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Comparison of ratios of three Pharmaceuticals Company of Bangladesh

Company: Beximco Pharamaceuticals Ltd.

Competitors:

1. Square Pharamaceuticals Ltd.2. Renata Pharamaceuticals Ltd.

Years Considered: 2010, 2009, 2008

Course Title: Introduction to Business Finance

Course Code: FIN-223

Submitted to

Mr.Md. Ridwan Reza

Lecturer

Department of Business Administration

Submitted By

Group Name: The Agents

Name of group Members: ID No.

A.S. Masum 1001010107

Gourab Mitra 1001010103

Salema Nurul Chy. 1001010108

Md. Aminur Rahman 1001010118

Marjana Yeasmin Chy. 1001010109

Department of Business Administration

Leading University Sylhet

Date: June 30, 2010

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In the time of preparing this report, we have been fortunate to have the support, assistance &

encouragement of a number of individuals. Many of them played a decisive role in helping us

writing this report, though we accept full responsibility for all errors and omission.

At the very beginning, We would like to thank all mighty Allah for keeping everything on right

track.

A special note of acknowledgement is due to our course teacher, Mr. Md. Ridwan Reza, for

giving us the permission to prepare the report on this topic. He was very generous and friendly

toward us while conducting the course and was the person who has guided us throughout

preparing the report. His teaching method was really effective and interesting. All of these

activities have been conducted within a very short time and we think it became possible only for

his dynamism. Taking the course with him was a great fortune for us.

Finally, we would like to thank our parents and friends without whose support it was impossible

for us to complete the project.

Thank you all!!!

Acknowledgment

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Letter of Transmittal

Leading University, Sylhet

July 2, 2011

Mr. Md. Ridwan Reza

Lecturer

Department of Business Administration

Leading University, Sylhet

Dear Sir,

Here is the report on the “Ratio analysis on Beximco pharmaceuticals Ltd.” you asked to

conduct. We are pleased to submit the report paper of ‘Financial Performance Analysis’

regarding Beximco, Square and Renata Pharmaceuticals.

As you will see, our observations pointed to some specific needs for investing in Beximco pharmaceuticals Ltd. We have tried to provide comparative scenery of the financial performance of these companies. We apologies for any unified mistake found in writing or structuring

this report. We are strongly confident that your advice further clarifying any mistakes. We always accept your suggestion pleasantly.

We appreciate having this assignment and tried our best to make the report understandable and useful to all.

Sincerely

Group Name: The Agents

Members:

1. A.S. Masum2. Gourab Mitra3. Salema Nurul Chy.4. Md. Aminur Rahman5. Marjana Yeasmin Chy

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Executive Summary

In the contest of Bangladesh economy the pharmaceutical companies have the potential

to grow more and more with the help of favorable business environment. Moreover

Government’s weak rules and regulations implementing system encourage and enhance

the situation. To explore the real picture of this industry, two major companies were

chosen and analyzed. Financial information of Beximco, Square and Renata

Pharmaceuticals was taken for this purpose. This report elaborates the financial position

of each of these companies by evaluating their financial reports, different ratios, trends,

market risk and return based on the same format. Based on those results analyses are

presented assuming the possible reasons behind those events. To get the sketch of this

industry, the report looks at the consolidated quantity of financial information

considering only these three industries. Based on this information industry’s position is

evaluated. Finally stand on what the report shows some possible assumptions and

explanations are incorporated.

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Table of Content

NO. PARTICULAR PAGE NO.

01. Introduction 7

02. Origin of the Report 7

03. Project Object 8

04. Project Object 8

05. Methodology of the report 8

06. Limitation of the report 9

07. Shortcomings of Statement analysis 9

08. Organization profile 10

09. Ratio Analysis 11

04. Ratio Analysis Of Beximco, Square and Renata Pharmaceuticals

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10. Overall Ratio Analysis 26

11. Conclusion 27

12. References 29

13. Appendix 30

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Introduction

Financial ratios are used to compare the risk & return of different firms in order to help equity investors & creditors make intelligent investment & credit decisions. Such decisions require both an evaluation of changes in performance over time of a particular investment & a comparison among all firms within a single industry at a specific point in time. Term ratio means one number expressed in terms of another. Ratio analysis is the process of determining and interpreting numerical relationships based on financial statements. A ratio is a statistical yardstick that provides a measure of the relationship between variable and figures. This relationship can be expressed as percent or as a time. Ratio analysis is based on the notion that the analysis of absolute figures may not be the best means available of assessing an organizations performance and prospects.

Ratio Analysis is used by all business and industrial concerns in their financial analysis. Ratios

are considered to be the best efficient execution of managerial function like planning,

forecasting, control etc.

Ratio analysis is essential to comprehensive financial analysis. However, ratios are based on

implicit assumptions that do not always apply. Ratio computations and comparisons are further

confounded by the lack or inappropriate use of benchmarks, the timing of transactions, negative

numbers, and differences in reporting methods. This section presents some important caveats that

must be considered when interpreting ratios.

Origin of the Report

This report is made as a Report on the ‘Fundamentals of Business Finance’ course, assigned by

Mr. Md. Ridwan Reza (Lecturer, Department of Business Administration, Leading University,

Sylhet). So the business organization of Beximco Pharmaceuticals was chosen and I am

discussing on the ratio analysis of Beximco Pharmaceuticals, Ltd. We based on  this report from

the background of  information and knowledge that I required from Pharmaceuticals and it

provides a reliable effective insight into the ratio process of the particular company.

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Project Object

This project is undertaken to

To develop our skill on the RATIO ANALYSIS.

Practical knowledge about the Financial Analysis.

Calculate ratios of Beximco Pharmaceutical Ltd. and analyze their financial situation

compare to the Square Pharmaceutical Ltd.

Take in Beximco Pharmaceutical Ltd consideration and analyze that companies’ three

year’s ratio analysis and analyze them.

Determine ROA and ROE using DuPont system and analyze them.

Determine the financial weakness and strength of the company.

Determine whether investment in this company is profitable or not. If yes then Why.

3.2 Importance of Statement Analysis

Financial analysis is one of the important elements of the management control system and

management control is the process by which managers assure that resources are obtained and

used effectively and efficiently in the accomplishment of the organization's objects. The

management control system is concerned with planning and control function of management and

exercised through asset of policies, procedures and process that the managers used to determine

whether or not operations are going as planned.

Methodology of the report

Types of Data:

The report is mainly based on two types of data-

Secondary data

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Collection of Data:

Secondary Sources of Data: Published documents and reports

Different books and journals

Annual Reports of the companies (2008,2009,2010)

Printed record of the company

Relevant websites.

Limitation of the report

Due to time limitations many of the aspects could not be discussed in the

present report.

Every organization has their own secrecy that is not revealed to others. While

collecting data i.e. interviewing the employees, they did not disclose much

information for the sake of the confidentiality of the organization.

Another problem is that creates a lot of confusions regarding verification of

data.

3.4 Shortcomings of Statement analysis Criteria:

As mentioned earlier, the key to statement analysis is ratios, i.e. accounting ratios. However, this

ratio analysis technique suffers from various limitations, which can be classified as follows.

Difficulty in Comparison

One of the limitations of ratio analysis is the difficulty associated with their comparison to

draw conclusion. Some of the differences in adoption of accounting policies are.

Differences in methods of inventory valuation (FIFO, LIFO, Average etc)

Differences in the use of depreciation methods and adoption of depreciation

policies.

Differences in accounting period.

Impact of Inflation:

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The second major limitation of ratio analysis is associated with the price-level changes. This

is the most important limitation of financial statements prepared based on historical data. If

historical statements adjusted to the price levels changes, any analysis based on these

statements will be misleading and distorted.

Organization profile

Corporate Headquarter 17dhanmondi R/A, road No.2 dhaka1205, Bangladesh

Operational Headquarter 19 Dhanmondi R/A road no.7 Dhaka 1205

Factory 126 Kathaldia, Tongi, Gazipur

Year of establishment 1976

Commercial production 1980

Status Public limited company

Business lineManufacturing and marketing of pharmaceutical finished

products & active pharmaceutical ingredients (APIs)

Overseas office &Associates

UK, USA, Pakistan, Myanmar, Singapore ,Kenya, Yemen, Nepal, Czech republic

Export marketsBhutan, Cambodia, Germany, Hong Kong, Iran, Iraq, Malaysia, Russia, South Korea, Sri-Lanka,, Thailand,

Ukraine, Vietnam

Number of shareholders Around 54000

Stock exchange listing Dhaka, Chittagong and AIM of London stock exchanges

Number of employees 2,384

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RATIO ANALYSIS:

Ratio analysis of a firm’s financial statement is of interest to shareholders, creditor, and the firm’s own management.

Ratio analysis is not merely the application of formula to financial data to calculate a given ratio. More important is the interpretation of the ratio value.

There are two types of ratio comparison can be made:

1. Cross- Sectional analysis2. Time- Series analysis3. Combined analysis

Cross- Sectional Analysis:

It involves the comparison of different firm’s financial ratios at the same point in time.

Time- Series Analysis:

It is applied when a financial analyst evaluation of the firm’s financial performance over time using financial ratio analysis.

Combined Analysis:

A combined view makes it possible to assess the trend in the behavior of the ratio in relation to the trend for the industry.

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FINANCIAL RATIOS:

Financial ratios can be divided into four basic groups or categories:

1. Profitability2. Activity Ratios3. Debt Ratios and4. Liquidity Ratios

Profitability:

There are many measure of profitability. Each relates the returns of the firm to its sales, assets, equity, or share value.

Assets utilization Ratios:

Ratio that measure how effectively the firm is using its assets

Measure the speed with which various accounts are converted into sales or cash – inflows or out flows.

Debt utilization Ratios:

Debt utilization ratios refer to the firm’s ability to manage its debt.

Liquidity Ratios:

Liquidity refers to the solvency of the firm’s overall financial position.

A firm’s ability to satisfy its short term obligations as they come due

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Ratio Analysis Of Beximco, Square and Renata Pharmaceuticals

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Profitability Ratios

Profit Margin

Analysis

In this analysis we see that the net profit margin has increased in 2010 compare than last year in Beximco pharmaceuticals company and square pharmaceuticals company but decreased in Renata pharmaceuticals company. Because the net profit and sales are increase from 2009 to 2010 both for Beximco and Square pharma . But the increase rate is higher for Beximco. Pharma. As a result this

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company is standard position. So the Beximco company is doing better better than the square and Renata Company company.

ROA ( Return on assets)

Analysis

The return on total asset ratio has decreased in 2009 but increased in 2010 but still lower than its competitors. From 2010 years data we see that net income and total asset has continuously increased to 2008 in Beximco Company. For this reason return on total asset ratio has increase in little bite. But in square and Renata company here net total assets and net income has increased in 2009 and 2010 than 2008. And this creates a higher Return on total asset for both companies. As a result these companies are in good condition during the year 2010. so we think return on asset is not a better position for Beixmco pharmaceutical company.

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ROE ( Return on Equity)

Analysis

The amount of money invested by the investors has increased from the previous years but the net income amount has decreased in 2009. This shows the performance of Beximco and Square Pharma can increase the income amount as the investment increases. But the trend of net income should be upward. It means the companies are earning efficiency in production process and also this increases in return on equity has a good effect in common stock holder. But Renata company has lost efficiency in production as a result the return on equity fell In 2010.

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Assets Utilization Ratios

Receivables turnover

Analysis

The increased receivables turnover ratio shows that the company is collecting its receivables more times gradually, but the number should be increased to collect receivables more quickly.

The company has faced a great problem in collecting its receivable. Here we see that the sales have decreased from previous years, on the other hand receivable by increased in quite high rate. Sometimes it indicates that the company has failed to collect its debts efficiently.

For square Pharma the ratio is higher than other two competitor which has make up a lot of cash money, for this reason the company is efficient in collecting accounts receivables.

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Average collection period

Analysis

It begins with the sales of the finished goods and ends when customer makes payment. This period is vital for every company as it determines the time by which company gets back money from its credit customers. In the case of Beximco Pharma, it can be seen that the Account Receivables Period has decreased gradually in the last three years. This is promising because it suggests that Beximco Pharma has collected their receivables faster which would lead to strengthening of their financial position as a low ratio stand up the company good collection period and it’s also indicating of high cash balance. But the other two competitors are collecting receivables more efficiently than Beximco Pharma and standing on a better cash position.

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Inventory turnover

Analysis

The sales to inventory ratio for all three companies have increased from 2008 to 2010 due to the balance in the value of the annual net sales. This shows that these companies are able to sell a considerable amount of inventory and maintains a low inventory figure relative to the annual net sales.But for Beximco. Pharma Company this ratio is lower than its competitors. It mean company is holding excessive amount if inventory.

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Fixed assets turnover

Analysis

The fixed assets turnover of Beximco Pharma. has been increased from 2008 to 2010 which indicates that if the company invest more in fixed assets it may generate more profits. In contrast, the Square Pharma. Company has rapid declination of fixed assets turnover ratio in 2010 occurred because sales and net fixed assets the increase of companies . We mention that the balance sheet shows that large amount of investments were made during that year that inflate the money volume of fixed assets, and give an impression of mismanagement.

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Total assets turnover

Analysis

The asset to sales ratio has increased from the year 2008 to 2010. This shows that Beximco Pharma needs investment to generate sales revenue. This can be said due to the fact that the total asset has increased and its net sales have also increased in 2009 but decreased in 2010. It may be an indicator of company‟s pricing strategy as company with high profit margins tends to have low asset turnover. It is in fact might be one of the reasons for why the assets turnover was low in the year 2008 to 2010 for the company. Other than investment in marketable securities, every other asset especially long-term investments, inventories, short-term loans and cash balance had gone up substantially profit margin may not be the actual reason for the turnover to go down. Instead, the square company also declined slightly in 2009-10. But the Renata company is earning higher total assets turnover which indicates that this company is utilizing its assets more efficiently and earning higher return on asstes.

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Liquidity Ratios

Current ratio

Analysis

The current ratio of Beximco Pharma has increased in 2009 but decreased in 2010 from the year . However As the ratio value is more than 1; it shows that the amount of current asset is greater than the current liabilities. But the current liabilities of it are increasing and it is not a good indication. But Beximco. Pharma is in a better position in liquid assets and paying current liabilities than the competitors.

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Quick ratio

Analysis

The quick ratio value is increasing year by year from 2008 to 2010, showing the financial liquidity of Beximco Pharma is increasing. It also shows that the firm is more liquid at this timeThan the competiyors.

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Debt Utilization Ratios

Debt to assets

Analysis

We see that the percentage of ratio has decreased from 2009 to 2010 in all the companies because their asset was increased at a higher rate than from the last year. If any company debt ratio decreases day by day it is a good position for those for the company. For this reason, those company can‟t stand the good financial position.

The charts above clearly show that Beximco Pharma is very much dependent on its equity and less dependent on debt. So, the firm is very much conservative because of their greater dependency on equity. But Renata Company is very much dependent on Debt. So this firm is more riskier than Beximco. and Square Pharma.

In this problem we state that beximco pharmaceutical company is better than the two other companies.

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Time interest earned

Analysis

In this disscusion we realize that the higher ratio of time interest earned, it indicated the Company has higher ability to pay the interest from their opportunity income. The Interest earning ability of Beximco Phrma. has been decreased from 2008-2010 which indicates that the Debtors may not be interested to provide debt if the ratio is not be increased So, higher decline of this ratio in 2010 from 2008 in Beximco company those indicated that the company is paying more interest. Nevertheless, the Square Company is not paying more interest because that company has no decline from last year but the Renata company paid more interests as its time interest earned decreases in 2010. For that reason we think Square company has best condition for time interest earned.

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Overall Ratio Analysis

This study is based on four main research questions. First, our analysis is profitability measures indicates the different kind of ratio. The Beximco Pharmaceutical company compare are less profitable from the square pharmaceutical and Renata pharmaceutica company in net profit margin, return on assets (ROA), return on equity (ROE). But the most important observation is that the overall, net profit margin is found rising for Beximco pharmaceutical company and plummeting for the two other companies during 2008-2010. Net profit margin of Beximco Pharmaceutical Company are found to increase than it return of asset to increase. Return on Equity is found increase during 2008-2010 in Beximco pharmaceutical company. So we ensure that the Beximco pharmaceutical company is better condition to be profitable.

Second, we analysis is all efficiency measures ,account receivable turnover, average collection period ,inventory turnover, fixed assets turnover, total asset turnover .The Beximco Pharmaceutical company is in increase in account receivable turnover and in days compare than the Renata Pharmaceutical company. The square pharmaceutical company also increases some measure and decreases some measures. The inventory turnover, fixed assets turnover, total asset turnover are also increasing. We ensure that the Beximco pharmaceutical is standards position for asset management measure.

Third, we analysis of liquidity measures indicates that current ratio is very good condition for Beximco Pharmaceutical company .Quick and cash ratio measures the Beximco. pharmaceutical company is better than the square pharmaceutical company and the Renata pharmaceutical company . So we notice that the Beximco pharmaceutical is better condition of liquidity position compare that the two other companies.

Fourth, we analysis the debt management measures ,debt ratio and time interest earned indicates Square and Renata company is more risky than Beximco pharmaceutical company. We observed that time interested earned ratio is increasing for Beximco pharmaceutical company, which indicates the debt coverage management is also good for Beximco pharmaceutical company.

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Conclusion

In conclusion, we came to this decision that the company is in the right direction. Starting from

its sales to working capital policy and financing policy, everything is going according to the

plan. The company had a good year in 2010 because it had more sales and huge investment in

fixed assets. As a result, it has very better net income and the performance is lifting day by day.

The pharmaceutical industry of Bangladesh is flourishing day by day and Beximco Pharma will

have a tough competition from its competitors. Though the company is having a better

performance but if they overcome the two factors, then they have the potential to be the leading

firm of this sector in Bangladesh.

Recommendation:

Following troubles found in analysis:

Assets of the company was not utilized properly (assets turnover ratio was only

(On average of five years)=0.234times). Company need to proper management of assets.

Management should emphasis to reduce the differences between Average collection

period and average payment period. It wills results liquidity of the company.

Management should try to boost up its quick and current rations & the earnings per share.

Company should reduce its dependency on debt because it is very risky.

Management can increase their profit before tax if they if they can cut the financial cost

and use less debt capital.

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Learning

This report is a required term paper of Corporate Finance. In this course we have learned some

financial tools to measure the financial capability of a company compare to the industry. By

doing this report we have applied those financial tools in a practical manner. The main learning

of this report-

Calculate financial ratios of the different companies and then compare those results with

another company

Making comments and analysis the ratios.

Learn how to evaluate ratios by using both time series and cross sectional.

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References

Reference links: www.beximco.com www.google.com www.yahoo.com www.scribd.bd Beximco Pharma. Annual Report-2008,2009,2010 Square Pharma. Annual Report-2008,2009,2010 Renata Pharma. Annual Report-2008,2009,2010

The END

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Appendix

Formula Used for Ratio Calculation

Benchmark Formula

Net Profit margin Net Profit margin = Net profit after tax/sales

Return on Total Assets Return on Total Assets = Net profits after taxes / Average total assets

Return on common stock equity Return on common stock equity = Net income / Average Common stockholders equity

Accounts receivable turnover: Accounts receivable turnover = Sales / Average Accounts receivable

Average collection period Average collection period = 360 days / Accounts receivable turnover

Inventory Turnover Ratio Inventory Turnover Ratio = Cost of Goods Sold / Average Inventory

Fixed asset turnover Fixed asset turnover = Sales / Average Net fixed asset

Total asset turnover Total asset turnover = Sales / Average Total asset

Current Ratio Current Ratio = Current assets /Current liabilities

Quick Ratio Quick Ratio= (Cash + Accounts Receivable+ Marketable Securities)/Current Liabilities

Debt Ratio Debt Ratio =Total liabilities / Total assets

Time interest earned Time interest earned = EBIT / Interest charged

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Beximco. Pharmaceuticals Ltd. (Ratios)

Ratios 2010 2009 2008 1.Profit margin 16.2% 12.83% 13.56% 2.Return on assets 5.1% 3.59% 4.07% 3.Return on equity 7.83% 5.84% 5.8% 4.Receivables turnover 8.57% 8.13% 8% 5.Average collection period 42.02 44.28 45 6.Inventory turnover 3.50 3.01 2.7 7.Fixed asset turnover (x) 0.46 0.39 0.39 8.Total asset turnover (x) 0.31 0.28 0.30 9.Current ratio (x) 2.46 2.98 1.1010.Quick ratio (x) 1.25 1.83 0.2211.Debt to total assets (%) 34.91% 45.26% 30.12%12.Times interest earned (times) 3.81 4.67 4.65

Square Pharmaceuticals Ltd. (Ratios)

Ratios 2010 2009 2008 1.Profit margin (%) 18.21 19.24% 16.73 2.Return on assets (%) 21.81 21.92% 17.59 3.Return on equity (%) 19.42 20.58% 17.54 4.Receivables turnover (x) 23.26 23.44% 24.18 5.Average collection period (days) 15.48 15.35 14.89 6.Inventory turnover (x) 5.32 4.76 4.62 7.Fixed asset turnover (x) 2.17 2.19 2.17 8.Total asset turnover (x) 1.197 1.13 1.05 9.Current ratio (x) 2.15 1.46 1.210.Quick ratio (x) 0.45/0.99 0.66 .5811.Debt to total assets (x) 33.39 37.76 3812.Times interest earned (times) 10.60 11.9 9.75

Ratios 1.Profit margin (%) 2.Return on assets (%) 3.Return on equity (%) 4.Receivables turnover (x) 5.Average collection period (days) 6.Inventory turnover (x)

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Renata Pharmaceuticals Ltd. (Ratios)

Ratios 2010 2009 2008

1.Profit margin (%) 16.73 15.47 14.02

2.Return on assets (%) 22.22 21.71 16.29

3.Return on equity (%) 32.88 31.20 29%

4.Receivables turnover (x) 12.38 11.34 11

5.Average collection period (days) 29.08 31.75 31

6.Inventory turnover (x) 4.29 3.83 3.4

7.Fixed asset turnover (x) 2.57 3.23 1.16

8.Total asset turnover (x) 1.32 1.40 1.2

9.Current ratio (x) 0.96 1.17 1.20

10.Quick ratio (x) 0.35 0.34 .44

11.Debt to total assets (%) 49.39 56.55 42%

12.Times interest earned (times) 11.18 9.75 8

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