Submitted to:

Mam Smavia
Submitted by:
Shanza Maryam (7027)
Class:
BBA 4th A (Evening)
Topic:
Ratio Analysis
Company:

Cadbury
Subject:
Business Finance

University of Education Multan

Cadbury Company
Ratio Analysis
A ratio analysis is an analysis of company information contained in a company’s financial
statements. Ratio analysis is based on financial statements like the balance sheet, income
statement and cash flow statement; the ratios of one item to another item. Ratio analysis is
used to evaluate various aspects of a company’s operating and financial performance such as
its efficiency, liquidity profitability.

Typed of Ratio Analysis

There are four major types of ratio analysis given as following:
(1) Liquidity Ratio
(2) Activity Ratio
(3) Profitability Ratio
(4) Debt Ratio

(1) Liquidity Ratio

Easily convertible into cash without loss of value.

Types of Liquidity Ratio

(i) Current Ratio
(ii) Quick Ratio/Acid Test Ratio

( i) Current Ratio
The Current ratio is a liquidity ratio that measure whether or not a firm has enough resources
to meet it’s short term obligation/liabilities.
Current Ratio = Current Assets
Current liabilities

2013 2014 2015

Current Assets 26,231,468,000 12,336,296,000 12,592,037,000
Current liabilities 14,386,781,000 14,042,218,000 14,837,603,000
Current Ratio 1.82330349 0.878514775 0.848657091

Interpretation
Company pay current liabilities through current assets because current assets are easily
convertible into cash and loss of value is minimum. Company having more current means
company has more assets as compare to it' s liabilities 2013 Cadbury company current ratio
was 1.82 it's means that Cadbury company has more current assets as compare to it's
liabilities. 1.82 is a better current ratio. But in 2014 and 2015 Cadbury’s current ratio
decrease and become 0.87 and 0.84 respectively. Which means that Cadbury has more
liabilities to pay as compare to it's current assets.

(ii) Quick Ratio / Acid Test Ratio

The quick ratio or acid test ratio is a liquidity ratio that measure the ability of a company to
pay it's current liabilities when they came due with only current assets.

Quick Ratio = Current Assets - Inventory

Current liabilities

2013 2014 2015

Current assets 26,231,468,000 12,336,296,000 12,592,037,000
Current liability 14,386,781,000 14,042,218,000 14,837,603,000
Inventory 1,880,654,000 2,392,926,000 2,025,481,000
Quick Ratio 1.692582517 0.708105372 0.712147103

Interpretation
Quick ratio has less value as compare to current ratio because we deduct inventory when we
deduct some thing the value become less that is why quick ratio has less value. In 2013
Cadbury’s quick ratio was 1.69 which is better vale. It’s means that company has more
ability to pay it's current liabilities through current assets. But in 2014 and 2015 company
quick ratio decrease and become 0.70 and 0.71 respectively which means that 2013 to own
ward company ability to pay it's current liabilities through current assets decreases and
company has loss quick ratio which is not good for the company.

(2) Activity Ratio

Active ratios are financial analysis tools used to measure a business ability to convert it's
assets into cash.

Types of Activity Ratio

There are five types of activity ratio given as following:
(i) Inventory turn over
(ii) Average age of inventory
(iii) Average collection period
(iv) Average payment period
(v) Total assets turn over
(i)Inventory turn over
Inventory turn over is a ratio showing how many times a company's inventory sold and
replace / reproduce over a period of time.
Inventory turn over = Cost of Goods Sold (C.G.S)
Inventory

2013 2014 2015

C.G.S 22,660,657,000 22,588,129,000 10,013,369,000
Inventory 1,880,654,000 2,392,926,000 2,025,481,000
Inventory turn over 12.04934932 9.439543471 4.943699299

Interpretation
Inventory turnover means how many cycle of production company completed in a period of
one year. The company which has greater number of inventory turnover will perform better
as compare to the company which has less inventory turnover . In 2013 Cadbury company
inventory turnover was 12 and this was better value. But in 2014 and 2015 Cadbury company
inventory turnover decreases from 9.4 to 4.9 respectively. Which shows that company
performance decreases from 2013 to 2015.

(ii)Average Age of Inventory (A.A.I)

The average age of inventory is the average number of days it takes for a firm to sell off
inventory.
Average Age of Inventory = 365 .
Inventory turn over

2013 2014 2015

Inventory turnover 12.04934932 9.439543471 4.943699299
Average age of 30.29209215 38.66712422 73.83135137
inventory

Interpretation
Average age of inventory means in how many days company completes it’s inventory cycle.
Inventory cycle is given as following:
  Raw material ➡ Work in process ➡ Finished goods ➡ Account Receivable ➡ cash
 In 2013 company inventory cycle completed in 30 days that is better time period. But
in 2014 and 2015 company inventory cycle completed late or slowly. In 2014
inventory cycle completed in 38 days and in 2015 company inventory cycle
completed in 73 days . Which means that company performance decreases from 2013
to 2015.

(iii)Average Collection Period

The average collection period is the approximate amount of time that is takes for a company
to receive payments owned in terms of account receivable.
Average Collection period = Account Receivable
Average sales per day

= Account Receivable
Annual Sales
365

2013 2014 2015

Account Receivable 6,390,008,00 6,093,315,000 5,969,774,000
Average sales per 97974665.75 83612564.38 38733882.19
day
Average collection 65.22102373 72.87559047 154.1227902
period

Interpretation
Average collection period mean in how many days company collect its account receivable. If
the company collect its account receivable in less days that company is better as compare to
that company who collect its account receivables in many days. In 2013 company collect its
account receivables in 65 days. But in 2014 and 2015 company collect its account
receivables in 72 days and 154 days respectively. Its means that company collection period
for account receivables is increasing from 2013 to 2015.

(iv)Average payment period

Average payment period means the average period taken by the company in making
payments to its creditors.
Average payment period = Account Payable
365
 2013 2014 2015
Account payable 13,541,296,000 13,518,328,000 14,678,925,000
Average payment 37,099441.1 37,036,515.07 40,216,232.88
period

Interpretation
Average payment period means in how many days company pay its account payable.If
company pay its account payable in less days its means that company has better financial
position.In 2013 Cadbury company pay its account payables in 37 days.In 2014 and 2015
Cadbury company pay its account payable in 37 and 40 days respectively.Paying account in
time or in less days create company good will.That company is better which pay its account
payable in less days as compare to the company which pay its account payable in more days.

(v)Total asset turn over

The total assets turn over ratio shows that how efficiently a company use its assets to generate
sales.
Total assets turn over = Sales
Total Assets

2013 2014 2015

Sales 35,760,753,000 30,518,586,000 14,137,867,000
Total Assets 23,994,931,000 11,542,026,000 10,052,837,000
Total Assets turn 1.490346149 2.644127296 1.406355937
over

Interpretation
Total asset turn over means how company utilize its assets.By utilizing its assets how much
sales company generate. In total assets turn over having more value is better.In 2013 Cadbury
company total assets turn over value was 1.49 that is acceptable.In 2014 and 2015 Cadbury
company total assets turn over value was 2.6 and 1.4 respectively.Companys total assets turn
over value in 2014 is better then 2013 and 2015 because more value is prefferd.

(3) Profitability Ratio

A profitability ratio is a measure of profitability, which is a way to measure a company’s
performance. Profitability is simple the capacity to make profit.

Types of Profitability ratio

There are six types of profitability ratio given as following:
(i)Gross profit margin
(ii)Operating profit margin
(iii)Net profit margin
(iv)Earning per share
(v)Return on total assets
(iv)Return on Equity

(i)Gross profit margin

Gross profit margin is the profit a company make after deducting the cost associated with
making its product or the cost associated with providing its services.
Gross profit margin = Gross profit
Sales

= Sales - C.G.S
Sales

2013 2014 2015

Sales 35,760,753,000 30,518,586,000 14,137,867,000
C.G.S 22,660,657,000 22,588,129,000 10,013,369,000
Gross profit margin 35% 30% 14%

Interpretation
Gross profit margin tell us companys profit generated through sales.C.G.S is cost of goods
sold actual price of the product.For example if company is selling a product which price is
100 Rs per unit then gross profit margin is 30 Rs and 70 Rs is C.G.S.Cadbury company gross
profit margin in 2013 was 35%.But in 2014 and 2015 Cadbury company gross profit margin
was 30% and 14% respectively.In 2015 Cadbury company goes down.

(ii)Operating profit margin

A company’s operating profit margin ratio tell you how well a company operate contribute to
its profitability. Its also known as EBIT (Earning Before Interest and Taxes).
Operating profit margin = Operating profit
Sales

= EBIT
Sales
 2013 2014 2015
EBTI 7,421,477,000 1,467,314,000 250,716000
Sales 35,760,753,000 30,518,586,000 14,137,867,000
Operating profit 20% 15% 1.7%
margin

Interpretation
Operating profit margin tells about how much operating profit earned from the sales.Cadbury
companys operating profit margin in 2013 was 20% .But in 2014 and 2015 Cadburys
company operating profit maegin was 15% and 1.7 % respectively.In 2013 Cadbury company
gross profit maerin was 35% out of which 20% was operating profit margin and 65% was
C.G.S cost of good sold.In 2015 Cadbury company suffer loss.

(iii)Net Profit Margin

Net profit margin = Earning available for common stock holders
Sales

2013 2014 2015

Earning available for 5,498,851,000 1,879,029,000 250,716000
common stock
holders
Sales 35,760,753,000 30,518,586,000 14,137,867,00
Net profit margin 15% 6% 1.7%

Interpretation
Net profit margin ratio tells about how much the company earned net profit on sales.In 2013
Cadbury company net margin ratio was 15% which means that company did well on the sales
and expense.Then Cadbury company net profit margin ratio came down to 6% in 2014 ratio
decreases.But in 2015 Cadbury company net profit margin ratio decreases so much and
became 1.7%..Actually Cadbury company suffer loss in 2015.

(iv)Earning per share ( EPS)

Earning per share is the portion of a company’s profit allocated to each share holder. Earning
per share serves as an indicator of a company’s profitability.
Earning per share =Earning available for common stock holders
No of shares of common stock outstanding

2013 2014 2015

Earning per share 192 profit 75 profit 13 loss
Interpretation
Earning per share means how much you earn per share.it is your share of profit out of
companys profit.In 2013 Cadbury company earning per share was much better and it was 192
Rs profit per share.In 2014 Cadbury company eraning per share valnu decreases and became
75 Rs per share that is better value.But in 2015 Cadbury company earning per share vulue not
only decreases although its became loss 13Rs loss per share.

(v)Return on total assets (ROT)

The return on total assets is a ratio that measure a company efficiency to generate profit by
utilizing its total assets.
Return on total assets = Earning available for common stock holders
Total assets

2013 2014 2015

Earning available for 5,498,851,000 1,879,029,000 250,716,000
common stock
holders
Total assets 23,994,931,000 11,542,026,000 10,052,837,000
Return on total 23% 16% 2%
assets

Interpretation
Return on total assets tell us that how much Company earn bt using its assets.When its come
to return on total assats more value is prefferd as compare to less value.Cadbury companys
return on total assets in 2013 was 23% which is more better.In 2014 Cadburys companys
return on total assets decreases and become 16%.But in 2015 Cadburys companys return on
assets ratio decreases more and became 2% which is not better because in 2015 company
suffer loss.

(vi)Return on Equity (ROE)

Return on equity is the amount of net income that a share holders received as a equity from
the company. Return on equity measures a company profitability by revealing how much
profit a company generate with the money share holders invested.

Return on Equity = Earning available for common stock holders

Total common equity
 2013 2014 2015
Return on equity 18% 12% 0.85%

Interpretation
Return on equity refers that how much invester earn on equity.Equity is actually owners
invesrment in business.In 2013 Cadbury company return on equity was 18% which is more
better and suitable for the company.In 2014 Cadburys company return on equity became 12%
which is decreasing value as compare to 2013.In 2015 Cadbury company erturn on equity
value became 0.85 that is less value and not better of the company it is because company is
down and suffring loss.

(4)Debt Ratio
There are two types of debt ratio given as following:

(i)Debt Ratio
(ii)Time Interest Earning Ratio

(i)Debt Ratio
The debt ratio is defined as the ratio of total long term and short term debt to total assets
percentage.
Debt Ratio =Total liabilities
Total assets

2013 2014 2015

Debt ratio 24 13 3

Interpretation
In 2013 Cadbury company the total debt to total assets ratio is 24 which show that the 24%
company assets are generated from the total debt which is good for the company . In 2013 the
ratio deccreased which show that the generate less assets as compare to 2013.In 2014
Cadbury company debt ratio became 13 which is decreasing value. In 2015 the ratio decrease
from 2014 which is not good for the company and become only 3.

(ii)Time Interest Earning Ratio

The time interest earning ratio is a measure of how well a company can meet its payable
obligations or liabilities.
Time interest earning ratio = EBIT (Operating profit)
Interest
2013 2014 2015
Times interest 12 7 3
earning ratio

Interprtation
Times Interest Erned Ratio tells us that how many times the company earned on Interest.In
2013 , the Cadbury company earned 12 times against Interest that is better value. Then in
2014 , Cadbury company time interest earning ratio decreases to 7 which is not favorable for
the company, then in 2015 it decreases to 3 which is also not favorable for the company and
shows that company is under loss condition.