Finance Ratio Analysis

Question: Discuss about theFinancefor Ratio Analysis. Answer: Introduction Quick Ratio: Companys quick ratio is below than industry average and in decreasing trend. That means their ability to pay off short-term debts is becoming worse. They need to either decrease their current liabilities or increase the current assets. Debt Ratio: Companys debt ratio is higher than industry average and in increasing trend. It increases the risk of default or inability to pay their debt. It also decreases the owners stake in business, compared to asset proportion. Net Profit Margin: Companys net profit margin is lower than industry average and is in decreasing trend. Lower net profit margin states companys inability to convert its sales into profit. One of the major factors of changing net profit is change in the price of selling items. Analysis of Cash Flow Statement: Negative Cash Flow from Operating Activities: Cash flow from operations means cash generated by a company from revenues. Cash flows are largely depended on the position of companys cash generation from operations, which further depended on companys total income. Negative cash from operation indicates lower revenue and higher overhead. Negative Cash Flow from Investing Activities: Cash flow from investment indicates any cash generated or lost from investment. Investment activities include sale or purchase of assets, sale or purchase of investment items and collection or lending of loan. Negative cash from investment is not bad always and need to evaluate further before making any final decision about companys investment movement. Positive Cash Flow from Financing Activities: It indicates the companys ability to raise capital pay back to investors successfully. Positive cash flow indicates that the company collecting their loan on time, selling or issuing more stocks and paying dividends to their shareholders regularly. It specifies a companys strength in financial aspect. It also indicates that the company is able to settle their debts, increase in their liquid assets and reinvest in their business activities.