Financial analysis (Ratio analysis) of Olympic Industries Limited

Profitability Ratios:
Particulars
Gross profit margin
EBITDA margin
NOPAT margin
Return on Equity (ROE)
Return on Assets (ROA)
Dividend payout ratio
Sustainable growth rate
Operating ROA
2012-13 2013-14 2014-15 2015-16 2016-17
25.68% 28.81% 29.55% 33.66% 33.37%
12.75% 15.23% 17.18% 20.09% 19.69%
8.68% 10.97% 12.16% 14.81% 14.55%
35.53% 34.45% 32.36% 35.83% 30.36%
16.66% 17.21% 18.99% 21.28% 18.02%
7.58% 8.29% 20.25% 27.66% 43.83%
32.84% 31.60% 25.81% 25.92% 17.05%
24.48% 23.90% 26.82% 28.82% 24.37%

Interpretation:
• The gross profit margin is in an increasing trend. The primary contributors
are the increase in sales of higher margin. More premium products and
better procurement at better rates.
• NOPAT margin also follow the increasing consistency. That is the result of
production efficiencies and capitalizing on economies of scale such as
distributing administrative, marketing, selling and operational cost across
higher sales.
• The ROE ratios are satisfactory which indicates a positive return to invest in
Olympic Industries. It also shows the managers efficiency to make a good
return by using shareholders’ funds.
• EIBITDA margin also illustrates good earning capabilities of Olympic
Industries.
Overall the profitability margin is good as all profitability ratios are increasing
consistently.
Debt and Coverage Ratios:
Particulars 2012-13 2013-14 2014-15 2015-16 2016-17
Liabilities-to-equity ratio 1.13 1.00 0.70 0.69 0.68
Debt-to-equity ratio 0.24 0.27 0.17 0.12 0.22
Net-debt-to-equity ratio -0.04 0.07 0.03 0.04 0.17
Debt-to-capital ratio 0.19 0.21 0.14 0.11 0.18
Interest coverage ratio -0.04 0.07 0.03 0.04 0.15
(earnings basis)
Interest coverage ratio 10.63 19.79 16.42 25.59 19.80
(cash flow basis)

Interpretation:
• Debt to equity ratio shows less debt financing of Olympic Industries for
each dollar invested by its shareholders.
• Liability to equity ratios are consistently decreasing indicates the firm is
using more shareholders financing to cover the liabilities.
• From 2012 to 2015 Olympic Industries borrowing was lower but in 2016 it
increases.
Overall the debt and coverage ratios of Olympic industries are moderately
well.
• Debt and coverage ratios measure a firm’s ability to all fixed financial
obligations, such as interest payment, lease payments and debt payments.
• Olympic Industries has consistent lower debt as a proportion of total
capital.
• Olympic Industries has enough earning to pay each dollar of interest
payment.
• Olympic Industries also has enough cash to pay each dollar of interest
payment.
Overall Debt and coverage ratios of Olympic industries are well.
Long Term Asset Management ratio:

Particulars 2012-13 2013-14 2014-15 2015-16 2016-17

PP&E turnover 6.44 6.93 5.36 6.56 5.92
Total Asset Turnover
(Sales) 1.92 1.57 1.56 1.44 1.24
Fixed Asset Turnover
(Sales) 3.26 2.58 2.38 2.29 1.98

Interpretation:
• The above ratios are useful in analyzing a firm’s working capital
management.
• The increasing amount of working capital turnover shows the
efficiency of Olympic industries working capital.
• Account receivable turnover was 235.06 times in 2011-12 and
64.37 times in 2015-16 which indicates the efficiency to convert
cash from account receivable
• Inventory turnover is increasing and accounts payable turnover is
decreasing, indicating well management of inventory and
accounts payable.
Overall asset management ratios are well.
Liquidity Ratios:
Particulars 2012-13 2013-14 2014-15 2015-16 2016-17

Current Ratio 1.49 1.61 1.94 1.99 1.98

Quick (Acid
Test) Ratio 0.82 0.92 1.33 1.44 1.32

Cash Ratio 0.32 0.25 0.23 0.13 0.07

Operating
Cash Flow
Ratio 0.55 0.45 0.62 0.73 0.29

Interpretation:
• All the above ratios attempt to measure the firm’s ability to repay its
current liabilities.
• Olympic Industries current ratios are more than 1 indicates it has enough
short current assets to pay the current liabilities.
• Quick Ratio also indicates good position of Olympic Industries to cover
current liabilities from liquid assets and firm’s accounts receivable are
liquid
• Decreasing Cash Ratio over the year indicates Olympic Industries has lost its
cash and marketable securities to cover current liabilities
• Year by Year Operating Cash flow Ratio indicates good position in
generating cash flow from operation to cover current liabilities
Overall the liquidity ratios of Olympic industries are moderately well.
Activity ratio:
Particulars 2012- 2013- 2014- 2015- 2016-
13 14 15 16 17
Inventory Turnover
(COGS) 10.18 8.53 9.08 12.51 8.46
Accounts Receivable
Turnover (Sales) 309.99 433.76 83.63 64.37 69.11
Accounts Payable
Turnover (COGS & Inv) 10.02 9.51 9.70 12.39 13.80
Inventory Holding Period
(Days) 35.85 42.78 40.19 29.17 43.16
Days Receivable (Sales) 1.58 1.18 6.20 8.55 7.93
Days Payable (COGS &
Inv) 36.42 38.38 37.62 29.46 26.44
Operating working
capital to sales 0.05 0.09 0.02 0.03 0.04
Operating working
capital turnover 21.45 11.30 42.54 39.31 25.08

Interpretation:
1. The cash conversion cycle of the company is efficient.
2. Increasing trend of days receivable indicates higher days to cover
up the receivable amount. It indicates a less liquidity and
increasing opportunity cost.