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Ratio Analysis of Renata Limited (Part 5)

* By Abu Zafour * Published 6 April 2012 * Bangladesh Study * Rating: Unrated

Ratio Analysis of Renata Limited Current ratio The current ratio is a widely used measure for evaluating companys liquidities & short-term debt- paying ability: Current ratio = Current assets / Current liabilities

Year: 2005 Current ratio =1.75

Year: 2006 Current ratio = 1.49

Comment The ideal current ratio of an organization is 1.2 times. The current ratio of Renata Ltd. in 2005 is 1.75 times and in 2006 is 1.49 times, which is lower than the previous year

2005. So liquidity and short-term debt paying ability is worse than the previous year. But the Renata Ltd. has liquidity ability 1.49 to pay the short term debt for 1 which is higher from the probable ideal ratio.

Acid-Test Ratio The acid-test ratio is a measure of a companys immediate short-term liquidity. Acid test ratio = (Current assets Inventories) / Current liabilities

Year: 2005 Current assets - Inventories = 672,355,277 388.384.007 Current liabilities = 384,140,329 Acid test ratio = 0.74

Year: 2006 Current assets - Inventories = 979,254,859 638,784,952 Current liabilities = 658,881,691 Acid test ratio = 0.52

Comment The ideal of Acid-Test Ratio an organization is 0.8 times. The Acid-Test Ratio of Renata Ltd. in 2005 is 0.74 times and in 2006 is 0.52 times, which is less than the previous year. Our evaluations of the liquidity ratios suggest that Renatas liquidity position currently is poor.

Inventory Turnover The total inventory turnover ratio measures the liquidity of inventories of a firm. It is calculated by dividing cost of goods sold by inventories. Inventory turnover = Cost of goods sold / Average inventories

Year: 2005 Cost of goods sold = 829,197,436 Average inventories = 388,384,007 Inventory turnover = 2.14

Year: 2006 Cost of goods sold = 978,390,209 Average inventories = (638,784,952 + 388,384,007) / 2 Inventory turnover = 1.91

Inventory Turnover in Days Inventory turnover in days measure the average days to sale the inventories. Inventory Turnover in Days = Days in the year / Inventory turnover

Year: 2005 Days in the year = 360 Inventory turnover = 2.14 Inventory turnover in days = 168

Year: 2006 Days in the year = 360 Inventory turnover = 1.91 Inventory turnover in days = 188

Comment Inventory turnover ratio of Renata Ltd. in 2005 is 2.14 times and in 2006 is 1.91 times, which is lower than the previous year 2005. The average selling time of

inventories in 2005 is 168 days and in 2006 is 188 days. The ideal industry average of inventory selling time is 92 days. Our evaluations of the inventory turnover suggest that Renatas average days to sale the inventories in days currently are lower than the industry average.

Account Receivable Turnover Account receivable turnover measures the liquidity of receivables. Account receivable turnover = Net credit sales / Average net receivables.

Year: 2005 Net credit sales = 1,608,555,839 Average net receivables = 162,224,078 Account receivable turnover = 9.91

Year: 2006 Net credit sales = 1,927,731,885 Average net receivables = (198,626,085+162,224,078) / 2 Account receivable turnover = 10.68

Account Receivable Turnover in Days (DSO) Account receivables turnover in days (DSO) is used to evaluate the firms ability to collect its credit sale in a timely manner. DSO = Days in the year / Account receivable turnover

Year: 2005 Days in the year = 360 Account receivable turnover = 9.91 Account receivable turnover in days = 36

Year: 2006 Days in the year = 360 Account receivable turnover = 10.68 Account receivable turnover in days = 34

Comment Accounts receivables turnover ratio of Renata Ltd. in 2005 is 9.91 times and in 2006 is 10.68 times, which is grater than the previous year 2005. The firms ability to collect its credit sales is occurred in 36 days in 2005 and in 2006 is 34 days which is lower than the previous year 2005. The ideal industry average of account receivable turnover in days (DSO) is 116.1 days. Our evaluations of the account receivables turnover suggest that Renatas average days to collect its credit sale currently are lower but it is better for the company.

Return on Assets Return on Assets indicates the overall measure of profitability is return on assets. Return on Assets = Net income / Average total assets

Comment Return on Assets ratio of Renata Ltd. in 2005 is 15.11% and in 2006 is 15.87%, which is grater than the previous year 2005. But the ideal industry average of return on assets is 10.9%. Our evaluations of the return on assets suggest that Renatas profitability on assets currently is higher than the industry average. So we think the return on assets of this company is maintaining a good standard.

Total Assets Turnover Ratio Total assets turnover ratio measures how effectively the firm uses its plant and equipment to help generate sales. Total assets turnover ratio = Sales / Average total assets

Comment Total assets turnover ratio of Renata Ltd. in 2005 is 1.26 times and in 2006 is 1.26 times, which is similar with the previous year 2005. But the ideal industry average of total assets turnover ratio is 0.6 times. Our evaluations of the total assets turnover ratio suggest that Renatas plant and equipment to help generate sales is higher than the industry average. So we think the total assets turnover of this company is maintaining a good standard.

Debt to Total Assets Ratio Debt to total assets ratio measures the percentage of total assets provided by the creditors. Debt to total assets ratio = Total debt / Average total assets.

Comment Debt to total assets ratio of Renata Ltd. in 2005 is 39.26% and in 2006 is 52.06%, which is grater than the previous year 2005. But the ideal industry average of debt to total assets is 62%. Our evaluations of the debt to total assets suggest that Renatas debt to total assets currently is lower than the industry average. So they have the opportunity to expand their business by increasing their debt.

Debt to Total Equity Ratio Debt to total equity ratio measures the percentage of total equity provided by the creditors. Debt to total equity ratio = Total debt / Total stockholder equity.

Comment Debt to total equity ratio of Renata Ltd. in 2005 is 64.64% and in 2006 is 80.85%, which is grater than the previous year 2005. Our evaluations of the debt to total equity ratio suggest that Renatas debt to total equity currently is higher than the previous year.

Return on Common Shareholders Equity This ratio shows how many taka of net income were earned for each taka invested by the owners. Return on common shareholders equity = (Net income Preferred dividend) Average common equity

Comment Return on common shareholders equity of Renata Ltd. in 2005 is 24.88% and in 2006 is 24.65%, which is less than the previous year 2005. But the ideal industry average of return on common shareholders equity is 14.6%. Our evaluations of the return on common shareholders equity suggest that Renatas net income were earned for each taka invested by the owners is higher than the industry average. So we think the return on common shareholders equity of this company is maintaining a good standard.

Net Profit Margin Net profit margin measures the income per taka of sales. Net profit margin = Net income / Net sales

Comment Net profit margin of Renata Ltd. in 2005 is 11.97% and in 2006 is 12.56%, which is grater than the previous year 2005. But the ideal industry average of net profit margin is 15.4%. Our evaluations of the net profit margin suggest that Renatas net income were earned for each taka of sales is lower than the industry average. So they should decrease their expense to increase the profit.

Earning Per Share Earning per share measures of the net income earned on share of common stock. Earning per share = (Net income Preferred dividend) / Number of common share outstanding.

Comment The Earning per Share of Renata Ltd. in 2005 is 239.71 and in 2006 is 301.41 which is greater than the previous year.

Price-Earnings Ratio Price-earnings ratio measures the market price of each share of common stock to the earnings per share. Price-earnings ratio = Market price per share / Earning per share

Comment Price-earnings ratio of Renata Ltd. in 2005 is 12.52 times and in 2006 is 10.28 times, which is less than the previous year 2005. But the ideal industry average of priceearnings ratio is 13 times. Our evaluations of the price earning ratio suggest that Renatas price of each share of common stock to earning per share is lower than the industry average.

Dividend Yield Ratio It is measured by dividing dividend per share by market price per share. Dividend Yield Ratio = Dividend per Share / Market price per share

Comment Dividend yield ratio of Renata Ltd. in 2005 is 1.94% and in 2006 is 2.26%, which is greater than the previous year 2005. Our evaluations of dividend yield ratio suggest that Renatas dividend yield ratio is higher than previous year.

Time Interest Earned Ratio Time interest earned ratio measures the ability of the firms to meet its annual interest payment. Time interest earned ratio = Net operating profit / Interest expense

Comment Time interest earned ratio of Renata Ltd. in 2005 is 13.77 times and in 2006 is 10.17 times, which is less than the previous year 2005. But the ideal industry average of time interest earned ratio is 4.9 times. Our evaluations of the time interest earned ratio suggest that Renatas annual interest payment is higher than the industry average. So we think the time interest earned ratio of this company is maintaining a goods standard.

Dividend per Share It measures the companys dividend on each share. It is calculated b y dividing common divided by number of shares outstanding. Dividend per Share = Common divided / Number of shares

Comment Dividend per share of Renata Ltd. in 2005 is 58.33 and in 2006 is 70, which is greater than the previous year 2005. Our evaluations of dividend per share suggest that Renatas try to increase its dividend per share.

Dividend Payout Ratio Dividend payout ratio measures the percentages of earnings distributed in the form of cash dividends. Dividend Payout Ratio = Cash dividend / Net income

Comment Dividend payout ratio of Renata Ltd. in 2005 is 24.33% and in 2006 is 23.22%, which is less than the previous year 2005. But the ideal industry average of dividend payout ratio is 16%. Our evaluations of the dividend payout ratio suggest that Renatas earnings distributed in the form of cash dividends is higher than the industry average. So we think the time dividend payout ratio of this company is maintaining a goods standard.

** These financial statements data is considered as Bangladeshi taka. All financial information presented in taka has been rounded off to the nearest taka.