015-2016
4. KDSALTD 2015-2016
The financial ratios we used in the analysis are shown below.
Financial Ratios Ratio Calculation Formulas
LIQUIDITY RATIOS
1. Current Ratio Current Assets/Current Liabilities
2. Acid-Test Ratio (Cash + Short-term Investment + Net Accounts
Receivable)/Current liabilities
3. Accounts Receivable Turnover Net Credit Sales/Average Net Accounts Receivable
4. Inventory Turnover Cost of Goods Sold/Average Inventory
PROFITABILITY RATIOS
5. Profit Margin Net Income/Net Sales
6. Asset Turnover Net Sales/Average Total Assets
7. Return on Assets Net Income/Average Total Assets
8. Return on Common Stockholders’ Equity (Net Income - Preferred Dividends)/Average
Common Stockholders’ Equity
9. Earnings Per Share (EPS) (Net Income - Preferred Dividends)/Weighted
Average Common Shares Outstanding
10. Price-Earnings (P-E) Ratio Market Price Per Share/Earnings Per Share (EPS)
Kay and que Bangladesh limited
Ratios 2013 2014
1.Current Ratio 1.83:1 0.41:1
2.Acid-Test Ratio 1.63:1 1.60:1
3. Accounts receivable Turnover 0.20 times 0.57 times
4. Inventory turnover ----- -----
5. Profit margin -24.03% -12.90%
6. Asset turnover 0.27 times 0.02 times
7. Return on assets -4.67% 25.38%
8. Return on common -6.28% 35.40%
stockholders’ equity
9. Earnings per share (EPS) (1.03) 0.70
10. Price-earnings (P-E) Ratio ----- -----
11. Payout ratio 10.52% 0.12%
12. Debt to assets ratio 26.40% 27.46%
13. Times interest earned 4.8 times 1.18 times
Kay and que Bangladesh limited
INTERPRATATION
Ratios Interpretation
1.Current Ratio The current ratio is widely used measure for evaluating a
company’s liquidity and short term debt paying ability.
The ratio is computed by dividing current assets by
current liabilities. For this company the current ratio of
2013 is 1.83:1 and of 2014 is 0.41:1. Comparatively the
company’s current ratio was better in 2013. Because in
2014 the ratio is 0.41:1 that means lack of liquidity.
2.Acid-Test Ratio The Acid-Test ratio is a measure of a company’s
immediate short term liquidity. Cash, short term
investment, net accounts receivable are highly liquid
compared to inventory and prepaid system. Acid-Test
ratio of the company was 1.63:1 in 2013 and 1.60:1 in
2014. Comparatively, in 2013 the company was in better
condition by holding 1.63:1 of Acid-Test ratio.
3. Accounts receivable Turnover Accounts receivable Turnover means measure of
liquidity by how quickly a company can convert certain
asset to cash. Comparatively, the company in a better
condition in 2014 for the accounts receivable turnover.
Because, in 2013 the ratio was 0.20 times where 0.57
times in 2014.
4. Inventory turnover --------------------
5. Profit margin Profit margin is a measure of the percentage of each
dollar of sales that results is net income. The company
fall down in 2013 and 2014. Doing loss both year. But in
2013 profit margin ratio is -24.03% and in 2014 -12.90%.
So the company was in better condition in 2014.
Because compare to 2013 the loss in 2014 was reduced.
6. Asset turnover Asset turnover measures hoe efficiently a company uses
it’s to generate Seles. In 2013 the company’s asset
turnover was 0.27 times and in 2014, 0.02 times. So the
company was in a better state in 2013. Because the
turnover of 0.02 is lower than 0.27.
7. Return on assets An overall measure of profitability is return on asset. The
company did loss in 2013. So compared to 2013 the
company had a tremendous cope up in 2014. In 2013
the return on asset was -4.67% but in 2014 it was
25.38% which is a great state.
8. Return on common Return on common stockholders’ equity profitability
stockholders’ equity from the common stockholders’ viewpoint. In 2013 the
ratio was -6.28% which is very bad state for the
company. But in 2014 the ratio was 35.40% that is much
better than that of 2013.
9. Earnings per share (EPS) Earnings per share (EPS) is a measure of the net income
earned on each share of common stock. In 2013 the
company did loss and the EPS was (1.03). But in 2014
EPS of the company was 0.70 that is better condition of
the company.
10. Price-earnings (P-E) Ratio ----------------------
11. Payout ratio It measures the percentage of earnings distributed in
form of cash dividends. The payout ratio was in 2013,
10.52% and in 2014, 0.12% that means downfall of the
company in 2014. So in 2013 the company in a better
state.
12. Debt to assets ratio The ratio measures the percentage of the total assets
that creditors provide. The ratio of the company in 2013
was 26.40% and in 27.46% In 2014. So the company was
in better condition in 2014 holding 27.46% debt to
assets ratio.
13. Times interest earned Times interest earned provides an indication of the
company’s ability to meet interest payments as they
come due. In 2013 times interest earned was 4.8 times
and in 2014 it was 1.18 times. So the company was in a
better state in 2013 holding 4.8 times of times interest
earned.
KBPPWBIL
Ratios 2015 2016
1.Current Ratio 0.18:1 1.42:1
2.Acid-Test Ratio 0.66:1 0.69:1
3. Accounts receivable Turnover 2.26 times 2.83 times
4. Inventory turnover 1.56 times 2.41 times
5. Profit margin 7.68% 9.03%
6. Asset turnover 2.26 times 0.45 times
7. Return on assets 3.23% 9.03%
8. Return on common 4.78% 6.39%
stockholders’ equity
9. Earnings per share (EPS) 0.93 1.04
10. Price-earnings (P-E) Ratio 20.82 times 15.59 times
11. Payout ratio 23.74% 57.86%
12. Debt to assets ratio 32.37% 35.91%
13. Times interest earned 2.10 times 3.43 times
KBPPWBIL
INTERPRATATION
Ratios Interpretation
1.Current Ratio The current ratio is widely used measure for evaluating a
company’s liquidity and short term debt paying ability.
The ratio is computed by dividing current assets by
current liabilities. For this company the current ratio of
2015-2016 is 0.18:1 and of 2016-2017 is 1.42:1.
Comparatively the company’s current ratio was better in
2016-2017 Because in 2015-2016 the ratio is 0.18:1 that
means lack of liquidity.
2.Acid-Test Ratio The Acid-Test ratio is a measure of a company’s
immediate short term liquidity. Cash, short term
investment, net accounts receivable are highly liquid
compared to inventory and prepaid system. Acid-Test
ratio of the company was in 2015-2016, 0.66:1 and
0.69:1 in 2016-2017. Comparatively, in 2016-2017 the
company was in better condition by holding 0.69:1 of
Acid-Test ratio.
3. Accounts receivable Turnover Accounts receivable Turnover means measure of
liquidity by how quickly a company can convert certain
asset to cash. Comparatively, the company in a better
condition in 2016-2017 for the accounts receivable
turnover. Because, in 2016-2017 the ratio was 2.83
times where 2.26 times in 2015-2016.
4. Inventory turnover Inventory turnover measures the number of times, on
average, the inventory is sold during the period. Its
purpose is to measure the liquidity of inventory. In 2015-
2016 inventory turnover of the company is 1.56 times
and 2.41 times in 2016-2017. So in 2016-2016 the
company was in a better state than 2015-2016 by
holding 2.41 times of inventory turnover.
5. Profit margin Profit margin is a measure of the percentage of each
dollar of sales that results is net income. In 2015-2016
the profit margin of the company was 7.68% and in
2016-2017, 9.03%. so, the company was in a better
condition in 2016-2017 than 2015-2016 by holding
9.03% of profit margin.
6. Asset turnover Asset turnover measures hoe efficiently a company uses
it’s to generate Seles. In 2015-2016 the company’s asset
turnover was 2.26 times and in 2016-2017, 0.45 times.
So the company was in a better state in 2015-2016.
Because the turnover of 0.45 is lower than 2.26.
7. Return on assets An overall measure of profitability is return on asset. In
2015-2016 return on assets of the company was 3.23%
and in 2016-2017, 9.03%. So the company was in a
better condition in 2016-2017 by holding 9.03% return
on assets than 2015-2016.
8. Return on common Return on common stockholders’ equity profitability
stockholders’ equity from the common stockholders’ viewpoint. In 2015-
2016 the ratio was 4.78% which is bad state for the
company. But in 2016-2017 the ratio was 6.39 % that is
much better than that of 2016-2017.
9. Earnings per share (EPS) Earnings per share (EPS) is a measure of the net income
earned on each share of common stock. In 2015-2016
the EPS was 0.93 taka of the company. But in 2016-2017
EPS of the company was 1.04 taka that is better
condition than 2015-2016 of the company.
10. Price-earnings (P-E) Ratio It is widely used measure of the ratio of the market price
of each share of common stock to the earnings per
share. In 2015-2016 price earnings ratio of the company
was 20.82 times and 8.40 times in 2016-2017. So the
ratio was better in 2015-2016 than 2016-2017 by
holding 20.82 times of price earnings ratio.
11. Payout ratio It measures the percentage of earnings distributed in
form of cash dividends. The payout ratio was in 2015-
2016, 6.09% and in 2016-2017, 4.35% that means
downfall of the company in 2016-2017. So in 2015-2016
the company in a better state.
12. Debt to assets ratio The ratio measures the percentage of the total assets
that creditors provide. The ratio of the company in 2015-
2016 was 32.37% and in 35.91% In 2016-2017. So the
company was in better condition in 2016-2017 holding
35.91% debt to assets ratio.
13. Times interest earned Times interest earned provides an indication of the
company’s ability to meet interest payments as they
come due. In 2015-2016 times interest earned was 2.10
times and in 2016-2017 it was 3.43 times. So the
company was in a better state in 2016-2017 holding 3.43
times of times interest earned.
KEYACOSMET
Ratios 2015 2016
1.Current Ratio 2.30:1 3.25:1
2.Acid-Test Ratio 0.22:1 0.68:1
3. Accounts receivable Turnover 2.48 times 2.22 times
4. Inventory turnover 3.88 times 3.34 times
5. Profit margin 8% 9%
6. Asset turnover 0.77 times 0.66 times
7. Return on assets 6.60% 7.10%
8. Return on common 9% 8%
stockholders’ equity
9. Earnings per share (EPS) 3.10 3.33
10. Price-earnings (P-E) Ratio ------ ------
11. Payout ratio ------ ------
12. Debt to assets ratio 60% 50%
13. Times interest earned 1.88 times 2.50 times
KEYACOSMET
INTERPRETATION
Ratios Interpretation
1.Current Ratio The current ratio is widely used measure for evaluating a
company’s liquidity and short term debt paying ability.
The ratio is computed by dividing current assets by
current liabilities. For this company the current ratio of
2015 is2.30:1 and of 2016 is 3.25:1. Comparatively the
company’s current ratio was better in 2016. Because in
2016 the ratio is3.25:1 that means lack of liquidity.
2.Acid-Test Ratio The Acid-Test ratio is a measure of a company’s
immediate short term liquidity. Cash, short term
investment, net accounts receivable are highly liquid
compared to inventory and prepaid system. Acid-Test
ratio of the company was0.22:1 in 2015 and 0.68:1 in
2016. Comparatively, in 2015 the company was in better
condition by holding0.22:1 of Acid-Test ratio.
3. Accounts receivable Turnover Accounts receivable Turnover means measure of
liquidity by how quickly a company can convert certain
asset to cash. Comparatively, the company in a better
condition in 2016 for the accounts receivable turnover.
Because, in 2015 the ratio was 2.48 times where
2.22times in 2016
4. Inventory turnover Inventory turnover measures the number of times, on
average, the inventory is sold during the period. Its
purpose is to measure the liquidity of inventory. In 2015-
2016 inventory turnover of the company is 3.88 times
and 3.34 times in 2016. So in 2015 the company was in a
better state than 2016 by holding 3.88 times of
inventory turnover.
5. Profit margin Profit margin is a measure of the percentage of each
dollar of sales that results is net income. In 2015 the
profit margin of the company was 8% and in 2016 9%.
so, the company was in a better condition in 2016than
2015 by holding 9% of profit margin.
6. Asset turnover Asset turnover measures hoe efficiently a company uses
it’s to generate Seles. In 2015 the company’s asset
turnover was 0.77 times and in 2016 0.66 times. So the
company was in a better state in 2015. Because the
turnover of 0.66 is lower than 0.77.
7. Return on assets An overall measure of profitability is return on asset. In
2015return on assets of the company was 6.60% and in
2016 7.10%. So the company was in a better condition in
2016 by holding 7.10% return on assets than 2015.
8. Return on common Return on common stockholders’ equity profitability
stockholders’ equity from the common stockholders’ viewpoint. In 2015 the
ratio was 9% which is bad state for the company. But in
2016 the ratio was 8% that is not much better than that
of2015.
9. Earnings per share (EPS) Earnings per share (EPS) is a measure of the net income
earned on each share of common stock. In 2015the EPS
was 3.10 taka of the company. But in 2016 EPS of the
company was 3.33 taka that is better condition than
2015 of the company.
10. Price-earnings (P-E) Ratio --------------
11. Payout ratio --------------
12. Debt to assets ratio The ratio measures the percentage of the total assets
that creditors provide. The ratio of the company in 2015
was 60% and in 50% In 2016. So the company was in
better condition in 2015 holding 60% debt to assets
ratio.
13. Times interest earned Times interest earned provides an indication of the
company’s ability to meet interest payments as they
come due. In 2015 times interest earned was 1.88 times
and in 2016 it was 2.50 times. So the company was in a
better state in 2016 holding 2.50 times of times interest
earned.
KDSALTD
Ratios 2015 2016
1.Current Ratio 2:1 0.55:1
2.Acid-Test Ratio 0.46:1 0.88:1
3. Accounts receivable Turnover 4.3 times 2.50 times
4. Inventory turnover 2.67 times 3.98 times
5. Profit margin 20% 19%
6. Asset turnover 3.76 times 4.20 times
7. Return on assets 4.66% 7.32%
8. Return on common 7.88% 12.86%
stockholders’ equity
9. Earnings per share (EPS) 2.25 1.29
10. Price-earnings (P-E) Ratio ------ ------
11. Payout ratio ------ ------
12. Debt to assets ratio 23.78% 32.66%
13. Times interest earned 4 times 5.8 times
KDSALTD
INTERPRETATION
Ratios Interpretation
1.Current Ratio The current ratio is widely used measure for evaluating a
company’s liquidity and short term debt paying ability.
The ratio is computed by dividing current assets by
current liabilities. For this company the current ratio of
2015 is 2:1 and of 2016 is 0.55:1. Comparatively the
company’s current ratio was better in 2016. Because in
2016 the ratio is 0.55:1 that means lack of liquidity.
2.Acid-Test Ratio The Acid-Test ratio is a measure of a company’s
immediate short term liquidity. Cash, short term
investment, net accounts receivable are highly liquid
compared to inventory and prepaid system. Acid-Test
ratio of the company was 0.46:1 in 2015 and 0.88:1 in
2016. Comparatively, in 2015 the company was in better
condition by holding 0.46:1 of Acid-Test ratio.
3. Accounts receivable Turnover Accounts receivable Turnover means measure of
liquidity by how quickly a company can convert certain
asset to cash. Comparatively, the company in a better
condition in 2016 for the accounts receivable turnover.
Because, in 2015 the ratio was 4.3 times where 2.50
times in 2016
4. Inventory turnover Inventory turnover measures the number of times, on
average, the inventory is sold during the period. Its
purpose is to measure the liquidity of inventory. In 2015-
2016 inventory turnover of the company is 2.67 times
and 3.98 times in 2016. So in 2016 the company was in a
better state than 2015 by holding 3.98 times of
inventory turnover.
5. Profit margin Profit margin is a measure of the percentage of each
dollar of sales that results is net income. In 2015 the
profit margin of the company was 20% and in 2016 19%.
so, the company was in a better condition in 2016than
2015 by holding 20% of profit margin.
6. Asset turnover Asset turnover measures hoe efficiently a company uses
it’s to generate Seles. In 2015 the company’s asset
turnover was 3.76times and in 2016, 4.20 times. So the
company was in a better state in 2016.
7. Return on assets An overall measure of profitability is return on asset. In
2015return on assets of the company was 4.66% and in
2016, 7.32 %. So the company was in a better condition
in 2016 by holding 7.32 % return on assets than 2015.
8. Return on common Return on common stockholders’ equity profitability
stockholders’ equity from the common stockholders’ viewpoint. In 2015 the
ratio was 7.88% which is bad state for the company. But
in 2016 the ratio was 12.86% that is much better than
that of2015.
9. Earnings per share (EPS) Earnings per share (EPS) is a measure of the net income
earned on each share of common stock. In 2015the EPS
was 2.25 taka of the company. But in 2016 EPS of the
company was 1.29 taka that is not better condition than
2015 of the company.
10. Price-earnings (P-E) Ratio --------------
11. Payout ratio --------------
12. Debt to assets ratio The ratio measures the percentage of the total assets
that creditors provide. The ratio of the company in 2015
was 23.78% and in 32.66% In 2016. So the company was
in better condition in 2016 holding 32.66% debt to
assets ratio.
13. Times interest earned Times interest earned provides an indication of the
company’s ability to meet interest payments as they
come due. In 2015 times interest earned was 4 times
and in 2016 it was 5.8 times. So the company was in a
better state in 2016 holding 5.8 times of times interest
earned.
CONCLUSION
The report is all about ratio analysis and interpretation.13 ratios and 13 interpretation gives us a
clear knowledge about the companies financial condition and we can easily find out which year
is better between 2015-2016.The five listed companies are KAY AND QUE, KEYACOSMET,
KBPPWBIL, KDSALTD. We have analyses 2015 and 2016.and through ratio analyses we know
in which year the companies performance is better.
