Financial Analysis National Medical Stores for the years 2004 and 2003 Short Term Solvency Measures

2004 Current Ratio = Current Assets/Current Liabilities (C.L) 17,478,330,336/2,278,211,465 =7.67 times 18,081,576,345/3,395,057,593 = 5.33 times 2003

The Co- has UShs 7.63 in current assets for every Ushs 1C.L and Ushs 5.33 in current assets for every Ushs 1C.L Current Ratio provides an indication of the liquidity of the business by comparing the amount of current assets to current liabilities. In general, businesses prefer to have at least one dollar of current assets for every dollar of current liabilities. However, the normal current ratio fluctuates from industry to industry. A current ratio significantly higher than the industry average could indicate the existence of redundant assets. Conversely, current ratios significantly lower than the industry average could indicate a lack of liquidity. An indication of a company's ability to meet short-term debt obligations; the higher the ratio, the more liquid the company is. Current ratio is equal to current assets divided by current liabilities. If the current assets of a company are more than twice the current liabilities, then that company is generally considered to have good short-term financial strength. If current liabilities exceed current assets, then the company may have problems meeting its short-term obligations. Therefore, according to 2004 of 7.67 and 2003 of 5.33 the company was performing good in 2004. Quick Ratio = (Current Assets-Inventory)/Current Liabilities (17,478,330,336-5,848,324,355)/2,278,211,465=5.1times (18,081,576,345-6,593,220,853)/3,395,057,593= 3.6 Quick assets are defined as cash, marketable (or short-term) securities, and accounts receivable and notes receivable, net of the allowances for doubtful accounts. These assets are considered to be very liquid (easy to obtain cash from the assets) and therefore, available for immediate use to pay obligations. The acid-test ratio is calculated by dividing quick assets by current liabilities. A measure of a company's liquidity and ability to meet its obligations. Quick ratio, often referred to as acid-test ratio, is obtained by subtracting inventories from current assets and then dividing by current

liabilities. Quick ratio is viewed as a sign of company's financial strength or weakness (higher number means stronger, lower number means weaker). Therefore, 2004 of 5.1 and 2003 of 3.6 means the company was stronger in 2004. Cash Ratio = Cash/ Current Liabilities 1,282,704,377/2,278,211,465 = 0.56 times 3,285,790,112/3,395,057,593 = 0.97times

The ratio of a companys total cash and cash equivalent to its current liabilities. 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 extend to the asking party. Therefore, the company can repay its short term debt 0.56 times in 2004 and 0.97times in 2003 and it was performing good in 2003.

Asset Management
Receivable Turnover = sales/Account Receivables 15,031,868,093/8,939,387,662 = 1.68 11,735,919,422/5,246,346,465 = 2.24

The receivable turnover ratio calculates the number of times in an operating cycle (normally one year) the company collects its receivable balance. It is calculated by dividing net credit sales by the account receivables. Indicates the liquidity of the company's receivables. It is a number of times that trade receivables turnover during the year. Therefore, in 2004 the company collects its receivable balances 1.68 times and in 2003 collects 2.24 times, hence the company was performing well in 2003. Days Sales in Receivables = 365 days/Receivable Turnover =365/1.68 = 217 days 365/2.24 = 163 days

Indicates the average time in days, that receivables are outstanding (DSO). It helps determine if a change in receivables is due to a change in sales, or to another factor such as a change in selling terms. An analyst might compare the days' sales in receivables with the company's credit terms as an indication of how efficiently the company manages its receivables. Therefore, in 2004 it is 217 days and 163 days in 2003 therefore it performs in 2003. Total Assets Turnover = Sales/Total Assets 15,031,868,093/21,876,117,856 = 0.7
2

11,735,919,422/22,617,795,585 = 0.5

The ratio of total sales (on your income statement) to total assets (on your balance sheet) indicates how well you're using all your business assets (rather than just inventories or fixed assets) to generate revenue. A high asset turnover ratio means a higher return on assets, which can compensate for a low profit margin. In computing the ratio, you might compute total assets by averaging the total assets at the beginning and end of the accounting period. Therefore, in 2004 TAT was 0.7 and in 2003 TAT was 0.5 , hence the company was performing in 2004 Fixed Asset Turnover = Sales/Net Fixed Asset 15,031,868,093/4,397,787,520 = 3.42 11,735,919,422/4,536,219,240 = 2.6

Fixed asset turnover is the ratio of sales (on your income statement) to the value of your fixed assets (on your balance sheet). It indicates how well your business is using its fixed assets to generate sales. Generally speaking, the higher the ratio, the better because a high ratio indicates your business has less money tied up in fixed assets for each dollar of sales revenue. A declining ratio may indicate that you've over-invested in plant, equipment, or other fixed assets. Therefore, in 2004 FAT was 3.42 and 2003 was 2.587, hence it performs well in 2004.

Long term Solvency measures

Total Debt Ratio = (Total Asset Total Equity)/Total Asset (21,876,117,856 18,553,627,355)/21,876,117,856 = 0.15 = 15% (22,617,795,585-18,542,463,003)/22,617,795,585= 0.18 = 18% In 2004 total assets are financed by 15% of total debts in the company and in 2003 total assets are financed by 18% of total debts in the company. Hence the company performs in 2004

2004 Current Ratio Quick Ratio Cash Ratio Long term Solvency Total Debt Ratio 15%
3

2003 5.33 3.6 0.97

7.67 5.1 0.56

18%

Asset Management Receivable Turnover Days Sales in Receivable Total Assets Turnover Fixed Asset Turnover 1.68 217 days 0.7 3.42 2.24 163 days 0.5 2.6

Therefore, put all factors above together it appears the company performs in 2004 comparing in 2003 and it was profitable.

Reference Frank woods, Alan Sangster, (2000). Business Accounting (11th Ed). UK: Prectice Hall Publications Daily Monitor Times Tuesday April, 2006