Kathmandu Trend and Financial Ratio Analysis - Case Study Example

Kathmandu Trend and Financial Ratio Analysis Name Institution Course Date Return on assets ratio Return on assets ratio measures the company’s efficiency in using its assets for purposes of generating sufficient profits. High return to assets ratio is good for the company because it is an indication of the company’s better utilization of assets in generation of sales. Return on assets=Net income/Total assets 2010: 9387/319414=2.94% 2011: 39066/339890= 1.15% 2012: 34852/372820= 9.35% 2013: 44174/376217= 1.17% Kathmandu Asset Efficiency Analysis Asset efficiency ratios gauge the speed rate of a given company assets with which they are being converted into sales and subsequently profits. This assets efficiency is measured by calculation of ratios such as total asset turnover, fixed asset turnover and equity turnover. Equity turnover ratio Equity turnover ratio is a measurement of a firm’s ability in generating sales. This is possible when shareholders investments are provided. Equity turnover=Net sales/Average total equity Equity turnover=Net sales/Average total equity 2010: 245812/ {(132686+239127)/2} =1.3222 2011: 306143/ {(239127+254926)/2} =1.2393 2012: 347104/ {(254926+279634)/2} =1.2987 2013: 383983/ {(279634+294189)/2} =1.3383 Total asset turnover ratio This ratio measures the company ability in generation of its sales provided its investment in total assets. Total asset turnover=Net sales/Average total assets 2010: 245812/ {(349385+319414)/2} = 0.7351 2011: 306143/ {(319414+339890)/2} =0.9287 2012: 347104/ {(339890+372830)/2} =0.9740 2013: 383983/ {(372830+376217)/2} =1.0253 Fixed asset turnover This ratio measures the company efficiency in utilization of its fixed assets in generation of sales and subsequently profits. High fixed asset turnover ratio indicates efficiency of the company’s efficiency in generation of sales from fixed assets investment. This ratio is given by total sales/Average net fixed assets. 2010: 245812/ {(271124+273359)/2} =0.9029 2011: 306143/ {(273359+279974)/2} =1.1065 2012: 347104/ {(279974+294221)/2} =1.2090 2013: 383983/ {(294221+282286)/2} =1.3321 Liquidity Analysis Liquidity position of a company is analysed by use of liquidity ratios. These ratios gauge the company’s ability in settling its current obligations when they arise. In essence, these ratios try to ascertain relationship occurring between current assets and liabilities of the company. Current ratio and quick ratios are useful in determining the liquidity position of a company. Quick ratio This ratio measures a company’s ability in meeting its short-term debt when they arise. It takes into account the most liquid assets a company have such as cash and accounts receivables. Quick ratio= Current assets-inventories/current liabilities 2010: (46055-37416)/26007= 0.3322 2011: (59916-54001)/38183= 0.1549 2012: (78609-73295)/38707= 0.1373 2013: (93931-80031)/38820= 0.3581 Current ratio Current ratio gauges the company’s current assets as compared to its current liabilities. This ratio is computed as follows: current assets/current liabilities 2010: 46055/26007= 1.7709 2011: 59916/38183= 1.5692 2012: 78609/38709= 2.0308 2013: 93931/38820= 2.4197 Capital structure analysis Capital structure analysis of a company like Kathmandu Limited is useful to creditors such as debenture holders, mortgagees and bankers who are long-term. They use capital structure ratios in assessing the relationship between the company financing and position of its liquidity. Capital structure ratios include debt ratio and debt to equity ratio. Debt to Equity ratio This ratio gauges creditors’ claims against the money of the company’s owners. This ratio is calculated as follows: Total liabilities/Shareholders Equity 2010: 80287/239127= 0.3358 2011: 84964/254926= 0.3333 2012: 93195/279635= 0.3333 2013: 82028/294189= 0.2788 Debt ratio Debt ratio measures a company’s total liabilities and compares it with its total assets. It is computed in the following manner: Total debt/Total assets 2010: 80287/319414= 0.2514 2011: 84964/339890= 0.2500 2012: 93195/372830= 0.2500 2013: 82028/376217= 0.2180 Market performance analysis Kathmandu Holdings Limited overall market performance is generally good as showed by its basic earning share contained in its financial reports. Earnings per share indicate potential return of shareholders investment in a company. It had a basic share of 0.3cps in 2010, 19.5cps in 2011, 19.5cps in 2012 and 17.4cps in 2013. References Kathmandu Holdings 2014, Investor relations, accessed 09 May 2014, http://www.kathmanduholdings.com/investor-relations/reports/ Read More