Kathmandu Trend and Financial Ratio Analysis Essay Example

Kathmandu Trend and Financial Ratio Analysis

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/