Evaluate the financial performance of the two companies and

Evaluate the financial performance of the two companies and then determine which is the best as required below? Company X Company Y Item 1.11 1.14 1.20 1.26 2.05 5.49 4.02 4.85 8.97 0.17 0.15 0.20 4.78 urrent ratio uick ratio 0,41 0.42 0.43 0.44 0.76 Net cash from ating(Million) 121 9792 125 165 29 16 28 53 3 t cash from Investing (Million) Net cash from 1015 6 33 28 223 1 Financing (Million) 111 -79 -81-115 -115 -56-17 451 |244 1 246 0.24 0.25 0.22 0.20 0.19 0.36 0.35 0.37 0.35 0.42 0.17 0.18 0.16 0.15 0.15 0.12 0.03 0.12 0.11 0.12 Net cash (Million) 0 354 17 0 4 1 ross profit ma Net profit ma 0.15 0.17 0.19 0.19 0.24 0.03 0.01 0.03 0.04 eturn of Assets eturn of Equity 0.27 0.31 0.34 0.36 0.35 0.04 0.01 0.04 0.05 0.02 EPS Receivables Turnover 5.71 6.16 7.25 8.38 10.629.38 11.48 17.13 23.10 19.3 Inventories Turnover | 2.10 Assets Turnover 16.68 19.73 22.67 20.10 29.37 3.43 0.74 3.24 3.41 1.80 2.40 | 2.70 | 3.00 | 3.80 .301 0.30 | 0.30 0.40 | 0.30 0.90 1.00 1.20 1.401.80 0.20 0.20 0.20 0.30 0.20 0.76 0.75 0.78 0.80 0.81 064 0.65 0.63 0.65 0.58 0.28 0.29 0.23 0.09 ost of sales/ sales0 Liabilities/ Assets 0.45 045 0.46 0.47 0.32 A. In general, which company is better in liquidity and why? B. In general, which company is better in efficiency and why? c. In general, which company is better in profitability and why? o. In general, which company is more risky and why? E. Select at least three problems that each company has faced? F. In general and based in your answers, which company is better financial performance and why?

Solution

.A. Liquidity:

Current ratio indicated short term liquidity ie ability of the company to meet its short term obligation. Quick ratio indicates   immediate liquidity ie ability of the company to meet ists immediate cash needs.

                The higher these ratios , the better will be the liquidity of the company.

                Company   Y has consistently higher current ratio than company X.

                 It also has quick ratio at 4.78 compared to 0.76 of company X in year5

                  Hence, in general company Y is better in liquidity

.B Efficiency :

High ratios indicate that the company is able to generate higher sales with lower investment in working capital (for receivables and inventory) and asset

Higher these ratio , higher will be the efficiency

Receivable turnover is higher for company Y but its inventories turnover and asset turnover are lower than X

Hence it can be concluded that in general company X is better in efficiency

                .C Profitability:

                        The following ratios indicate profitability:

Gross profit margin of company Y is higher than company X

But net profit margin of company Y is lower than X . This means the operating expenses of company Y is high resulting in lower net profit margin.

Return on asset which is the ratio of net profit to total assets is higher for company X.

Return equity is also higher for company X.

Hence company X is better in profitability

                  .D   Risky:

                       Companies having higher debts are more risky. Liabilities /Assets ratio of company                    X is higher than company Y.

Hence company X is more risky than Y