Financial Ratio Interpretation

Financial Ratio Analysis
Financial Ratio Interpretation
Profitability Ratio
Gross profit Margin:
GPM is decreased in 2019 as compare 2018 because gross profit of the company is decreased
while sale is increased due to which GPM of the company is decreased from 17.09% to 12.14%
this decreased is mainly due to increased in the sale while company’s GP is decreased as cost of
sale is increased during the period. While in the year 2020 sale is badly effected due to the
pandemic and lockdown situation it was very difficult for company to increase it sales. So
overall in the period between 2018 -22 GPM is seen to be decreased from 17.09% - 6.68% in
2022. That is mainly due to the increase in the inflation in the country and different regulation
on the import of raw material.
Operating Profit Margin:
OPM is overall decreased from 2018-22 from 16.5%- 9.28% because of the decreased in the
operating profit as distribution and administrative expenses are increased during this period
while the sale is increased during this year except 2020 due to increase in the sale and decrease
in the operating profit OPM is decreased while the OPM during the 2021 is increased as
compare to 2020 because industry was coming back to its normal routine.
Net Profit Margin:
NPM is overall decreased form 2018-22 from 11.29%- 5.74% this decreased is mainly due to
increase in the sale while cost of the sale is much more increased than the revenue Because
salary and other administrative expenses during this year increased which overall decreased the
net profit.
Return On Assets (ROA):
ROA increased in year 2019 as compare to 2018 by 1.92% because of the decreased in the total
assets and net income while decreased in the total assets is greater than the net income which
increases ROA that depicts company has sufficiently use its assets after that there is a great
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decline from 2019-22 by 13.78%. This decreased is due to the increase in the total assets while
the income is not increase as much as increased in the total assets.
Return On Equity (ROE):
ROE is decreased from year 2019-22 by 13.78% this decreased is due to increase in the total
shareholders equity while the net income is it not much increase
Financial Leverage:
Financial Leverage is increased form 2019-22 this means company is more relying on liability to
finance its assets and operations. During these years equity is much more increased than the
total assets.
Operating Return on Asset:
Operating return on asset is decreased from 2018-22 by 16.22% because assets are increased
while company’s ebit is not much increased from 2018-22 its means company is generating less
operating income for every one rupee invested in assets.
Return on Capital Employed (ROCE):
ROCE is decreased during the period 2018-22 by 15.68 this decreased is due to the increase in
capital employed as the shareholders equity is increase while the company’s EBIT fluctuates
during the period but at the end remain same, which means that company is not efficiently
using its capital to generate EBIT.
Liquidity Ratios:
Liquidity ratio during the year 2019 as compare to 2018 are increased because of the decrease
in the current liability while inventories and cash and cash equivalents as the quick and current
ratio increase.
While during the period 2018-22 current and quick ratio remain greater than 01 because of the
increase in the current assets and inventories and decrease in the current liability, as the ratios
are greater than 1 which means that company is able to pay it’s current liabilities by current
assists.
But the cash ratio during these five year periods remain less than 1 which means that company
is unable to pay its current liabilities only by cash and cash equivalents.
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Activity Ratios:
Inventory Turnover Ratio:
Inventory turnover ratio decrease form 2018-22 this is due to increase in the inventory while
increase in the sale decrease in inventory turnover is due to increase in both sale and inventory
but increase in inventory is greater than sales due to which inventory turnover decreases
inventory turnover during the year 2020 is least that is 5.34 times.
No. of Days inventory:
No. of Days inventory during the year 2020 is 68 days which is better than 2018 aand 2019 in
which inventory holding period is 32 days this increase is due to decrease in sales and increase
in inventory. Then after that it start decreasing because of the increase in the sales as overall
recovery in the economy
Recievable turnover ratio:
Recievable turnover ratio during the year 2019 decreased to 62 from 96 because of the
increase in the account recievalbes and sales but increase in account recievable is much
greater than sales
Recievable turnover ratio during the year 2021 is very high that is 346 as compare tp other
years that is due to tremendous decrease in account receivables from 1,141,711 to 517,138 while
sales increased.
No. of Days Receivable:
Avreage no of days recievable is 3-4 days while during year 2021 it is 1 because of the increase
in recievable tiurnover ratio.
Payable Turnover Ratio:
Payable turnover ratio decreases from 2018-22 by 1.01 times that is due to fluctuation in
purchases and account payable. Purchases and trade payable during the year 2020 decreases
due yo payable turnover ratio also decreased.
No. of Days Payable:
Payable turnover ratio got better during the year 2019 from 49 to 41 days. While it increases
during the years 2020 and 2021 which means company start taking extra days to pay off the
creditors and again in 2022 it started decreasing.
Asset Turnover Ratio:
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Asset turnover ratio decreased from the year 2018-22 while it was least during the year 2020
which means company was unable to efficiently utilize or convert it assets to sales as the assets
increased during the year but the sales decreased as the purchasing power of the people
decreased during covid 19 pandemic.
Cash Conversion Cycle:
Cash Conversion Cycle has improved to 80 days in 2019 from 86 days in 2018 that is due to better
inventory planning
While it increased onward due to increase no. of days inventory. Company has to maintain more
inventory due to due to devaluation of PKR.
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Financial Ratio Analysis

Gross profit Margin:

Net Profit Margin:

Return on Capital Employed (ROCE):

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