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North South UniversityReport for Accounting 201

Title:

Intra-Company and Inter-Company Ratio Analyses of Navana CNG and Aftab

Automobiles

Submitted to:

Mr. Sabbir Mubin

Course Instructor

ACT 201

Submitted by:

Sharmin Khan 102 0320 030

Fayaz Bin Amin 102 0045 030

Mohammad Ibrahim 102 0486 030

Faria Rashid Chowdhury 102 0320 030

Section: 6

Date: 11th

April, 2011



Dated: April 11th, 2011

Mr. Riyashad Ahmed (RyA)

Faculty

School of Business,

North South University, Bangladesh.

Baridhara, Dhaka.

Subject: Submission of Group Project Report

Dear Sir,

We were advised to prepare a report on the Financial Performance of Navana CNG and Aftab

Automobiles. As were advised, we have successfully completed the report. It gives us immense

pleasure to tell you that working on this report has given us a wide range of exposure. To prepare

this report, we have to make intensive analyses of the company’s financial performance in last 3

years. We applied all our knowledge gathered in this course to judge and evaluate the financial

condition of the company. This report basically gives an overview the company’s performance

on the basis of 13 major financial ratios. We also had to make recommendation as to how the

company can improve its performance and whether the company would be a good investment for

the stockholders. As this was an actual company project, research was done on an extensive

basis.

It will be a great honor for us if you require us to explain any sort of queries.

Yours Sincerely,

Sharmin Khan 102 0320 030

Fayaz Bin Amin 102 0045 030

Mohammad Ibrahim 102 0486 030

Faria Rashid Chowdhury 102 0320 030



Ratio analysis:

Ratio Analysis expresses the relationship among selected items of financial report. It expressesthe mathematical relationship between one quantity and another. The relationship is expressed in

terms of a percentage, a rate or a simple proportion.

Liquidity ratios:

Liquidity Ratios measure the short-term ability of the company to pay its maturing obligations

and to meet unexpected needs for cash.

Navana CNG Aftab Automobiles

Year 2010 2009 2010 2009

CurrentRatio

4.19:1 2.38:1 32.66:1 1.33:1

Acid Test

Ratio0.14:1 0.25:1 1.43:1 0.52:1

Receivables

Turnover

63.07 times 24.82 times 3.39 times 2.55 times

InventoryTurnover

1.16 times 1.07 times 2.28 times 2.54 times

Calculation are Shown in Appendix

C urrent ratio:

It is a widely used ratio to evaluate a company’s liquidity and short-term debt-paying ability. Its

formula is given below-

Current Ratio=

Navana CNG:

In the year 2010, the company’s Current Assets were 4.19 times higher than its Current

Liabilities. The ratio increased from 2009 where the ratio was 2.38:1. That means Navana CNG

increased their current assets from 2009.



Aftab Automobiles:

In the year 2010, the company’s Current Assets were 32.66 times higher than its Current

Liabilities. The ration increased from 2009 where the ratio was 1.33:1. That means Aftab

Automobiles increased their current assets from 2009.

Inter-Company Analysis:

Aftab Automobiles’ current ratio is better than Navana CNG. And Aftab Automobiles’ increase

in current assets were more that that of Navana CNG.

Acid test :

The Acid-Test Ratio is a measure of a company’s immediate short-term liquidity. Its formula is

given below-

Quick Ratio or, Acid test Ratio=

Navana CNG:

In the year 2010, the company’s current assets including receivables were 0.14 times of its

current liabilities. The ratio decreased from 2009 where it was 0.25:1. That means the company

lost its liquidity in last year.Aftab Automobiles:

In the year 2010, the company’s current assets including receivables were 1.43 times of its

current liabilities. The ratio decreased from 2009 where it was 0.52:1. That means the company

lost its liquidity in last year.


Aftab Automobiles’ Acid-test Ratio is better than that of Navana CNG. It means Aftab

Automobiles have more liquid asset than Navana CNG to pay the liabilities.



Receivable turnover:

Liquidity may be measured how quickly certain assets can be converted to cash. The ratio used

to assess the liquidity of the receivables is receivables turnover. It measures the number of timeson average receivables are collected during the period. Its formula is given below-

Receivables Turnover =

Navana CNG:

In the year 2010, the company collected its receivables 63 times in the whole year. The ratio

increased from 2009 (24.82 times) which means the company got its sales got cashed more than

last year.

Aftab Automobiles:

In the year 2010, the company collected its receivables 3.39 times in the whole year. The ratio

increased from 2009 (2.55 times) which means the company got its sales got cashed more than

last year.


Both of the companies Receivables Turnover increased from last year but in Aftab Automobiles’

case the increase was not significant.

I nventory Turnover: Inventory turnover measures the number of times on average the

inventory is sold during the period. Its purpose is to measure the liquidity of the inventory. Its


Inventory Turnover =

Navana CNG:

In the year 2010, the company has sold out its inventories 1.16 times. This ratio decreased from

last year (1.07 times) that means the company had less sale of its inventories than last year.



Aftab Automobiles:

In the year 2010, the company has sold out its inventories 2.28 times. This ratio decreased from

last year (2.54 times) that means the company had less sale of its inventories than last year.


In 2010, Aftab Automobiles’ sold and restocked its inventories more than Navana CNG and the

difference margin is significant.

Profitability Ratios:

Profitability ratios measure income or operating success of an enterprise for a given period of

time. Income, or the lack of it, affects the company’s ability to obtain debt and equity financing.

It also affects the company’s liquidity position and the company’s ability to grow.


Year 2010 2009 2010 2009

Profit Margin 53% 45% 29.7% 14.9%

Total Asset

Turnover0.46 times 0.55 times 0.71 times 0.91 times

Return on

Assets24.9% 25% 10.5% 13.5%

Return on

Common

Stockholders’Equity

37.6% 48.45% 33.7% 41.5%

EPS 8.01 6.74 29.1 136.49

P/E Ratio 1.23 1.48 1.63 11.64

Payout Ratio 33.44% 25.75% 16.7% 0.90%




Profit margin:

Profit margin is a measure of percentage of each dollar of sales that results in net income. Its


Profit Margin Ratio =

Navana CNG:

In the year 2010, the company earned Net Profit of Tk 53 for every Tk 100 worth of Sales. This

ratio has increased from last year (45%). Which means the company managed to make more

profit out of its sales and reduced cost related to sales.

Aftab Automobiles:

In the year 2010, the company earned Net Profit of Tk 29.7 for every Tk 100 worth of Sales.

This ratio has increased from last year (14.9%). Which means the company managed to make

more profit out of its sales and reduced cost related to sales.

Intra-Company Analysis:

Navana CNG gained more profits from Aftab Automobiles from sales in 2010. And the amount

is significant.

Asset Turnover:

Assets Turnover is a measure of a company’s sales over every one Taka of Total Assets. The

formula for Asset Turnover is given below:

Total asset turnover Ratio=

Navana CNG:

In the year 2010, Navana CNG 1TK of Asset managed to generate 0.46 TK of sales. The ratio

decreased from last year (0.55 Times). Which means the company’s Assets lost efficiency in last

one year.



Aftab Automobiles:

In the year 2010, Navana CNG 1TK of Asset managed to generate 0.71 TK of sales. The ratio

decreased from last year (0.91 Times). Which means the company’s Assets lost efficiency in last

one year.


Aftab Automobiles managed to generate more sales from their assets than Navana CNG but the

company does not have a significant advantage over Navana CNG in terms of this ratio.

Return on asset: An overall measure of profitability is return on assets. Its formula is given

below-

ROA =

Navana CNG:

In the year 2010, Every Tk100 worth of assets generated Tk24.90 of Net Profit for the company.

The ratio slightly decreased from last year (25%)

Aftab Automobiles:

In the year 2010, Every Tk100 worth of assets generated Tk10.5 of Net Profit for the company.

The ratio decreased from last year (13.5%)


Navana CNG managed to generate more profit from Assets than Aftab Automobiles and the

amount is significant.

Return on Common Stockholders’ Equity:

This ratio measures the return that the stockholders get from their investment to the company.

The formula of the ratio is-

Return on Common Shareholders’ Equity =



Navana CNG:

In the year 2010, Shareholders earned Tk37.6 out of every Tk100 of investment. The ratio

decreased from last year (48.45%) this means the stockholders got less return from their

investment in last year.

Aftab Automobiles:

In the year 2010, Shareholders earned Tk33.7 out of every Tk100 of investment. The ratio

decreased from last year (41.5%) this means the stockholders got less return from their

investment in last year.


From the ratios above, we can see that Navana CNG’s investors got more profit than those of

Aftab Automobiles, though the difference is not significant.

Earnings per share:

Earnings per share is a measure of net income earned on each share of common stock. A measure

of net income earned on a per share basis provides a useful perspective for determining

profitability. Its formula is given below-

EPS =

Navana CNG:

Common Shareholders of the company earned Tk8.01 for every share they hold. This has

increased by TK1.27 from last year and the change is not drastic.

Aftab Automobiles:

Common Shareholders of the company earned Tk29.1 for every share they hold. This has

decreased by TK107 from last year and the change is drastic.


Navana CNG was far better than Aftab Automobiles in terms of providing profit to their

shareholders.



Price earnings ratio:

The price earnings ratio is an oft-quoted measure of the ratio of the market price of each share of

common stock to the earnings per share. Its formula is given below-

P/ E Ratio =

Navana CNG:

Company’s shareholders were willing to pay Tk1.23 for each Taka of reported earnings. This

ratio has decreased slightly from last year. Due to a little change in share price the ratio also

changed a little.

Aftab Automobiles:

Company’s shareholders were willing to pay Tk1.63 for each Taka of reported earnings. This

ratio has decreased drastically from last year. Due to a drastic change in share price the ratio also

changed drastically.

Payout ratio:

The payout ratio measures the percentage of earnings distributed in the form of cash dividends.

Its formula is given below-

Payout Ratio =

Navana CNG:

The company paid 37.44% of dividends from its net income. This ratio has increased from last

year (25.75%)

Aftab Automobiles:

The company paid 16.7% of dividends from its net income. This ratio has increased drastically

from last year (0.90%)



Solvency ratios:

Solvency ratios measure the ability of the company to survive over a long period of time. There

are several ratios under solvency ratios-


Year 2010 2009 2010 2009

Debt to Asset

Ratio25.69% 43% 23.3% 63%

Time Interest

Earned13.79 times 3.95 times 3.87times 1.71 times


Debt to total assets ratio:

The debt to total assets ratio measures the percentage of the total assets provided by creditors. Its


Debt to Asset Ratio=

Navana CNG:

In the year, 2010, company’s 25.69% of the total assets were financed by the creditors. The

amount decreased from last year (43%)

Aftab Automobiles:

In the year, 2010, company’s 23.3% of the total assets were financed by the creditors. The

amount decreased from last year (63%)


Both of the company have had almost same amount of debt in their assets in 2010.



]Times interest earned:

Times interest earned provides an indication of the company’s ability to meet interest payments

as they come due. This represents the amount available to cover interest. Its formula is given

below-

TIE Ratio =

Navana CNG:

In the year 2010, EBIT was 13.79 times higher than Interest Expense. The ratio increased from

last year (3.93times)

Aftab Automobiles:

In the year 2010, EBIT was 3.87 times higher than Interest Expense. The ratio increased from

last year (1.71times)


The above information refers that Navana CNG has more income than Aftab Automobiles to pay

their interest from debts.



Appendix:

Ratio Analyses of Navana CNG for 2010:

Liquidity Ratio:

I. Current Ratio=

=

= 4.19: 1

II. Quick Ratio or, Acid test Ratio=

=

= 0.14: 1

III. Receivables Turnover =

=

= 63.07 Times

IV.

Inventory Turnover =

=

= 1.16 times



Profitability Ratio:

I. Profit Margin Ratio =

=

= 53%

II. Total asset turnover Ratio=

=

= 0.46 times

III. ROA =

=

= 24.9%

IV. Return on Common Shareholders’ Equity =

=

= 37.6%

V. EPS =

=

= 8.01

VI. P/ E Ratio =

=

= 1.23

VII. Payout Ratio =



=

= 37.44%

Solvency Ratio:

I. Debt to Asset Ratio=

=

= 25.6%

II. TIE Ratio =

=

= 13.79 Times

Ratio Analyses of Navana CNG for 2009:

Liquidity Ratio:

V. Current Ratio=

=

= 2.38: 1



VI. Quick Ratio or, Acid test Ratio=

=

= 0.25: 1

VII. Receivables Turnover =

=

= 24.82 Times

VIII. Inventory Turnover =

=

= 1.07 times


VIII. Profit Margin Ratio =

=

= 45%

IX. Total asset turnover Ratio=

=

= 0.55 times

X. ROA =

=

= 25%



XI. Return on Common Shareholders’ Equity =

=

= 48.45%

XII. EPS =

=

= 6.74

XIII. P/ E Ratio =

=

= 1.48

XIV. Payout Ratio =

=

= 25.75%

Solvency Ratio:


=

= 43 %

II. TIE Ratio =

=

= 3.95 Times



Ratio Analyses of Aftab Automobiles for 2010:

Liquidity Ratio:

I. Current Ratio=

=

= 32.66: 1

II. Quick Ratio or, Acid test Ratio=

=

= 1.43: 1

III. Receivables Turnover =

=

= 3.39 Times

IV. Inventory Turnover =

=



= 2.28 times


I. Profit Margin Ratio =

=

= 29.7%

II. Total asset turnover Ratio=

=

= 0.71 times

III. ROA =

=

= 10.5%

IV. Return on Common Shareholders’ Equity =

=

= 33.7%

V. EPS =

=

= 299.10

VI. P/ E Ratio =

=

= 1.63



VII. Payout Ratio =

=

= 16.7%

Solvency Ratio:


=

= 23.3 %

II. TIE Ratio =

=

= 3.87 Times

Ratio Analyses of Aftab Automobiles for 2009:

Liquidity Ratio:

V. Current Ratio=

=

= 1.33: 1

VI. Quick Ratio or, Acid test Ratio=

=



= 0.52: 1

VII. Receivables Turnover =

=

= 2.55 Times

VIII. Inventory Turnover =

=

= 2.54 times


VIII. Profit Margin Ratio =

=

= 14.9%

IX. Total asset turnover Ratio=

=

= 0.91 times

X. ROA =

=

= 13.5%

XI. Return on Common Shareholders’ Equity =

=



= 41.5%

XII. EPS =

=

= 136.49

XIII. P/ E Ratio =

=

= 11.64

XIV.

Payout Ratio =

=

= 0.90%

Solvency Ratio:

III. Debt to Asset Ratio=

=

= 63 %

IV. TIE Ratio =

=

= 1.71 Times

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