Negative working capital means that a company currently is unable to meet its short-term liabilities with its current assets .If a companys current assets do not exceed its current liabilities, then it may run into trouble paying back creditors in the short term. The worst-case scenario is bankruptcy. Working capitals for both companies i.e. Fauji and Fatima Fertilizer have declining working capital ratio and fauji’s working capital increased in 2011 than previous year 2010.Fatima fertilizer has been facing problems in paying their dues.
Current Ratio 2008 2009 2010 2011Current Assets 9,709,511 14,917,456 17,223,642 27,636,405Current Liabilities 11,823,641 17,854,574 19,987,109 25,924,328Current Ratio 0.82 0.84 0.86 1.07 Current Ratio 2008 2009 2010 2011Current Assets 892,413 2,216,453 4,498,680 8,126,119Current Liabilities 3,505,688 4,660,938 7,074,260 10,757,984Current Ratio 0.25 0.48 0.64 0.76
The Current ratio is the measure of general liquidity in the firm . For both companies i.e. Fauji Fertilizer and Fatima Fertilizer, The current ratio of 2011 is slightly higher than that of 2010 which means that in 2011 the company will be much more in good position to pay the debt in the next coming year. In above comparative graph, you can easily judge that Fauji Fertilizer is in better position than Fatima Fertilizer.
Quick Ratio is an indicator of a companys short-term liquidity. The quick ratio measures a companys ability to meet its short-term obligations with its most liquid assets. The higher the quick ratio, the better the position of the company. In above calculation you can observe that Quick Ratio of Fauji Fertilizer is better than Fatima Fertilizer, it is increased from 0.85 to 1.04 which is shows good sign or improvement and shows ability to meet its short-term obligations with most its liquid assets.
Inventory Turnover 2008 2009 2010 2011Cost of Goods Sold 18,234,692 20,515,044 25,310,406 20,871,759Average Stock in Trade 258,094 201,091 177,904 424,322Inventory Turnover 70.65 102.02 142.27 49.19 Total Asset Turnover 2008 2009 2010 2011Cost of Goods Sold 18,234,692 20,515,044 25,310,406 20,871,759Average Total Assets 31,918,963 35,235,273 40,806,219 49,295,886Total Asset Turnover 0.57 0.58 0.62 0.42
Non Current Asset Turnover 2008 2009 2010 2011Cost of Goods Sold 18,234,692 20,515,044 25,310,406 20,871,759Average Non Current Assets 22,209,452 22,921,789 24,735,670 26,865,863Non Current Asset Turnover 0.82 0.90 1.02 0.78 Current Asset Turnover 2008 2009 2010 2011Cost of Goods Sold 18,234,692 20,515,044 25,310,406 20,871,759Average Current Assets 9,709,511 12313484 14917456 22430024Current Asset Turnover 1.88 1.67 1.70 0.93 Working Capital Turnover 2008 2009 2010 2011Cost of Goods Sold 18,234,692 20,515,044 25,310,406 20,871,759Average Working Capital -2,114,130 -2525624 -2850293 -525695Working Capital Capital -8.63 -8.12 -8.88 -39.70
The activity analysis ratios are also called the Turnover ratios or Performance ratios. These ratios are computed to assess the efficiency with which the firm manages and utilizes its assets. These ratios usually indicate the frequency of sales with respect to its assets. These ratios are usually calculated with reference to sales/cost of goods sold and are expressed in terms of rates or times. Fauji fertilizer shows improvement in their activity ratio. Activity ratio for Fatima Fertilizer is not possible due to the fact that values are not given in Financial Statement
Debt ratio should be less than 1.0, both Fauji & fatima fertilizer having less than 1 . The higher values are respectively the signal of excessive debt. Although it is decreased a little but still it is alarming situation. For the case of Fatima fertilizer. Fauji fertilizer is at better position than Fatima fertilizer.
Total Debt to equity ratio indicates a capacity to borrow additional fund by having low value of Debt to Equity ratio. This is ideal situation for Fauji fertilizer because 1.79 and 1.49 for the year 2010 and 2011 respectively. Fauji fertilizer is also in better condition than Fatima fertilizer because value of Debt to Equity ratio is still very low as compared to Fatima fertilizer
Years 2008 2009 2010 2011 EBIT 9,689,543 12,473,625 15,619,480 29,977,258Interest 695,371 944,947 1,086,741 785,825 Ratio 13.93 13.20 14.37 38.15 Years 2008 2009 2010 2011 EBIT 9,150,623Interest 3,063,055 Ratio #DIV/0! #DIV/0! #DIV/0! 2.99
The times interest earned ratio indicates how well the firms earnings can cover the interest payments on its debt. This ratio also is known as the interest coverage. By having lower values it shows that company has very low capability to pay interest charges. Fauji fertilizer is in stable condition as compared to Fatima fertilizer, because it have much higher value of Times interest earned ration, whereas Fatima does not have any capability to pay interest charges by having lesser value.
RETURN ON ASSET Years 2008 2009 2010 2011 EAT 6,525,083 8,823,106 11,028,849 22,492,053 Average Total Asset 31,918,963 38,551,582 43,060,856 55,530,916 Ratios 20% 23% 26% 41% Years 2008 2009 2010 2011 EAT (144,195) (97,121) (163,639) 4,116,975 Average Total Asset 38,097,748 57,202,532 69,457,038 76,347,248 Ratios -0.38% -0.17% -0.24% 5.39%
Return on assets is a measure of how effectively the firms assets are being used to generate profits. By having positive value means that companys assets are greater than its profit. For Fauji fertilizer the value of Return on Total Assets increased. It shows a little improvement but higher value is better for company and trend should be upward. For Fatima fertilizer Negative ratio shows that company is in loss. Company has to pay interest cost from its asset
Years 2008 2009 2010 2011 EAT 6,525,083 8,823,106 11,028,849 22,492,053Average SHE 12,285,213 13,082,442 15,447,547 23,070,224 Ratio 53% 67% 71% 97% Years 2008 2009 2010 2011 EAT (144,195) (97,121) (163,639) 4,116,975Average SHE 15,345,344 17,742,788 24,258,780 28,054,865 Ratio -0.94% -0.55% -0.67% 14.67%
Return on equity is the bottom line measure for the shareholders, measuring the profits earned for each dollar invested in the firms stock. Fauji fertilizer by having positive Return on Equity (ROE) shows that stockholders are getting profit from company, although it is very minimal but trend is going upward. Fauji fertilizer must increase its net profit margin to have better ROE and to gain investor trust. Fatima fertilizer is in very bad situation, having negative ratio shows that company is in loss. Company has to pay interest cost from its assets