Zain Company Income Statment Analysis
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Those ratios show how carefully Zain manage it controls and monitor its expenses and how well their earnings, which is the primary source of cash to repay a loan in most cases, are likely to be protected and grow.
Expense control measures
Trend
Effect
Cost of goods sold/net sales
57.3%
70.8%
96.7%
Decrease
Positive
Administrative expense/net sales
Decrease
Positive
Depreciation expense/net sales
Decrease
Positive
interest expense on borrowed fund /net sales
Decrease
Positive
Salaries / net sales
Decrease
Positive
Ratios Calculations
2008
Cost of goods sold/net sales = 488,737/ 505,196 = 96.7%
Administrative expense/net sales = 260,082 / 505,196 = 51.4%
Depreciation expense/net sales = 1,021,382 / 505,196 = 86%
interest expense on borrowed fund /net sales = 225,532 / 505,196 = 44.6%
Salaries / net sales = 49,421 / 505,196 = 9.7%
Cost of goods sold/net sales = 2,127,026 / 3,004,052 = 70.8%
Administrative expense/net sales = 375,898 / 3,004,052 = 12.5%
Depreciation expense/net sales = 1,394,310 / 3,004,052 = 46.4%
interest expense on borrowed fund /net sales = 633,742 / 3,004,052 = 3.44%
Salaries / net sales = 41,762 / 3,004,052 =1.4%
Cost of goods sold/net sales = 3,403,922/ 5,934,370 = 57.3%
Administrative expense/net sales = 351,143 / 5,934,370 = 6%
Depreciation expense/net sales = 1,494,220 / 5,934,370 = 25.1%
interest expense on borrowed fund /net sales = 1,195,511 / 5,934,370 = 2.37%
Salaries / net sales = 54,648 / 5,934,370 =.92%
An indicator of the quality of the of a business firms management is how carefully it controls its expenses and how well its earnings. The above table shows the ratios that indicate the firms expenses control:
Zain expenses ratio (selling, administrative, depreciation and other expenses) relative to net sale are declining over the three years. Hence, the loan officer may say that the company are controlling their expenses well which caused its revenue to increased as well.
Operating Efficiency: Measure of Zains Performance Effectiveness
The following ratios measure Zains performance effectiveness in two dimensions:
How effectively assets are being utilized to generate sales and cash flow for Zain
How efficiently sales are converted into cash.
Operating efficiency measures
Trend
Effect
Inventory turnover ratio
Stable
Positive
Turnover of total assets
0.21x
0.10x
0.18x
Stable
Positive
Turnover of fixed assets
Increase
Positive
Average collection period
88.7 days
120.7 days
157.2 days
Decrease
Positive
Ratios Calculations
Inventory turnover ratio: cost of goods sold/ Average inventory= 488,737/ 59,832 = 8.1x
Turnover of total assets: Net sales/ Total Assets= 505,196 /26,665,430 = 0.18x
Turnover of fixed assets: Net sales/ Net fixed assets= 505,196 /2,408,987 = 0.2x
Average collection period: Accounts receivable/ (Net sales /360) = 220,632 / (505,196 /360) = 157.2 days
Inventory turnover ratio: cost of goods sold/ Average inventory= 2,127,026 /297,475= 7.1x
Turnover of total assets: Net sales/ Total Assets= 3,004,052 /27,830,113= 0.10x
Turnover of fixed assets: Net sales/ Net fixed assets= 3,004,052 /3, 846,700= 0.8x
Average collection period: Accounts receivable/ (Annual sales/360) = 1,007,247/ (3,004,052 /360) = 120.7 days
Inventory turnover ratio: cost of goods sold/ Average inventory= 3,403,922/408,527= 8.3x
Turnover of total assets: Net sales/ Total Assets= 5,934,370 /28,055,437= 0.21x
Turnover of fixed assets: Net sales/ Net fixed assets= 5,934,370 /4,298,200 = 1.3x
Average collection period: Accounts receivable/ (Annual sales/360) = 1,463,166/ (5,934,370 /360) = 88.7 days
The second table is operating efficiency ratios: which tell how effectively are assets being utilize to generate sales and how efficiently are sales converted to cash.
Inventory turnover: indicate management effectiveness in controlling the size of the companys inventory position-the ratio show a flat increasing means in the year of 2008 it was 8.1 then it decrease at 7.1 in 2009 then again slightly increase at 8.3 this is not encouraging for the lender because the higher the inventory ratio the better it is for the lender as it shows the number of times during a year Zain turns over its investment in inventories by converting those inventories to goods sold. If the ratio is stable it indicate poor customer acceptance of zains products.
As for turnover fixed assets and total assets, indicate how rapidly sales revenues are being generated as a result of using up the companys plant and equipments(fixed assets)to produce goods or services. In zain situation this ratio is raising as it indicated in the balance sheet also an increase in the fixed assets so it means the company is utilizing their fixed assets to