$1.$ Explain the $5$ C$\text{'}$s of credit analysis and Role of Credit Rating Agencies with examples

$2.$ Calculate and analyze financial ratios of any manufacturing company for recent $2$ years. The analysis should consist of:

A$.$ Liquidity Ratios $($Current$,$ Quick and Absolute liquid ratio$)$;

B$.$ Solvency $($Debt and Equity ratio, Interest coverage and dividend payout ratios$)$;

C$.$ Efficiency ratios $($Cash Conversion Cycle$)$;

D$.$ Profitability ratios $($Margins and Returns$)$

analyze financial ratio like this below data for another

any PAKISTANI LOCAL COMPANY

PRACTICE QUESTION WITH SOLUTION

Question: Calculate the financial ratios for the year $2016$ and $2017,$ using the following information extracted from Financial Statements of ATX Co$.,$ also provide your interpretation:

ATX Co$.$

Statement of Financial Performance

For the year ended $31$st December $2015$

$2016($Rs$.)2017($Rs$.)$

Sales $29,00,500$

CGS $17,30,000$

Operating Expenses $3,50,000$

Interest Expense $52,000$

Taxes $10\%$ of EBT

MPS $12\mathrm{.}06/$Share &

Total Dividends $240,000$ Sales $22,19,300$

CGS $12,90,000$

Operating Expenses $2,97,000$

Interest Expense $34,000$

Taxes $10\%$ of EBT

MPS $11\mathrm{.}96/$Share

Total Dividends $260,000$

ATX Co$.$

Statement of Financial Position

As at $31$st December $2015$

$2016($Rs$.)2017($Rs$.)$

Current Assets

Cash in Hand $5,60,000$

Cash at Bank $7,65,000$

Marketable Securities $7,23,900$

Accounts Receivable $7,01,300$

Inventory $2,65,000$

Non$-$ Current Assets

Land $56,00,000$

Building $25,00,000$

Machines $38,00,000$

TOTAL ASSETS $14,915,200$

Current Liabilities

Accounts Payable $13,39,200$

Short term Loan $7,06,000$

Accruals $8,90,000$

Non$-$Current Liabilities

Long Term Loan $32,00,000$

Capital

Issued, Subscribed & Paid$-$Up Capital

$(8,78,000$ at Rs$.10$ par value$)87,80,000$

TOTAL LIABILITIES & CAPITAL $14,915,200$ Current Assets

Cash in Hand $4,50,000$

Cash at Bank $5,65,000$

Marketable Securities $7,23,900$

Accounts Receivable $6,01,300$

Inventory $2,75,000$

Non$-$ Current Assets

Land $56,00,000$

Building $25,00,000$

Machines $38,00,000$

TOTAL ASSETS $14,515,200$

Current Liabilities

Accounts Payable $13,35,000$

Short term Loan $7,06,200$

Accruals $8,04,000$

Non$-$Current Liabilities

Long Term Loan $28,90,000$

Capital

Issued, Subscribed & Paid$-$Up Capital

$(8,78,000$ at Rs$.10$ par value$)87,80,000$

TOTAL LIABILITIES & CAPITAL $14,515,200$

Solution

Liquidity Analysis

An analysis used to measure a firms ability to pay off its upcoming short$-$term debt obligations using their short term and liquid assets.

Table of Results:

Ratios $20162017$ Sign Result

Current Ratio $($CA$/$CL$)1\mathrm{.}0272550\mathrm{.}9191621$ Decrease Unfavorable

Quick Ratio $[($CA$-$Inventory$)/$CL$]0\mathrm{.}9369720\mathrm{.}8225081$ Decrease Unfavorable

Absolute Liquid Ratio $($Cash and equivalents $/$CL$)0\mathrm{.}6980440\mathrm{.}6111697$ Decrease Unfavorable

Working Capital $[$CA$-$CL$]80000\mathrm{.}00-230000\mathrm{.}00$ Decrease Unfavorable

Solvency Analysis: Analysis of Financial Position and risks. Debt and Equity ratios and cost of debt and equity i$.$e$.$ Interest and Dividends.

Table of Results:

Ratios $20162017$ Sign Result

Interest Coverage Ratio $($EBIT$/$Interest$)15\mathrm{.}7788518\mathrm{.}597059$ Increase Favorable

Debt Ratio $($TD$/$TA$)0\mathrm{.}4113390\mathrm{.}3951168$ Decrease Favorable

Equity Ratio $($TE$/$TA$)0\mathrm{.}5886610\mathrm{.}6048832$ Increase Favorable

Dividend Payout Ratio $($Dividends$/$Net Profit$)$

Activity Analysis

Efficiency analysis in terms of cost and time using cash conversion cycle.

Table of Results:

Ratios $20162017$ Sign Result

Total Asset Turnover $($Sales$/$TA$)0\mathrm{.}190\mathrm{.}15$ Decrease Unfavorable

Receivables Turnover $4\mathrm{.}143\mathrm{.}69$ Decrease Unfavorable

Collection Period $($in Days$)88\mathrm{.}2598\mathrm{.}89$ Increase Unfavorable

Inventory Turnover $6\mathrm{.}534\mathrm{.}69$ Decrease Unfavorable

Age of Inventory $($in Days$)55\mathrm{.}9177\mathrm{.}81$ Increase Unfavorable

Operating Cycle $($in Days$)144\mathrm{.}16176\mathrm{.}70$ Increase Unfavorable

Payable Turnover

Payment Period

Cash Conversion Cycle

Profitability Analysis

Profit margins and returns anaysis

Table of Results:

Ratios $20162017$ Sign Result

Gross Profit Margin $($GP$/$SALES$)0\mathrm{.}40360\mathrm{.}4187$ Increase Favorable

Operating Profit Margin $($OP$/$SALES$)0\mathrm{.}28290\mathrm{.}2849$ Increase Favorable

Net Profit Margin $($NP$/$SALES$)0\mathrm{.}23850\mathrm{.}2426$ Increase Favorable

Return on Assets $($NP$/$TA$)0\mathrm{.}04640\mathrm{.}0371$ Decrease Unfavorable

Return on Equity $($NP$/$TE$)0\mathrm{.}07880\mathrm{.}0613$ Decrease Unfavorable

Earnings Per Share $($NP$/$# of shares$)0\mathrm{.}78780\mathrm{.}6133$ Decrease Unfavorable