5.1.3.1 Debt Ratio It measures the percentage of the firms assets financed by creditors.

It is computed as follows: Debt ratio= Total debt/ total assets Total debt includes both current liabilities and long term debts. Creditors prefer low debt ratios, because the lower the ratio, the greater the cushion against creditors losses in the event of liquidation. But, too much debt often leads to financial difficulty, which eventually might cause bankruptcy. The following table shows the debt ratio of AMCL PRAN and FUWANG Foods Ltd for the last five years, from 2005 to 2009.

Years 2009 2008 2007 2006 2005

AMCL PRAN 63.92% 62.88% 65.73% 65.91% 66.85%

FUWANG FOODS LTD. 46.706% 43.458% 39.28% 42.51% 36.95%

Comment: The Debt ratio of AMCL PRAN is significantly high in all the five years a compare to Fu-Wang Foods the ratio is higher for all the five years, this is alarming as interest charges are compulsory obligation in future this may result in a constraint to raise debt. It might be rationalized by an increased EPS by means of high debt financing.

5.1.4.1 Net Profit Margin on Sales: The ratio measures net income per dollar of sales. It is calculated by dividing net income by sales. It is defined as follows: Net profit margin on sales = Net Income/ Sales The following table is showing the net profit margin on sales ratios of AMCL PRAN and FUWANG Foods Ltd. for the last five years, from 2005 to 2009 Years 2009 2008 2007 2006 2005 AMCL PRAN 3.612% 3.648% 3.169% 3.339% 5.11% FUWANG FOODS LTD. 4.13% 3.67% 3.74% 7.337% 7.73%

Comment: AMCL PRAN has almost same net profit margin on sales for the year 2009,2008,2007,2006 but profit margin on sales was higher in 2005.even compare to fuWang foods ltd AMCL PRAN has weaker position in Profit margin on sales. AMCL PRAN should reduce its cost of goods sold, Administrative, selling and financial expenses to increase its net income. 5.1.4.2 Return on Asset (ROA) It is the ratio of net income to total assets. It provides an idea of the overall return on investment earned by the firm. The ROA after interest and taxes are computed as follows:

Return on total assets (ROA) = Net Income/ total Assets The following table shows the ROA ratios of AMCL PRAN and FUWANG Foods Ltd for the last five years, from 2005 to 2009. Years 2009 2008 2007 2006 2005 AMCL PRAN 4.0066% 3.894% 3.065% 2.922% 4.095% FUWANG FOODS LTD. 4.497% 3.407% 3.467% 7.2155% 7.908%

Comment: AMCL PRAN has improves its return on asset from 2006 to 2009 but it was higher in 2005. only in 2008 AMCL PRAN has higher return asset compare to fuWang foods. AMCL pran should concentrate on their fixed assets, debt and inventories to increase its net income. 5.1.4.3 Return on Equity (ROE) This is the ratio of net income to common equity. It measures the rate of return on common stockholders investment. The return on common equity (ROE) or the rate of return on stockholders return is measured as follows: Return on Common Equity (ROE) = Net income available to common stockholders/Common Equity = Net Income Preferred Dividends/ Common Equity Years 2009 2008 AMCL PRAN 11.104% 10.49% FUWANG FOODS LTD. 8.438% 5.858%

2007 2006 2005

8.944% 8.5723% 12.354%

5.57% 11.58% 12.54%

Comment: AMCL PRAN has improved from 2007 to 2009 and it was all time high in 2005 but AMCL PRAN lower ROE in 2005 and 2006 compare to fu-Wang foods. Overall comment on Profitability Ratio: AMCL PRAN needs to increase its profitability ratio, both ROA and ROE needs to improve much. AMCL PRAN is financially levered company this conforms the earlier observation that AMCL PRAN has excess inventory and debt. AMCL PRAN should devote to its inventory and asset management. The apparent benefit of leverage in terms of tax extension is not evienditial in profit promotion. Operating activities of the firm suffered from poor liquidity position, poor asset management and high debt.

Years AMCL PRAN FUWANG FOODS LTD. 2009 11.104% 8.438% 2008 10.49% 5.858% 2007 8.944% 5.57% 2006 8.5723% 11.58% 2005 12.354% 12.54%

6.1 Findings

From the above analysis, the current ratios and quick ratios of AMCL PRAN are low which means that the company has liquidity problem. It also indicates high liabilities as can be seen in the financial statement. Poor inventory management has to be improved. An important aspect that was revealed by the financial analysis was it heavily relies on borrowing. This increases the interest charges to pay and ties up companys cash and cash equivalent. This could lead to serious financial problem even bankruptcy. Another aspect which needs to be considered is companys very low profit margin. Low profit margin is probably due to the net income which intern is because of high interest charges paid. The assets may not be properly utilized. Investors often lose their trust in such companies as it has already been reflected in low market price AMCL PRAN in 2006 and 2007. Investors are not getting enough return on their investment and such financial condition may lead to investors withdrawing their investments and may affect the goodwill of the company negatively. The company should increase the current asset specially cash to cover its liabilities and to increase the liquidity situation. They should decrease the dependency on debt so that the company doesnt face financial difficulties and can increase the investors trust. Net income should be increased to increase the profitability margin which will help to gain investors faith on the company. The company has matured credit policy to increase it

receivables and to decrease the DSO. They can dispose some unutilized assets which will help them to increase ROA. To increase the market price of their share AMCL PRAN is effectively communicating their future prospects and trying to increase their goodwill in the market .This is being reflected in market price of AMCL PRAN IN 2009. 2 AMCL PRAN wants to ensure highest return and growth of their assets. AMCL PRAN has been performing far better than its rival FUWANG FOODS in respect to Fixed asset turnover, Total asset turnover, ROE and Market/ Book value etc. its market price per share has been increasing for last three years and its recent market price also suggest that the investors are keeping faith on AMCL PRAN as a viable investment option and investors are willing to pay much for the companys book value than that for of an average company of the same industry and they are excited about the future prospects of its common stock as an investment. The company is trying to give a positive signal to the market that the company is doing well by paying regular dividends. The investors think that AMCL PRAN would bring more profitable return in future and its higher market price compared to book value confirms that trust of the investors. It is encouraging, however, to note that for the last few years, the company is operating at profit although the profit margin is not very attractive. Thus, the company is in the positive EPS over the five years having attributed to such growth potentiality and investors trust in it as a profitable investment opportunity. Again one of the most

important ratios to evaluate the performance of the firm is the price earnings ratio. The PE ratio of AMCL PRAN is significantly high in 2009 compared to 2007.Even the market/book value ratio has significantly improved from 2007 to 2009 and it is better than FUWANG FOODS Ltd. The improvement may indicate that the firm is gaining more trust of investors. Thus, the company is in progress for further improvement and they are improving from years to years. 6.2 Conclusion To sum up the company is improving its liquidity ratio, profit margin on sales, ROA, market/book value ratio is very impressive. Besides, it has also been carrying significant amount of accumulated profit in the balance sheet. The asset management ratio shows that the company is doing a good job in terms of utilizing its assets towards earning encouraging level of profit. Now, it may be because of the fact that the assets that the company is utilizing is worth and is not 2 overstated as per the book value compared to their market value. P/E ratio is higher for high growth potential firms. As AMCL PRAN shows a better P/E ratio than FU WANG FOODS Ltd Investors trust on AMCL PRAN is increasing and gaining shareholders confidence and credibility day by day. 2