Financial Statement Ratios for DBE Gurney

(A) Liquidity Ratio 2016 2015

Current Ratio:

Current Assets/ = 1.19 = 0.97

Current Liabilities

Acid-Test Ratio:

Current Assets- Stocks / = 1.0 = 0.88

Current Liabilities

Collection Period:

Average Accounts = 84.10 days = 81.29 days

Receivables/
Sales

Days to Sell inventory:

Average inventories/ = 20.59 days = 13.66 days

Cost of Sales X 360

Interpretation:
DBE Gurney’s short-term liquidity position has strengthened a little for the past two years
period. Both current and quick ratio has been proving a slight incline trend where its current
ratio shift from 0.97 to 1.19 and the acid-test ratio moved from 0.88 to 1.0 from 2015 to 2016.
Thus, this indicates that DBE Gurney is currently a financially sound company where its’ assets
are most quickly convertible to cash compared to in 2015.

The firm’s receivables collection period has increased and it is likely to be shown that they
have weak collection efforts, customer made delay payments to the company or there should
be a probability when customer is suffering from financial distress. Besides, the company’s
stock holding period has inclined where this ratio allows us to know about the number of days
need to be required to sell ending inventory. This indicates that DBE Gurney is suffering from
poor management of its stocks, weak demand and the availability of obsolescence and non-
stability.
(B) Capital Structure & Solvency 2016 2015

Total debt to Equity:

Total Liabilities/ = 0.82 = 1.26

Shareholder’s equity

Long-term debt to equity:

Long-term liabilities/ = 0.24 =0.38

Shareholder’s equity

Time Interest Earned:

Income before income taxes = 1.06 = - 6.09

and interest expense/
Interest expense
Interpretation:

DBE Gurney has higher proportion of debts in year 2015 than in the year of 2016. The
company’s total debt to equity has reduced from 1.26 to 0.82 and this proved that the firm has
a decreased in the gearing or financial leverage where the company is less is taking risk.
Moreover, long-term debt to equity has decreased from 0.38 to 0.24 in 2015 and 2016. This
company is able to handle its debts because it has lesser fixed charges of interests and debts
repayment.

Meanwhile, time interest earned for DBE Gurney has increased from -6.09 to 1.06 so this
indicates that the company have no issues to meet its fixed charge commitments and has a
minimum probability of default in the loan payments.
(C) Return on Investment 2016 2015
Return on Assets:

Net Income + Interest = 0.013 = -0.084

expense x (1- Tax rate) /
Average total assets

Return on Common Equity:

Net income – Preferred = 0.0045 = - 0.202

Dividend /
Average Shareholder’s
equity

Interpretation:
DBE Gurney’s return on assets increased from – 0.084 to 0.013 in the period of 2015 and
2016. This shows that Gurney is effective in using its’ assets to generate profits as much as
efficient in handling its investment conversion of its returns.

Return on common equity measures the returns to stockholders after subtracting the returns
that is paid to preferred shareholders. Throughout the year in 2015 and 2016, its return on
equity has increased from -0.202 to 0.0045 where it shows that Gurney is good at converting
its investment into earnings.
(D) Operating Performance 2016 2015
Gross Profit Margin:

Sales – Cost of Sales / = 15.46% = 4.60%

Sales X 100

Net Profit Margin:

Net Income / = 0.22% = -9.0%

Sales X 100

Interpretation:

DBE Gurney’s operating efficiency appears to be inclining due to the fact that the
percentage of gross profit margin together with net profit margin has drastically shift from 4.60%
to 15.46% and -9.0% to 0.22%. The increased of profit margin indicates that Gurney is able to
generate net income from sales effectively. Gurney is also good in managing its business
expenses and have full internal control over its expenses.
(E) Asset Utilization 2016 2015
Cash Turnover:

Sales / = 142.35 = 318.81

Average cash and equivalents

Account Receivables Turnover:

Sales / = 4.3 = 4.4

Average accounts receivables

Inventory Turnover:

Cost of Sales / = 17.48 = 26.36

Average inventory

Working Capital turnover:

Sales / = 41.97 = -71.95

Average Working Capital

PPE turnover:

Sales / = 1.64 = 1.60

Average PPE

Total Assets Turnover:

Sales / = 1.01 = 1.06

Average Total assets
Interpretation:
Gurney’s cash turnover has reduced from 318.81 to 142.35 where it shows the
company is weak in utilizing its cash balances in 2016 because it is not putting cash into better
use while it is leaving it idle.

Accounts receivable turnover has also reduced slightly from 4.4 to 4.3 due to the
company is not very good at managing its collection period, whereby customers tend to post
pone the payments or might be the customer is in financial distress.

Inventory turnover indicates the average proportion of speed at which stocks move
out and about of a company. Gurney’s inventory turnover has declined from 26.36 to 17.48
because its trading is slowing down and unnecessary built-up of stocks that leads to
obsolescence.

Under the working capital ratio, it is defined as an asset that must be funded like
other assets and subsequently, companies desire to enhance investment in the assets. From the
year 2015 to 2016, Gurney’s working capital showed an upsurge from -71.95 to 41.97. Higher
working capital turnover reflects less investment in its working capital for each dollar of sales.
Hence, as the improvement showed that the company has a good management of its
components.

In this situation, a higher PPE turnover ratio shows that Gurney has been effectively
in utilising the investment in static assets to make sales. Thus, Gurney has a PPE turnover ratio
of 1.64 in 2016 and 1.60 in 2015. This indicates that the company is efficient in utilising heavy
machines to produce revenues.

Gurney’s total asset turnover ratio has slightly declined from 1.06 to 1.01 from the
year 2015 to 2016. This means that the firm’s organization is less efficient in managing its total
assets in order to generate sales.
(F) Market Measure 2016 2015
Price to Earnings:
= 2.25 = - 0.04
Market price per share /
Earnings per share

Earnings Yield:

Earnings per share / = 0.44 = −𝟐𝟓. 𝟒𝟓

Market price per share

Dividend Yield:

Cash dividends per share / N/A N/A

Market price per share

Dividend Payout Ratio:

Cash dividends paid per share / N/A N/A

Earnings per share

Price-to-Book:

Market price per share / = 0.0081 = 0.0085

Book value per share
Interpretation:
In year 2015 and 2016, the company’s price to earnings shift from – 0.04 to 2.25 where this
indicated that Gurney is expected to have growing earnings in the near future.

Meanwhile for the earnings yield ratio for DBE Gurney has improved from – 25.45 to 0.44
where this ratio helps the company to manage its returns and evaluate if the returns are equal
with the investment risk. This means that stocks may consider overvalue comparative to
bonds.

The company’s price to book ratio has reduced slightly from 0.0085 to 0.0081 from 2015 to
2016 and this showed that this company is currently having undervalue of stocks.
 Appendix 1
Ratio Analysis
(a) Liquidity Ratio

(i)Current ratio 2016 2015

Current Assets RM 42,237,411 RM 42,663,306

Current Liability 𝑅𝑀 35,561,234 RM 43,955,522
= 1.19 = 𝟎. 𝟗𝟕

(ii)Acid-Test Ratio 2016 2015

Current Assets − Stock RM 42,237,411 − RM 6,781,073 RM 42,663,306 − RM 4,144,830
Current Liability RM 35,561,234 RM 43,955,522
= 𝟏. 𝟎 = 𝟎. 𝟖𝟖

(iii)Collection Period 2016 2015

Average Trade Receivable (RM24,518,815 + RM 28,270,220)/2 (RM 28,270,220 + RM 25,720,912)/2

x360 x360 x360
Sales RM 112,979,877 RM 119,549,762

= 𝟖𝟒. 𝟏𝟎 𝐝𝐚𝐲𝐬 = 𝟖𝟏. 𝟐𝟗 𝐝𝐚𝐲𝐬

(iv) Days to sell 2016 2015

inventory

Average Inventory (RM 6,781,073 + RM 4,144,830)/2 (RM 4,144,830 + RM 4,507,215)/2

x360 x360 x360
Cost of Sales RM 95,512,179 RM 114,047,799
= 𝟐𝟎. 𝟓𝟗 𝐝𝐚𝐲𝐬 = 𝟏𝟑. 𝟔𝟔 𝐝𝐚𝐲𝐬
(B) Capital Structure and Solvency

(i)Total debt to equity 2016 2015

Total Liability RM 49,882,367 RM 62,905,394
Shareholder equity RM 60,475,109 RM 49,757,775
= 𝟎. 𝟖𝟐 = 𝟏. 𝟐𝟔

(ii)Long-term debt to 2016 2015

equity
Long term Liability RM 14,321,133 RM 18,949,872
Shareholder equity RM 60,475,109 RM 49,757,775
= 𝟎. 𝟐𝟒 = 𝟎. 𝟑𝟖

(iii)Time Interest Earned 2016 2015

Income Before Tax and Interest Expense RM 1,806,071 − RM 9,987,838
Interest Expense RM 1,710,032 RM 1,639,217
= 𝟏. 𝟎𝟔 = −𝟔. 𝟎𝟗
 (C) Return on Investment

(i)Return on Assets 2016 2015

Net Income + Interes Expensex(1 − tax rate) − RM 10,753,276 + RM 1,639,217 x (1 − 0.24)
RM 249,867 + RM 1,710,032 x (1 − 0.24)
(RM 112,663,169 + RM 112,709,621) /2
Average Total Assets
(RM 110,357,476 + RM 112,663,169)/2

RM 1,549,491 − RM 9,507,471.08
=
RM 111,510,322.5 RM 112,686,395
= 𝟎. 𝟎𝟏𝟑 = −𝟎. 𝟎𝟖𝟒

(ii)Return on Common Equity 2016 2015

Net Income − Preferred Dividend 𝑅𝑀 249,867 − 𝑅𝑀 10,753,276

Average Shareholdre Equity (𝑅𝑀 60,475,109 + 𝑅𝑀 49,757,775)/2 (𝑅𝑀 49,757,775 + 𝑅𝑀 56,826,113))/2

= 0.0045 = - 0.202

(D) Operating Performance

(i)Gross Profit Margin 2016 2015

Gross Profit RM 17,467,698 RM 5,501,963
x100 x100 x100
Sales RM 112,979,877 RM 119,549,762
= 𝟏𝟓. 𝟒𝟔 % = 𝟒. 𝟔𝟎 %

(ii)Net Profit Margin 2016 2015

Net Income RM 249,867 − RM 10,753,276
x100 x100 x100
Sales RM 112,979,877 RM 119,549,762
= 𝟎. 𝟐𝟐 % = −𝟗. 𝟎 %
 (E) Asset Utilization

(i)Cash Turnover 2016 2015

Sales RM 112,979,877 RM 119,549,762
Average Cash and Equipvalent (RM 1,183,496 + RM 403,844)/2 (RM 403,844 + RM 346,136)/2
= 142.35 = 318.81

(ii)Account Receivables 2016 2015

Turnover
Sales RM 112,979,877 RM 119,549,762
Average Account Receivable (RM 24,518,815 + RM 28,270,220)/2 (RM 28,270,220 + RM 25,720,912)/2
= 4.3 = 4.4

(iii)Inventory Turnover 2016 2015

Cost of sales RM 95,512,179 RM 114,047,799
Average Inventory (RM 6,781,073 + RM 4,144,830)/2 (RM 4,144,830 + RM 4,507,215)/2
= 17.48
= 26.36

(iv)Working Capital 2016 2015

Turnover

Sales 𝑅𝑀 112,979,877 𝑅𝑀 119,549,762

{ − 𝑅𝑀 1,292,216 + (−𝑅𝑀 2,031,016)}/2
Average Working Capital {𝑅𝑀 6,676,177 + (− 𝑅𝑀 1,292,216)} /2
= 𝟒𝟏. 𝟗𝟕 = −𝟕𝟏. 𝟗𝟓
 (v)PPE 2016 2015
Turnover
Sales RM 112,979,877 RM 119,549,762
Average PPE (RM 68,120,065 + RM 69,999,863)/2 (RM 69,999,863 + RM 79,292,470)/2
= 1.64 = 1.60

(vi)Total Asset 2016 2015

Turnover
Sales RM 112,979,877 RM 119,549,762
Average Total Assets (RM 110,357,476 + RM 112,663,169)/2 (RM 112,663,169 + RM 112,709,621)/2

= 1.01 = 1.06

(F) Market Measures

(i) Price to Earnings Ratio 2016 2015

Market price per share 0.045 0.055

Earnings per share 0.02 −1.40
= 𝟐. 𝟐𝟓 = −𝟎. 𝟎𝟒

(ii)Earnings Yield 2016 2015

Earning Per Share 0.02 − 1.40
Market Per Share RM 0.045 RM 0.055
= 𝟎. 𝟒𝟒 = −𝟐𝟓. 𝟒𝟓

(ii)Dividend Yield 2016 2015

Cash Dividend Per Share
Market Price Per Share N/A (No dividends paid) N/A (No dividends paid)

(iii)Dividend Payout Ratio 2016 2015

Cash Dividend Paid Per Share
Earning Per Share N/A (No dividends paid) N/A (No dividends paid)
 (iv)Price to book 2016 2015
RM 0.045 RM 0.055
Market Price Per Share RM 5.58 RM 6.48
Book Value Per Share = 𝐑𝐌 𝟎. 𝟎𝟎𝟖𝟏 = 𝐑𝐌 𝟎. 𝟎𝟎𝟖𝟓

Shareholder equity RM 60,475,109 RM 49,757,775

Book Value Per Share: = =
Total Shares Outstanding RM 10,831,639 RM 7,682,166
= 𝐑𝐌 𝟓. 𝟓𝟖 = 𝐑𝐌 𝟔. 𝟒𝟖
Appendix 2

Image 1: DBE Gurney’s income statement 2014 and 2015.

Image 2: DBE Gurney’s Balance Sheet 2014 and 2015
Image 3: DBE Gurney’s Income Statement 2015 and 2016
Image 4: DBE Gurney’s Balance Sheet 2015 and 2016.