a) Liquidity Ratios:
These ratios analyse the ability the short term ability of a firm to meet its debt obligations. Generally two measures of Liquidity Ratios are used by analyst to adjudge the liquidity position of the company:
- Current Ratio
- Quick Ratio
Current Ratio: Current Assets/ Current liabilities
Calculated as ratio of Current Asset and Current liability, this liquidity ratio is considered to be true indicator of a firm’s liquidity. The average industry current ratio is 2:1.
As for Breadtalk, the current ratio of the company during 2012 was 0.60 which is below the industry level of 1.78.
Quick Ratio: (Current Asset – Inventory – Prepaid Expenses)/ Current liabilities
This ratio is a more stringent measure of firm’s liquidity as it excludes Inventory and prepaid expenses from current ratio while current liabilities remain same. The standard industry quick ratio is 1:1.
During 2012, the quick ratio was 0.55, which was again below the industry benchmark.
Review: Low Current and Quick Ratio of the company when compared to Industry benchmarks indicates low financial health of the company in terms of meeting its short term obligations.
b) Profitability Ratios:
These ratios access the profitability of the entity and can said to be the true indicator for accessing the profitability of the concerned company. It measures how well the company generates operating profits, gross profits and net profit from sales.
Net Profit Margin Ratio: Net Income/ Revenue
The figures and Graph above show that Breadtalk Company has continued to maintain a healthy and steady net profit margin, though it experienced a downfall in Net Profit during 2010, probably because of global uncertainty.
Gross Profit Margin:
In terms of Gross Profit Margin, the margins have increased gradually with rise in revenue figures of the company.
Since 2008, the Gross Profit Margins of the company has increased manifold by 109% that goes with increase in percentage increase in revenue of 110%.
On an average the Gross Profit Margins have increased by 20% every year from 2008 to 2012.
Review:
High Gross Profit Margin ranging from 53-55% is indeed an indicator that the bakery business carried out by Breadtalk is a high margin area, however, the resultant bottom line net profit margin ranging 3.02- 4.7% indicates that the company have high operating as well as non operating expenses.
c) Solvency Ratios:
These ratios measures firm’s ability to meet long term financial obligations and also provides information on its financial leverage.
Debt/Equity Ratio:
Financial Leverage: Average Total Assets/ Average Total Equity
Period (Average) Financial Leverage Ratio
2008-12 2.62
2009-12 2.60
2010-12 2.72
2011-12 3.07
2012-12 3.92
Review: Solvency Ratio shows that post the market turmoil of 2008, company has increased the use of debt in its capital structure.
References
Breadtalk. (2012). Annual Report. Singapore: Breadtalk Incorporation.
Reuters. (2013, October 25). BreadTalk Group Ltd (BRET.SI). Retrieved October 26, 2013, from Reuters: http://www.reuters.com/finance/stocks/financialHighlights?symbol=BRET.SI
Robinson. (2011). Financial Analysis Techniques. In C. Institute, Financial Reporting and Analysis (pp. 128-160). Boston: Custom.
