Dutch lady milk industry berhads financial statement analysis - Free Essay Example

According to www.valuebasedmanagement.net (2010), current ratio is defined as A model of measuring the liquidity of a company by calculating the ratio between all current assets and all currents liabilities. It means current ratio is part of measurement tools for company to assess the financial stability. It is useful in ensuring whether the company has enough resources to settle its debt over next year. Refer to table 2.1, the current ratio of 2.0 shows that the company is acceptable. As an industrial company, the ratio shows Dutch Lady has enough assets to cover its liability for another twelve months. 2.1.2 Quick Ratio Quick ratio is defined as A model of measuring the liquidity of a company by calculating the ratio between all assets quickly convertible into cash and all current liabilities. (www.valuebasedmanagement.net, 2010), It means that this ratio is similar to current ratio but the only different is the inventory will be deducted in asset. The point is to ensure the companys ability to settle its short-term debt. Refer to table 2.2, the quick ratio for Dutch Lady is 1.41 times. It shows the company able to pay its short term debt from its current assets. Obviously, it is a good position for Dutch Lady to be in because the firm able to meet its short-term debt without stress. 2.1.3 Total Asset Turnover According to Christina Pomoni, total asset turnover is defined as The operating performance of a firm is examined with the use of operating efficiency ratios. (www.helium.com, 2010). It simply defined the point of total asset turnover is to ensure the company equitability return on sales is success by using its assets. For Dutch Lady company, refer to table 2.3, total asset turnover shows 2.43 times which shows the company has made rapid sales for the whole year. The company use it asset effectively to generate sales for 2009. 2.1.4 Inventory Turnover Inventory turnover is defined as This ratio is a relationship between the cost of goods sold during a particular period of time and the cost of average inventory during a particular period. (www.accountingformanagement.com, 2010). It means that inventory turnover is used to measure velocity conversion of stock into sales. Based on table 2.4, the ratio of inventory turnover shows 6.98 which is consider as very high ratio for manufacturing company. Dutch Lady has done a brisk business over the whole year by converting its stock into sales rapidly. 2.1.5 Net Profit Margin Referring to www.wisegeek.com (2010), It is a figure that identifies how much profit is left after all taxes and other expenses related to the operation of the business have been settled. In other words, net profit margin will shows how effective the company is at cost control. Based on table 2.5, the result shows 9% of net profit generated by Dutch Lady. This percentage translate into pure profit of RM 5 436 000 from net income. Thus, Dutch Lady has to increase number of sales by remaining the cost to meet higher net profit in future. 2.1.6 Return on Assets (ROA) Return on assets is all about the return the company got over its assets.(ezinearticles.com, 2010). It gives idea on how effective the company playing with its assets to earn profit. Refer to table 2.6, the percentage shows 21% return on assets. Dutch Lady has made such return derives from total asset in the company. Firm can increase profit margin or asset turnover to increase ROA. 2.1.7 Return on Equity (ROE) According to www.qfinance.com (2010), It is a relationship between net income and stockholders funds. It reveals on how much the firm earns in comparison with total equity of stakeholder in balance sheet. Refer to table 2.7, the return shows 35% of profit from the total amount of investment in Dutch Lady. Meaning here is the investors or the owners have better returned for year 2009. The firm also is suggested to increase its net income to possess better return in future. 2.1.8 Payout Ratio According to www.stock-market-investors.com (2010), payout ratio is defined as The money that is paid out in the form of dividends by the company to its shareholders. It means that sum amount of money from earning paid by the firm as dividend to its stakeholder. Refer to table 2.8, it shows that 70% of dividend paid by Dutch Lady to its stakeholder. This ratio shows the company has well growth in its industry. Thus, the firm is able to pay such amount as dividend to its stakeholder. 2.1.9 Price to Earnings (PE) Ratio Price to earnings is a Valuation ratio of a companys current share price compared to its per-share earnings. (www.valuebasedmanagement.net, 2010) It means that PE ratio is use to measure how much does the investors are able to pay for each shares earning. For example, refer to table 2.9, the ratio stock shows 12.36. Dutch Lady has high hope for its stock in future by having that ratio. Investors look at Dutch Lady PE ratio as an overpriced stock. 2.1.10 Return on Investment (ROI) Return on investment is defined as A measure of the net income a firms management is able to earn with the total assets. (financial-dictionary.thefreedictionary.com, 2010). It means that the ROI is used to describe monetary gain made by investing from bonds or stocks. Refer to table 2.10, the ROI for Dutch Lady shows 29% return. This percentage shows the firm has made such profit from the money a business owner puts into the business. This ratio is a positive ratio in dairies industry where the return on investment could still be made by the owner.