Ratio Analysis of Olympic Industries Ltd Essay

COMPANY PROFILE
Olympic Industries Limited is one of the longest running and most reputed manufacturing-based companies in Bangladesh, with a heritage of over 50 years and group profile including interests in Pharmaceuticals, Power, and Information Technology, among other FMCG. It began in June 1979 as Bengal Carbide Limited, starting battery production in April 1982. The success of the battery unit, as well as the trust of its customers in its goods led to the massive diversification of its product line. Starting with steel production dating back to 1950, Olympic has steadily diversified over the years into various consumer goods including biscuits, confectioneries, batteries, and ball pens, with over 40 brands and 53 SKU’s.

The company has gotten to where it is today by staying true to its core beliefs, in providing high quality, innovative products which its consumers can rely on.

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Olympic Industries Limited is currently the market leader in the biscuit market and second in position in the battery market in Bangladesh. It has been able to stride forward due to its continuous vision for growth, its modern manufacturing facilities, and its extensive sales and distribution network, and it has always yielded this influence to give back to the community.

1. LIQUIDITY RATIO
1.1 Current Ratio:
Provides an indication of the liquidity of the business by comparing the amount of current assets to current liabilities. A business’s current assets generally consist of cash, marketable securities, accounts receivable, and inventories. Current liabilities include accounts payable, current maturities of long-term debt, accrued income taxes, and other accrued expenses that are due within one year. In general, businesses prefer to have at least one dollar of current assets for every dollar of current liabilities. A current ratio significantly higher than the industry average could indicate the existence of redundant assets. Conversely, a current ratio significantly lowers than the industry average could indicate a lack of liquidity.

Formula: Current RATIO = Current asset/ Current liabilities.

Scenario of OLYMPIC INDUSTRIES:

YEAR
CURRENT RATIO
2008
1.10
2009
1.10
2010
1.22
2011
1.25
2012
1.34

Analysis: This Company’s current ratio is showing that for the years of 2008, 2009, 2010, 2011 and 2012, the company had a constant growth in its current assets over its current liabilities. Analyzing these data we can say that the company is doing well last five years.

1.2 Quick Ratio:
A measurement of the liquidity position of the business. The quick ratio is more conservative than the current ratio because it excludes inventory and other current assets, which are more difficult to turn into cash. Therefore, a higher ratio means a more liquid current position. Consequently, a business’s quick ratio will be lower than its current ratio.

Formula: Quick Ratio = (Current Assets – Inventory) / Current Liabilities.

Scenario of OLYMPIC INDUSTRIES:

YEAR
QUICK RATIO
2008
0.70
2009
0.70
2010
0.85
2011
0.84
2012
0.94

Analysis: The standard ratio in this case is 1: 1. This means that for every one taka of Current Liabilities, there should be one taka of Current Assets. Here we can see that the company had more cash and cash equivalents in the year 2012 and since then the cash and cash equivalent increased in a fluctuating manner. For the past 5years the company has enough cash against its liabilities and the amount of cash and cash equivalent the company is holding, is ideal.

1.3 Cash Ratio:
The ratio of a company’s total cash and cash equivalents to its current liabilities. It can therefore determine if, and how quickly, the company can repay its short-term debt. The cash ratio is generally a more conservative look at a company’s ability to cover its liabilities than many other liquidity ratios. This is due to the fact that inventory and accounts receivable are left out of the equation. Since these two accounts are a large part of many companies, this ratio should not be used in determining company value, but simply as one factor in determining liquidity. Formula: Cash ratio = Cash / Current liabilities.

Scenario of OLYMPIC INDUSTRIES:
YEAR
CASH RATIO
2008
0.33
2009
0.33
2010
0.54
2011
0.61
2012
0.69

Analysis: Here we can see that the company managed to increase its cash every year. The cash position of the company is increasing yearly and the cash ratio is in a satisfactory position; however, the company should try to maintain a more steady cash position.

2. LEVERAGE RATIO
2.1 Debt to equity Ratio:
A measure of a company’s financial leverage calculated by dividing its total liabilities by stockholders’ equity. It indicates what proportion of equity and debt the company is using to finance its assets. Formula:

Scenario of OLYMPIC INDUSTRIES:
YEAR
Debt to equity
2008
1.40
2009
1.40
2010
1.19
2011
1.25
2012
1.00

Analysis: This ratio total liabilities lower is the better because it is good
for the company and it’s indicate that company have own asset or equity more than the liabilities. In 2012 year is good for the company rather than other years because more equity have better than debt. 2.2 Debt to total assets Ratio:

A metric used to measure a company’s financial risk by determining how much of the company’s assets have been financed by debt. Calculated by adding short-term and long-term debt and then dividing by the company’s total assets. Formula:

Scenario of OLYMPIC INDUSTRIES:

YEAR
Debt to total asset ratio
2008
0.58
2009
0.58
2010
0.55
2011
0.54
2012
0.50

Analysis: Debt lower is the better because it is good for the company and it’s indicate that company can buy asset using less debt. In 2012 is better than the other year because in year 2012 debt is lower than the other year. 2.3 Interest coverage Ratio:

A ratio used to determine how easily a company can pay interest on outstanding debt. The interest coverage ratio is calculated by dividing a company’s earnings before interest and taxes (EBIT) of one period by the company’s interest expenses of the same period: Formula:

Scenario of OLYMPIC INDUSTRIES:
YEAR
Interest coverage ratio
2008
3.86
2009
3.86
2010
6.91
2011
6.78
2012
8.45

Analysis: Here, higher EBIT is the better because company interest rate ability paying will be higher. In this company ratio 2012 year is higher EBIT rather than year 2008 to 2011. So 2012 is better than other year. 3. TURNOVER RATIO

3.1 Receivable turnover Ratio:
An accounting measure used to quantify a firm’s effectiveness in extending credit as well as collecting debts. The receivables turnover ratio is an activity ratio, measuring how efficiently a firm uses its assets. Formula:

Scenario of OLYMPIC INDUSTRIES:

YEAR
Receivable turnover ratio
2008
59.81
2009
59.80
2010
181.47
2011
160.74
2012
235.06

Analysis: Here, higher sales are better because more credit sales are create more asset that’s why the higher is better. In this ratio 2012 year is more credit sells rather than other year. So 2012 is better than other year. 3.2 Receivable Turnover in days Ratio:

Receivable turnover in days (RTD) or average collection period, is calculated as RTD=Days in the year ⁄ Receivable turnover
Scenario of OLYMPIC INDUSTRIES:
Year
Receivable turnover in days ratio
2008
0.16
2009
0.16
2010
0.50
2011
0.44
2012
0.64
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Analysis: This ratio lower is better because how less time I collect the money that’s good for my company. In this ratio 2008 and 2009 year is lower times rather than other year. So 2008 and 2009 is better but 2012 year is higher time than other year. So the company needs to improve this situation.

3.3 Inventory Turnover Ratio:
A ratio showing how many times a company’s inventory is sold and replaced over a period. The days in the period can then be divided by the inventory turnover formula to calculate the days it takes to sell the inventory on
hand or “inventory turnover days”. Formula:

Scenario of OLYMPIC INDUSTRIES:
YEAR
Inventory turnover ratio
2008
8.02
2009
8.02
2010
7.18
2011
8.33
2012
10.90

Analysis: In this ratio higher is better because how quickly the inventories are being sold its good for the company. In this ratio 2012 year is low Cost of goods sold rather than other year, so year 2012 is better. 3.4 Total Assets Turnover Ratio:

The amount of sales generated for every dollar’s worth of assets. It is calculated by dividing sales in dollars by assets in dollars. This ratio is more useful for growth companies to check if in fact they are growing revenue in proportion to sales.

Formula:

Scenario of OLYMPIC INDUSTRIES:
YEAR
Total assets turnover ratio
2008
2.11
2009
2.11
2010
1.80
2011
2.10
2012
2.32

Analysis: This ratio higher sale is better because how efficiently the asset is being utilized to generate more sales. In 2012 year is being very well utilized the asset rather than other year.

3. PROFITABILITY RATIO

Profit percentage is calculated with cost price taken as base. Profit margin is calculated with selling price (or revenue) taken as base. Profit margin is the percentage of selling price that turned into profit, where as profit percentage is the percentage of cost price that one gets as profit on top of cost price. In this ratio, the company NPM has increased which is good sign for the company. In 2010 and 2012 the company’s NPM are higher than other years which is good for the company.

The purpose of margins is “to determine the value of incremental sales, and to guide pricing and promotion decision. Margin on sales represents a key factor behind many of the most fundamental business considerations, including budgets and forecasts. All managers should, and generally do, know their approximate business margins. In this ratio the company has doing well last five years & they are maintaining the % of the GPM. But last 2 years GPM % went down to 0.25 and 0.24, which is not good for the company. For this the company should increase this GPM.

The (ROA) percentage shows how profitable a company’s assets are in generating revenue. This number tells us what the company can do with what it has. In this ratio the company in 2012 doing good which is 0.18, which is partially good, but they should improve it for their financial position.

ROE is equal to a fiscal year’s net income divided by total equity (excluding preferred shares), expressed as a percentage. As with many financial ratio’s, ROE is best used to compare companies in the same industry. In this ratio the company in 2012 doing well this is 0.36. This is good sign for the company.

CONCLUSION
In conclusion, we can say that the liquidity ratio, leverage ratio, turnover ratio, and profitability ratio of Olympic Industries Limited had a constant growth in its overall ratio analysis. For the last 5 years the company has enough cash, current assets, managed to increase its cash every year against its total liabilities. The company also have own asset or equity more than the liabilities, and its EBIT is also higher, credit sales is higher and creates more assets. In this ratio, the company NPM and ROE has increased which is good sign for the company. Though the company’s RT in days, GPM and ROA is not good but we can say that the company is doing well for the last five years from the above ratio analysis.

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