Thanx to PUNJABI MUNDA (Shamshad Chaudhry)

2. Ratio Analysis
Managerial Finance

3. Presenters
Omer Shahzad MB-12-08
Ali Asghar MB-12-34
Zeeshan Ahmad MB-12-09
Babar Chaudhary MB-12-545
4
3
2
1
Saleem Malik MB-12-23

4. Financial
Ratios

5. Market Ratios
Profitability Ratios
Debt Ratios
Activity Ratios
Liquidity
Ratios

6. Ali
Asghar
MB-12-34

7. Liquidity Ratios
Firm’s ability to satisfy its short-
term obligations as they come
due.

8. Current Ratio
Liquidity Ratios
Quick Ratio

9. Current Ratio
Looks at the ratio between
current assets and current
liabilities.

10. Mostly Current Ratio of 2 is consider acceptable. For
Atlas Honda, current ratio is less than acceptable but
improved during last 5 years and remain stable in last 2
years at level of 1.45 which is quite acceptable.

11. 1.31
1.25
1.49
1.45 1.45
1.1
1.15
1.2
1.25
1.3
1.35
1.4
1.45
1.5
1.55
2008 2009 2010 2011 2012
Current Ratio
Current Ratio

12. Quick Ratio
Is similar to the current ratio
but it excludes inventory
from current assets.

13. A Quick Ratio of 1 or greater is acceptable. For Atlas
Honda, Quick Ratio mostly remain below 1 and remain
deteriorating.

14. 0.84
0.7
1.02
0.9
1
0
0.2
0.4
0.6
0.8
1
1.2
2008 2009 2010 2011 2012
Quick Ratio
Quick Ratio

15. 1.31
1.25
1.49
1.45 1.45
0.84
0.7
1.02
0.9
1
0
0.2
0.4
0.6
0.8
1
1.2
1.4
1.6
2008 2009 2010 2011 2012
Liqidity Ratios
Current Ratio Quick Ratio

16. According to company financial statement they
are in Strong Liquidity position but their liquidity
position is not as good as they stated. Company
liquidity position appear to have remain stable
but below acceptable criteria. Company may
have problem to satisfy its short term obligations
when they come due. But, it is also a fact that
company do not have pay all its short term
obligations at the same time so company should
manage to pay its short liabilities.
Liquidity Ratios

17. Omer
Shahzad
MB-12-08

18. Activity Ratios
Measures the speed with which
various accounts are converted into
sales or cash-inflows or cash-
outflows.

19. Inventory
Turnover Ratio
Activity Ratios
Average
Collection Period
Average
Payment Period
Asset
Turnover Ratio

20. Inventory Turnover Ratio
Measures the activity of a
firm’s inventory.

21. Inventory turnover for ATLAS HONDA is improved very fast
during last 5 years and a level of 16.3 is quite remarkable.
Higher Inventory Turnover leads to reducing holding cost and
increase the net income and profitability. But company need to
remain conscious about inventory turnover because higher
level of inventory turnover may indicate inadequate inventory
level, which may leads to a loss for the business.

22. 7.13
10.36
14.15
15
16.3
0
2
4
6
8
10
12
14
16
18
2008 2009 2010 2011 2012
Inventory Turnover
Inventory Turnover

23. Asset Turnover Ratio
Indicates the firm’s
efficiency to use assets for
generating sales.

24. It is generally consider that the higher the firm total asset
turnover, the more efficiently its assets have been used.
Asset turnover for ATLAS HONDA is improving and have
excellent level.

25. 2.39
1.84
3
3.38
3.47
0
0.5
1
1.5
2
2.5
3
3.5
4
2008 2009 2010 2011 2012
Asset Turnover
Asset Turnover

26. 7.13
10.36
14.15
15
16.3
2.39
1.84
3
3.38 3.47
0
2
4
6
8
10
12
14
16
18
2008 2009 2010 2011 2012
Turnovers
Inventory Turnover Asset Turnover

27. Average Collection Period
Shows the time needed to
collect accounts receivables.

28. ATLAS HONDA have very good credit and collection
policies. Average collection period of less than 1 week is
amazing.

29. 7
8.5
6
4.5
6
0
1
2
3
4
5
6
7
8
9
2008 2009 2010 2011 2012
Average Collection Period
Avg. Collection Period

30. Average Payment Period
Shows the time needed to
pay accounts payables.

31. Average payment period is decreased as compared to
2009. But company still using its credit worth very well
and taking full advantage of credit period from suppliers.

32. 61
76
48
51 50
0
10
20
30
40
50
60
70
80
2008 2009 2010 2011 2012
Average Payment Period
Avg. Payment Period

33. 7
8.5
6
4.5
6
61
76
48
51 50
0
10
20
30
40
50
60
70
80
2008 2009 2010 2011 2012
Periods
Avg. Collection Period Avg. Payment Period

34. Activity Ratios
The company asset performance appears to
be in a good shape. It is clear that company
has efficiently use the various components
of working capital cycle. It has been able to
effectively control the receivables and
inventories.

35. Zeeshan
Ahmad
MB-12-09

36. Debt Ratios
Indicates the amount the firm
uses to generate profits from
others’ money.

37. Debt Ratios
Debt Ratio
Fixed-Payment
Coverage Ratio
Times Interest
Earned Ratio

38. Debt Ratio
Measures the proportion of
total assets financed by the
firm’s creditors.

39. The higher degree of debt ratio shows the greater the
firm’s degree of indebtedness. Debt ratio for Atlas Honda
in 2008 was nearly 61% which was not very favorable
for the organization. But during the last 5 years, the debt
ratio decrease continuously and reach to nearly 50%
which is not very good but fair enough.

40. 60.89
55.63
54.33
51.95
50.54
0
10
20
30
40
50
60
70
2008 2009 2010 2011 2012
Debt Ratio
Debt Ratio

41. Times Interest Earned Ratio
Measures the firm’s ability to make
contractual interest payments. It is
also called Interest Coverage Ratio.

42. Interest Coverage Ratio of Atlas Honda increase during
the last 5 years but you can see a surprising increase in
this ratio in 2012. You can understand this increase by
comparing Debt and Interest coverage ratio.

43. 4.98
2.4
10.56
16
139.26
0
20
40
60
80
100
120
140
160
2008 2009 2010 2011 2012
Interest Coverage Ratio
Interest Coverage Ratio

44. 60.89
55.63 54.33
51.95 50.54
4.98
2.4
10.56
16
139.26
0
20
40
60
80
100
120
140
160
2008 2009 2010 2011 2012
Debt Ratios
Debt Ratio Interest Coverage Ratio

45. Debt Ratios
In this graph you can see a negative relationship
between Debt and Interest coverage ratio. As the
company debt ratio decrease, the company times
interest earned ratio increase rapidly. It is due to
company policy introduced in 2010 to reshape its
balance sheet approach and worked to reduce the
interest bearing liabilities to improve its balance
sheet. The outcome of this policy is the
Achievement of “DEBT FREE STATUS” in 2012.

46. M. Saleem
MB-12-23

47. Profitability Ratios
Measures the firms’ profits with
the given level of sales.

48. Gross-Profit
Ratio
Profitability Ratios
Net-Profit
Ratio
Earning
Per Share
Operating-Profit
Ratio
Return on
Total Assets
Return on
Common Equity

49. Gross-Profit Ratio
Measures the percentage of each
sales dollar remaining after the
firm has paid for its goods.

50. Gross profit margin for ATLAS HONDA is unstable and
mostly deteriorating. But separate using gross profit
margin for measuring company profitability is not a good
measure.

51. 7.46
7.02
7.82
7.5
7.3
6.6
6.8
7
7.2
7.4
7.6
7.8
8
2008 2009 2010 2011 2012
Gross Profit Margin
Gross Profit Margin

52. Operating-Profit Ratio
Measures the percentage of each sales
dollar remaining after all costs &
expenses other than Interests and Taxes
are deducted.

53. Operating profit margin for ATLAS HONDA decreased in
2009, but remain quite stable after that.

54. 6.02
4.4
4.65 4.62
4.3
0
1
2
3
4
5
6
7
2008 2009 2010 2011 2012
Operating Profit Margin
Operating Profit Margin

55. Net-Profit Ratio
Measures the percentage of each
sales dollar remaining after all costs &
expenses including Interests and
Taxes are deducted.

56. Net profit margin also decreased during 2009 but
company recovered very well and its net profit
continuously increasing from last 3 years.

57. 3.37
1.63
2.78
3.08
3.16
0
0.5
1
1.5
2
2.5
3
3.5
4
2008 2009 2010 2011 2012
Net Profit Margin
Net Profit Margin

58. 7.46
7.02
7.82
7.5
7.3
6.02
4.4
4.65 4.62
4.3
3.37
1.63
2.78
3.08 3.16
0
1
2
3
4
5
6
7
8
9
2008 2009 2010 2011 2012
Profitibility Ratios
Gross Profit Margin Operating Profit Margin Net Profit Margin

59. Earnings Per Share (EPS)
Represents the dollar amount earned
on behalf of each outstanding share of
common stock.

60. Over the years, the company is focused on maintaining
steady growth in EPS. In 2012, company delivered EPS
of Rs.16.74 which is outstanding.

61. 4.75
14.86
11.39
16.03
16.74
0
2
4
6
8
10
12
14
16
18
2008 2009 2010 2011 2012
Earning Per Share
Earning Per Share

62. Profitability Ratios
The Company’s Gross profit margin declined
but it is due to the higher cost of goods sold.
While the Operating and Net profit margin is
improving so we can evaluate that company
profitability is improving.

63. Babar
Hussain
MB-12-54

64. Return on Total Assets (ROA)
Measures the overall effectiveness of the
management in generating profits with its
available assets. It is also called Return
on Investment (ROI).

65. The higher the firm’s return on total asset consider the
better. Return on total asset of ATLAS HONDA appear to
be improved in last 3 year and rose to 11% despite
significant in assets base on account of capacity
expansion.

66. 8.07
3
8.36
10.42
10.98
0
2
4
6
8
10
12
2008 2009 2010 2011 2012
Return on Asset
Return on Asset

67. Return on Common Equity (ROE)
Measures the return earned on the
common stockholders’ investment
in the firm.

68. Return on equity also have the same case like ROA. It is
also improved after declining in 2009 and now rose to
22% due to steady income growth.

69. 20.65
6.76
18.3
21.68
22.21
0
5
10
15
20
25
2008 2009 2010 2011 2012
Return on Equity
Return on Equity

70. 8.07
3
8.36
10.42
10.98
20.65
6.76
18.3
21.68
22.21
0
5
10
15
20
25
2008 2009 2010 2011 2012
Returns
Return on Asset Return on Equity

71. Market Ratios
Relates the firms’ market value as
measured by its current share
price, to certain accounting values.

72. Price/Earnings
Ratio
Market Ratios
Market/Book
Ratio

73. Price/Earnings Ratio (P/E)
Measures the amount that investors
are willing to pay for each dollar of a
firm’s earnings.

74. The higher level price earnings ratio consider the better.
Price earnings ratio for ATLAS HONDA decrease during
previous years but it not due of low earning but due to
the higher market price of ATLAS HONDA’s shares.

75. 14.1
18.7
10.9
8.8
8.5
0
2
4
6
8
10
12
14
16
18
20
2008 2009 2010 2011 2012
Price Earning Ratio
Price Earning Ratio

76. DuPont System of Analysis
System used to dissect the firm’s financial
statement and to assess its financial
condition.
The two measures of this this system are:
1.Return on total assets (ROA)
2.Return on common equity (ROE)

77. DuPont Formula
Multiplies the firm’s net profit margin by its
total asset turnover to calculate the firm’s
return on total assets.

79. Modified DuPont Formula
Relates the firm’s return on total assets to
its return on common equity using financial
leverage multiplier.