Liquidity Ratios:

current ratio:
total current assets
current ratio for the year =
total current liabilities

240,000
current ratio for the year 2022=
215,000
= 1.116

320,000
current ratio for the year 2023=
241,000
= 1.328

The current ratio describes the relationship between a company's assets

and liabilities. So, a higher ratio means the company has more assets
than liabilities.
a current ratio of 2 or higher is considered good, and anything lower than 2
is a cause for concern.
For the company here although the current ratio in 2023 is slightly better than
that for 2022 still the company has to be concern about its ability to pay its
depts.
Quick ratio:
total current assets−inventory
current ratio for the year =
total current liabilities

240,000−100,000
current ratio for the year 2022= =0.65
215,000

320,000−150,000
current ratio for the year 2023= =0.705
241,000
he quick ratio is an indicator of a company’s short-
term liquidity position and measures a company’s ability to meet
its short-term obligations with its most liquid assets.
Since it indicates the company’s ability to instantly use its near-
cash assets (assets that can be converted quickly to cash) to
pay down its current liabilities,
The higher the quick ratio, the better a company's liquidity and
financial health,
Generally, a quick ratio of 1.0 or higher is considered good,
indicating that the company has as much in its most liquid
assets as it owes in short-term liabilities. For many industries,
the ideal quick ratio falls anywhere from 1.2 to 2.0. A ratio
below 1.0 indicates a company will have difficulty meeting
current liabilities, while a ratio over 2.0 may indicate that a
company isn’t investing its current assets aggressively .
The company quick ratio is progressing from 2022 to 2023 but
still under the secure levels and the company needs to rise its
quick ratio by reinvest more part of its profits as cash or any
other current asset.
Efficiency (Activity) Ratios:
Average collection period:
accounts receivable
ACP=
annual sales /365
80,000
ACP for the year 2022=
500,000 /365
= 58.4 days
90,000
ACP for the year 2023=
700,000/365
= 46.93 days
the amount of time it takes for a business to receive payments
owed by its clients in terms of accounts receivable (AR).
A shorter average collection period (60 days or less) is generally preferable
and means a business has higher liquidity.
The average collection period faced a major improvement from 2022 (58.4
days) to (46.93 days) this might help financing current
liabilities and reduce the risk arose from weak current ratio and
quick ratio.
Average payment period:
accounts payable
APP=
annual purchases /365
65,000
APP for the year 2022=
(0.50 ×220,000)/365
= 215.68 days
70,000
APP for the year 2023=
(0.50 × 320,000)/365
= 232.27 days

Is the average time period taken by a company to pay off

their dues against the purchases made on a credit basis
from the supplier.
A low average payment period is preferred, as it signifies that the company
takes less time to settle its outstanding supplier invoices.
Again the average payment period has a problem while it is preferable to be
round 30 days it is here 215 – 232 days in 2022 and 2023 respectively and
going higher indicating that the company requires to much time to pay its depts
from purchases.
Total assets turnover:
Net Sales
Total Assets Turnover=
Total Assets

500,000
Total Assets Turnover for 2022= =0.58
855,000
 700,000
942,000 0.74
Total Assets Turnover for 2023= =¿

The asset turnover ratio measures the efficiency of a company's

assets in generating revenue or sales. It compares the dollar
amount of sales (revenues) to its total assets as an annualized
percentage.
A good asset turnover ratio is when it is above 1, since it implies
that the company is fully utilizing its owned resources to
generate sales revenue. The higher the ratio, the better. It
means that the company is earning more revenue by using its
resources best.
The company is improving in its total asset turnover ratio from
0.58 to 0.74 but it is still far away from the lower limit ratio
which indicates that the company is not efficiently utilizing its
resources to generate revenue.
Inventory Turnover:
Cost of Goods Sold
Invetnory Turnover=
Inventory
220,000
Invetnory Turnover for 2022= =2.2
100,000
320,000
Invetnory Turnover 2023=
150,000 = 2.13

iInventory turnover measures how efficiently a company uses its

inventory by dividing the cost of goods sold by the
average inventory value during the period.
A good inventory turnover ratio is between 5 and 10 for most industries, which
indicates that you sell and restock your inventory every 1-2 months.
The average inventory turnover for the company is far beyond the good
inventory turnover it is approximately 2 which indicates that the company sell
and restock every 2 months.
Days of inventory:
365
Average age of inventory=
Inventory Turnover
365
Average age of inventory for 2022= =166
2.2
365
Average age of inventory for 2023= =171.3 172
2.13

Days in inventory is the average time a company keeps its

inventory before it is sold.
many experts agree that a good DSI is somewhere between 30 and 60 days.
The company here had average age of inventory 166 days in 2022 and
average days of inventory of 172 in 2023 which was maleficent and getting
worse not better.

Profitability ratios:
Return on assets:
ROA=earnings available¿ common stockholders ¿
common stock equity
78,000
ROA for 2022= =0.091
855,000
150,000
ROA for 2023= =0.16
942,000

a metric that indicates a company's profitability in relation to its total assets.

A ROA of over 5% is generally considered good and over 20% excellent.
for our company its between 9% on 2022 and 16% on
2023
Return on Equity:
ROE=earnings available ¿ common stockholders ¿
Total assets
78,000
ROE for 2022= =0.41
190,000
150,000
ROE for 2023= =0.785
191,000

Return on equity (ROE) is the measure of a company's net income divided by

its shareholders' equity. ROE is a gauge of a corporation's profitability and how
efficiently it generates those profits. The higher the ROE, the better a company
is at converting its equity financing into profits.
A return of between 15-20% is considered good.
The return on equity for the company was above the desired ratio in 2022
(41%) and it increased to 78.5% in 2023
Gross profit margin
gross profit
gross profit margin=
net sales
280,000
gross profit margine for 2022= =0.56
500,000
380,000
gross profit margine for 2023= =0.54
700,000

Gross profit margin is the profit after subtracting the cost of goods sold
(COGS), a company's gross profit margin is the money it makes after
accounting for the cost of doing business.
a gross profit margin ratio of 50 to 70% would be considered healthy,
for the company it is in the safety range.

Operating profit margin

operating profits
gross profit margin=
net sales
 160,000
operating profit margine for 2022= =0.32
500,000
240,000
operating profit margine for 2023= =0.34
700,000

measures how much profit a company makes on a dollar of sales after paying
for variable costs of production, such as wages and raw materials, but before
paying interest or tax.
a good operating profit margin sits between 10–20%, meaning the business
has a profit of 20 cents on each dollar of revenue after operating costs have
been deducted.

Net profit margin

NPM =earnings available ¿ common stockholders ¿
net sales
78,000
NPM for 2022= =0.156
500,000
150,000
NPM for 2023= =0.214
700,000

means for each $1 of revenue the company earns $x in net profit.

A net profit of 10% is generally regarded as a good margin for most
businesses, while 20% and above is regarded as very healthy. A net profit
margin of less than 5% is relatively low in most industries and can indicate
financial risk and

Earnings per share (EPS)

EPS=earnings available ¿ common stockholders ¿
net salesnumber of shares outstanding
78,000
EPS for 2022= =0.78
100,000
150,000
EPS for 2023= =1.5
100,000
Earnings per share (EPS) is a company's net income subtracted by
preferred dividends and then divided by the average number of
common shares outstanding.
The earning per share increased from 0.78 in 2022 to 1.5 in 2023 indicating
high improvement in performance
debt ratios:
Dept ratio
total liabilities
dept ratio=
total assets
465,000
dept ratio for 2022= =0.54
855,000
541,000
dept ratio 2023= =0.57
942,000

A debt ratio measures the amount of leverage used by a company in terms of

total debt to total assets.
If your debt ratio does not exceed 30%, the banks will find it excellent. Your
ratio shows that if you manage your daily expenses well, you should be able to
pay off your debts without worry or penalty. A debt ratio between 30% and
36% is also considered good.
For our company it is considered at risk and should be lowered because it is
between 54% and 57%
Times interest earned
EBIT
dept ratio=
interest
160,000
¿ interest earned for 2022= =3.2
50,000
240,000
¿ interest earned 2023= =0.6
40,000

a solvency ratio indicating the ability to pay all interest on business debt
obligations. TIE is calculated as EBIT (earnings before interest and taxes)
divided by total interest expense.
A higher times interest earned ratio is favorable because it means that the
company presents less of a risk to investors and creditors in terms of solvency.
From an investor or creditor's perspective, an organization that has a times
interest earned ratio greater than 2.5 is considered an acceptable risk.

The company was considered in an acceptable situation in 2022 but it is went

into a bad situation in 2023