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ACTIVITY RATIOS
RECEIVABLE TURNOVER:
Receivables Turnover = Annual Sales / Average receivables
Receivable Turnover
2009 96.0745
2010 145.9704
INTERPRETATION
Receivables turnover shows receivables which are outstanding by making credit sales annually.
A higher receivables turnover ratio refers to a rapid collection. For FFC, the ratio is 96 times and
the ratio improved to 146 times in fiscal year 2010.
DAYS OF SALES OUTSTANDING :
Days of Sales Outstanding = 365 / Receivables Turnover
Days of SalesOutstanding
2009 2.5005
2010 3.7991
INTERPRETATION
This measures the number of days an organization has to wait for payments from debtors. In
fiscal year 2009 days of sales outstanding is 3and reached to 4 days in fiscal year 2010.
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INVENTORY TURNOVER:
Inventory Turnover = Cost of Goods Sold / Average Inventory
Inventory Turnover
2009 102.0192010 142.2704
INTERPRETATION
Inventory turnover ratio shows the number of times the inventory has been turned over during
the period so that inventory management see that whether inventory is in proper limit or not.
Required range of inventory differs from sector to sector. In FFC, inventory turnover for fiscal
year 2009 is 102 times while in 2010 it is improving and reached to 142 times.
DAYS OF INVEN TORY ON HAND:
Days of Inventory on hand = 365 / Inventory Turnover
Days of Inventory onHand
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2009 3.5778
2010 2.5655
INTERPRETATION:
Days of inventory on hand shows the required average number of days to sell the inventory of a
company. The inventory period of FFC in fiscal year 2009 is 3 days and in 2010 it decreased to
2 days.
PAYABLES TURNOVER:
Payables Turnover = Purchases / Average Trade Payables
Payables Turnover
2009 19.7475
2010 19.0594
INTERPRETATION:
It is short-term liquidity measure used to quantify the rate at which a company pays
off its suppliers.The measure shows investors how many times per period the company pays its
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average payable amount. The higher the payable turnover the better it is. However, in our
analysis this ratio is showing a declining trend from 19.7475 in 2009 to 19.0594 which is not a
favorable sign.
NUMBER OF DAYS OF PAYABLES:
Number of Days of Payables = 365 / Payables Turnover Ratio
Number of Days ofPayables
2009 18.4834
2010 19.1506
INTERPRETATION:
This shows the number of day the firm is taking to pay off its average payment amounts.
Since we have already seen in the previous ratio that the payables turnover is declining,
therefore it is clear that the number of days it take to pay off will also increase, as shown in the
graph, from 18 in 2009 to 19 in 2010.
TOTAL ASSETS TURNOVER
Total Assets Turnover = Revenues / Average Total Assets
Total AssetsTurnover
2009 1.0263
2010 1.0997
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INTERPRETATION:
Total assets turnover signifies the amount of sales made by Investment per PKR in Average
Total Assets of an organization. In FFC the activity shows an improving trend in its total assets
turnover ratio from 1.02 in 2009 to 1.09 in 2010.
FIXED ASSET TURNOVER
Fixed Asset Turnover = Revenues / Average Net Fixed Assets
Total AssetTurnover
2009 2.7064
2010 2.9989
INTERPRETATION:
The fixed-asset turnover ratio measures a company's ability to generate net sales from
fixed-asset investments - specifically property, plant and equipment - net of depreciation. A
higher fixed-asset turnover ratio shows that the company has been more effective in using the
investment in fixed assets to generate revenues. Thus we can see from the graph that our fixed
asset turnover ratio has increased from 2.7064 in 2009 to 2.9989 in 2010.
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WORKING CAPITAL TURNOVER :
Working Capital Turnover = Revenue / Average Working Capital
Working CapitalTurnover
2009 -14.3185
2010 -14.2649
INTERPRETATION:
The working capital turnover ratio is used to analyze the relationship between the money
used to fund operations and the sales generated from these operations. In a general sense, the
higher the working capital turnover, the better because it means that the company is generating a
lot of sales compared to the money it uses to fund the sales. As we can see that this ratio is
negative for FFC, this is surely not a positive sign for the firm.
LIQUIDITY RATIOS
CURRENT RATIO:
Current Ratio = Current Assets / Current Liabilities
Current Ratio
2008 0.82122009 0.8355
2010 0.837
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INTERPRETATION:
Current ratio illustrates the availability of current assets to meet the current liabilities
during an accounting period of 12 months. Financial year 2008, 2009 and 2010 shows an
increasing trend as current ratio is increasing continuously. However it is still not satisfying the
general acceptable benchmark level that is 1.5:1 to 2:1 of the current assets to current liabilities.
NET WORKING CAPITAL:
Net Working Capital = Current Assets Current Liabilities
Net Working Capital
2008 -21141302009 -2937118
2010 -3354441
INTERPRETATION:
It is a measure of both a company's efficiency and its short-term financial health.
Positive net working capital means that the company is able to pay off its short-term
liabilities. Negative net working capital means that a company currently is unable to meet its
short-term liabilities with its current assets, which is the case of FFC, hence it may be forced
into bankruptcy.
QUICK RATIO:
Quick Ratio = Current assets Inventory / Current Liabilities
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Quick Ratio
2008 0.799366
2009 0.8274277
2010 0.826701
INTERPRETATION:
Quick ratio illustrates the liquid assets which are available to meet the current liabilities
during an accounting period of twelve months. Quick ratio of FFC shows a significant increase
in fiscal year 2009 and a very negligible decrease in fiscal year 2010.
CASH RATIO:
Cash Ratio = Cash / Current Liabilities
Cash Ratio
2008 0.0788137
2009 0.2155945
2010 0.057783
INTERPRETATION:
The cash ratio is most commonly used as a measure of company liquidity. It can
therefore determine if, and how quickly, the company can repay its short-term debt. A strong
cash ratio is useful to creditors when deciding how much debt, if any, they would be willing to
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extend to the asking party. However, in the case of FFC, we observe a declining trend in the
ratio which is unfavorable. It falls from 0.21 in 2009 to 0.06 in 2010.
NET WORKING CAPITAL RATIO :
Net Working Capital Ratio = Net Working Capital / Total Assets
Net Working CapitalRatio
2008 -0.0662
2009 -0.0762
2010 -0.0779
INTERPRETATION:
In case of FFC, its current assets do not exceed its current liabilities, and then it may run
into trouble paying back creditors in the short term. The worst-case scenario is bankruptcy. A
declining working capital ratio over a longer time period could also be a red flag that warrants
further analysis.
SOLVENCY RATIOS
DEBT TO EQUITY:
Debt to Equity = Total Debt / Total Equity
Debt to Equity
2008 1.5982
2009 1.9468
2010 0.6772
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INTERPRETATION:
This ratio shows how many long-term funds are acquired by long-term loans. For FFC,
debt to equity ratio in Financial Year 2008 was 1.6 and in the succeeding year 2009 it was 1.94
and then it improved to 0.67 in Financial Year 2010. This level of dependency on loans is not
good. This shows that the risks of not being able to re-pay the debts or loans are high.
DEBT TO CAPITAL:
Debt to Capital = Total debt/ (Total Debt+ Total Shareholder's Equity)
Debt to Capital
2008 0.6151
2009 0.6607
2010 0.4038
INTERPRETATION:
The debt-to-capital ratio gives users an idea of a company's financial structure, or how it
is financing its operations, along with some insight into its financial strength. The higher the
debt-to-capital ratio, the more debt the company has compared to its equity. This tells
investors whether a company is more prone to using debt financing or equity financing. This
ratio has declined from 0.66 on 2009 to 0.40 in 2010 which shows a good sign for FFC.
TOTAL DEBT RATIO:
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Total Debt Ratio = Total Assets- Total Equity/ Total Assets
Total Debt Ratio
2008 0.61512009 0.6607
2010 0.6413
INTERPRETATION:
Since this ratio is showing a declining trend that means the debt of the company has been
reduced in comparison to its assets hence, this is a position indication for the firm. It has reduced
from 0.66 in 2009 to 0.64 in 2010.
DEBT TO ASSETS:
Debt to Assets = Total debt/ Total Assets
Debt to Assets
2008 0.6151
2009 0.6607
2010 0.2429
INTERPRETATION
It is a metric used to measure a company's financial risk by determining how much of the
company's assets have been financed by debt. This is a very broad ratio as it includes short- and
long-term debt as well as all types of both tangible and intangible assets. Declining trend in this
ratio is a positive term for FCC.
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LONG TERM DEBT RATIO:
Long term Debt Ratio = Long Term Debt/ (Long Term Debt + Total Equity)
Long term DebtRatio
2008 0.3887
2009 0.3679
2010 0.3129
INTERPRETATION:
EQUITY MULTIPLIER:
Equity Multiplier = Total Assets/ Total Equity
Equity Multiplier
2008 2.5982
2009 2.9468
2010 2.7876
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INTERPRETATION:
Like all debt management ratios, the equity multiplier is a way of examining how
company uses debt to finance its assets also known as the financial leverage ratio or leverage
ratio. A higher equity multiplier indicates higher financial leverage, which means the company
is relying more on debt to finance its assets. Since this ratio has declined in 2010 in the case of
FFC, it is therefore a favorable outcome.
FINANCIAL LEVERAGE:
Financial Leverage = Average Total Assets/ Average Total Equity
Financial Leverage
2009 2.778
2010 2.8606
INTERPRETATION:
A leverage ratio summarizing the affect a particular amount of financial leverage has on
a company's earnings per share (EPS). The higher the degree of financial leverage, the more
volatile EPS will be, all other things remaining the same. This is our analysis the degree of
financial leverage is showing an increasing trend from the year 2009 to 2010.
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INTEREST COVERAGE:
Interest Coverage = EBIT/ Interest Payments
Interest Coverage
2008 15.3297
2009 14.8075
2010 19.8259
INTERPRETATION:
This ratio shows how many times funds are available for paying off the interest charges for the
year. The ratio is 15.32 in fiscal year 2008, 14.80 in 2009 and 19.82 in 2010. Fiscal year 2009
and 2010 signifies improving proficiency of CCF to pay off interest expenses.
CASH COVERAGE RATIO:
Cash Coverage Ratio = EBIT+ Depreciation/ Interest
Cash Coverage Ratio
2008 18.6694
2009 16.1151
2010 21.0737
INTERPRETATION:
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An accounting ratio that helps measure a company's ability to meet its obligations
satisfactorily. The better the assets "cover" the liabilities, the better off the company is. In this
regard the company shows a favorable position in 2010.
FIXED CHARGE COVERAGE:
Fixed Charge Coverage = EBIT+ Lease Payments/ (Interest Payments+ Lease Payments)
Fixed ChargeCoverage
2008 15.3297
2009 14.8075
2010 19.8259
INTERPRETATION:
A ratio that indicates a firm's ability to satisfy fixed financing expenses, such as interest
and leases. This ratio has increased for the year 2010 in case of FFC thus, showing a positive
sign for the company.
PROFITABILITY RATIOS
NET PROFIT MARGIN :
Net Profit Margin = Net Income/ Revenue
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Net Profit Margin
2008 0.2133
2009 0.244
2010 0.2458
INTERPRETATION:
Profit margin is very useful when comparing companies in similar industries. A higher
profit margin indicates a more profitable company that has better control over its costs compared
to its competitors. Since the profit margin of FFC is showing an increasing trend from the past 3years, it is surely a good indication for the firm.
GRO SS PROFIT MARGIN :
Gross Profit Margin = Gross Profit/ Revenue
Gross Profit Margin
2008 0.4042009 0.4327
2010 0.436
INTERPRETATION:
Gross Profit Margin of FFC was 40.5% in 2008 and then it increased to 43.2% in fiscal
year 2009 and further increased to 43.6% in 2010. This is owing to the constant increase in sales
in the financial years.
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OPERATING PROFIT CHARGE :
Operating Profit Charge = Operating Income/ Revenue
Operating ProfitCharge
2008 0.3167
2009 0.3449
2010 0.3481
INTERPRETATION
This is the profit earned after deducting companys operating expenses incurred
during an accounting period. FFC shows continuously improving trend of operating profit
charge i.e. from 31.67% (in Financial Year 2008) to 34.49% (in Financial Year 2009) to
34.81% (in Financial Year 2010).
PRETAX MARGIN :
Pretax Margin = EBT/ Revenue
Pretax Margin
2008 0.3282
2009 0.6311
2010 0.3635
INTERPRETATION:
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It shows a company's earnings before tax as a percentage of total sales or revenues. The
higher the pre-tax profit margin, the more profitable the company. The trend of the pretax profit
margin is as important as the figure itself, since it provides an indication of which way the
company's profitability is headed. In case of FFC this ratio has declined from 0.63 in 2009 to
0.36 in 2010 which is not a positive indiactor.
RETURN ON ASSETS :
Return on Assets = Net Income/Average Total Assets
Return on Assets
2009 0.2504
2010 0.2703
INTERPRETATION
Return on Assets represents the return generated on average total assets of a company.
The higher the return on assets better it is. Return on Assets for FFC improves and it shows a
return of 25% in the Financial Year 2009 and increase that is 27% in 2010.
OPERATING RETURN ON ASSETS :
Operating Return on Assets = Operating Income/ Average Total Assets
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Operating Return onAssets
2009 0.354
2010 0.3828
INTERPRETATION:
This ratio is used to compare a businesss performance among other industry members.
The ratio can be used internally by the company's analysts, or by potential and current investors.
A high operating return on assets ratio can indicate that a higher return is to be expected. Since
this ratio is increasing from the year 2009 to 2010 in case of FFC, we can expect a higher return.
RETURN ON TOTAL CAPITAL :
Return on Total Capital = EBIT/ Average Total Capital
Return on Total
Capital2009 0.4503377
2010 0.6584872
INTERPRETATION:
When the return on total capital is greater than the cost of capital, the company is
creating value; when it is less than the cost of capital, value is destroyed.This ratio has increased
from0.45 in 2009 to 0.66 in 2010, thus showing a positive position of the company FFC.
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RETURN ON EQUITY :
Return on Equity = Net Income/ Average Total Equity
Return on Equity
2009 0.6956
2010 0.7731
INTERPRETATION
This ratio measures how many rupees are generated by one rupee of equity invested into
the business. During Financial Year 2009 and 2010, the return on Equity increased well,
reaching the highest level of 77.31% in Financial Year 2009 which was much higher than the
previous Financial Year.
EARNINGS PER SHARE:
Earnings per Share
2008 9.62
2009 13
2010 16.25
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INTERPRETATION:
This is the measure of earnings made by the organization for every ordinary share during
an accounting period. As per the ratio analysis of three Financial Years (2008 to 2010); EPS rose
from PKR 9.62 to PKR 13 to PKR 16.25 which quite decently reciprocated shareholders
requirements.
PRICE EARNING RATIO:
Price Earning Ratio = Price per Share/ Earnings per Share
Price Earning Ratio
2008 1.0395
2009 0.7692
2010 0.6154
INTERPRETATION:
In general, a high P/E suggests that investors are expecting higher earnings growth in the
future compared to companies with a lower P/E. However, the P/E ratio doesn't tell us the whole
story by itself. It's usually more useful to compare the P/E ratios of one company to other
companies in the same industry, to the market in general or against the company's own historical
P/E. In our analysis we see that this ratio is declining over the past 3 years thus, we cannot
expect any growth as compared to competitors.
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MARKET TO BOOK RATIO:
Market to Book Ratio = Market Value Per Share/ Book Value Per Share
Market to BookRatio
2008 5.873
2009 10.293
2010 12.586
INTERPRETATION:
This ratio is used to compare a stock's market value to its book value. A lower P/B ratio
could mean that the stock is undervalued. However, it could also mean that something is
fundamentally wrong with the company. Since this ratio is constantly increasing from the past 3
years, we can say that is a good sign for FFC.
DU PONT IDENTITY:
Du Pont Identity = ROE= Profit Margin* Total Asset Turnover* Equity Multiplier
Du Pont Identity
2008 0
2009 0.7379
2010 0.7534
INTERPRETATION:
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DuPont analysis tells us that ROE is affected by three things:
- Operating efficiency, which is measured by profit margin
- Asset use efficiency, which is measured by total asset turnover
- Financial leverage, which is measured by the equity multiplier
DuPont analysis helps locate the part of the business that is underperforming. In our analysis we
can see that it has slightly increased from 2009 to 2010.
DIVIDEND PAYOUT RATIO :
Dividend Payout Ratio = Cash Dividends/ Net Income
Dividend PayoutRatio
2008 1.0768
2009 0.7308
2010 0.9631
INTERPRETATION:
This ratio shows what potion of our net income we pay out as dividend. The higher the
dividend ratio the lower the addition to retained earnings. Thus, in case of FFC, the dividend
payout ratio has increased from 0.73 in 2009 to 0.96 in the year 2010, indicating that it pays out
almost all of its net income in the form of dividends.
CAPITAL INTENSITY RATIO
Capital Intensity Ratio = Total Assets/ Sales
Capital IntensityRatio
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2008 1.0433
2009 1.066
2010 0.9596
INTERPRETATION:
This ratio shows how much assets the company requires to generate the sale of $1, thus,
we can see a positive sign in FFC because its capital intensity ratio has decreased in the year
2010, showing that it requires less assets not to generate sales of $1.