Question

Select the 10 ratios you deem most important financial ratios for a 3-year period. Based on your analysis of your ratios

What 3 items of important information does the balance sheet ratios reveal about the financial position of the company?

Ratios	2016	2017	2018
Net Profit Margin (%)	2.32	2.78	2.06
EBITDA Margin (%)	5.90	5.96	5.05
Return on Equity (ROE)	13.30	17.05	12.85
Return on Assets (ROA)	6.51	8.22	6.59
Price-to-Book Value (P/B)	1.88	1.53	1.45
Gross Gearing (D/E) (%)	68.21%	42.98%	39.31%
PER	17.39	9.00	11.31
Inventory Turnover	5.87	6.06	5.72
Current Ratio	1.56	1.55	1.64
Working Capital/Revenue (%)	11.81%	8.34%	9.13%

Answer 1

Three important information provided by balance sheet ratios that are revealing about the financial position of the company are as follows-

A. Decreasing debt levels- debt equity ratio or the gross gearing ratio is representing that the debt capital in the overall capital structure of the company is decreasing and it is representative of the decreasing gross gearing ratio in various years.

B. Increase in current ratio is reflecting that the company is having a higher amount of liquidity in its hands because the company is able to maintain a higher amount of current ratio and it is having a higher current asset in comparison to higher current liabilities in the current year,so that it can be said that the companies having optimum amount of liquidity in its hands.

C. Working capital to revenue ratio will be reflecting that the working capital of the company to the overall revenue has been decreasing and it will mean that the total revenues of the companies has been shrinking and the working capital has also been in decreasing so it is a double hit for the company as it can be seen that the current ratio is increasing but the working capital to the revenue ratio is decreasing so the company's revenue is decreasing and the working capital is also decreasing.