The founder of a new business may not be a financial expert. A startup often requires a loan, and investors usually require extensive financial data before they will even consider granting one.
To evaluate and assess if the company financial statement we will need all the company data. The data is used to calculate financial ratios over a period of time in our case 2 years, this will grant us the possibility to describe the health of the business and the risk it presents to investors.
Financial ratios highlight developments and variance by simplifying data into key indicator and they enable the banker to make relative comparisons of firm performance over time
So in the case of Mariam & Co. who has applied for a loan from the Gulf Bank in
…show more content…
The current ratio evolved from 4.29 to 5.7 this may suggest improved liquidity of the company. But it did become higher than the industry Norms may suggest inefficient use of the resources tied up in working capital of the company that may instead be put into more profitable uses elsewhere.
Acid test ratio (Current assets-Inventory)/ Current liability 2.1 2.8 3.0 The quick ratio measures a company’s ability to meet its short-term obligations with its most liquid assets. The higher the quick ratio, the better the position of the company
Inventory turnover Cost of goods sold/Inventory 1 1.31 2.2 This ratio measure the average stockholding period, how long the company holds goods in inventory before they are sold.
The more quickly inventory turn over the better alongside considering the future demand.
In our case the company turnover is less than the industry, which is not good.
Average collection period 356 /Account receivable turnover 89 days 78 days 90 days The Average collection period is the average number of days it takes to convert receivables into
…show more content…
The fixed asset Turnover Ration increased from 0.91 to 0.99 and almost measure up to the industry which means that the company is steady in term of sales and investment in plant and equipment
Operating profit margin Operating profits/Sales 29% 25.5% 20% The operating margin ratio demonstrates how much revenues are left over after all the variable or operating costs have been paid. The operation profit margin dropped from 29% to 25 % or A higher operating margin is more favorable compared with a lower ratio because this shows that the company is making enough money from its ongoing operations to pay for its variable costs as well as its fixed costs. But in this case the ratio is still higher than the industry which means the company is doing pretty well still.
Net profit margin Net income /Sales 15.3% 14% 12% Net Profit Margin Ratio is the percentage of net profit relative to the revenue earned during a period. Net Profit Margin ratio is a key performance indicator of the profitability of an