Question

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

1) What 3 items of important information does the income statement ratios reveal about the financial performance 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 the income statement ratio will be revealing about financial performance of the company are as following-

A. Earnings before interest debt and amortization has been shrinking for the company because it can be seen through the EBITDA ratio that the company's EBITDA been consistently shrinking on the way down side and it will mean that the earnings of the company after being adjusted with the net revenues to the cost related with operational costs have been going down and this will mean that the company has not been making profits on the operational front.

B. Price to earning ratio has been going down of the company and it will mean that the market price as anticipated by the market participants of the company has been decreasing due to maybe decreasing profits or decreasing the future prospect of the company which can be revealed through the income statement that the company is not able to maintain a higher amount of profit and it is also not able to provide higher growth guidance to the market participants so they are not helping the company in having a higher price in the company's price to earning ratio is consistently decreasing.

C. Inconsistent profits- it can be seen that the net profit margin of the company has not been able to sustain on the higher level and it has fallen drastically in 2018, So, it can be said that the company has right to increase profit in early years and it has succeeded but in current year, the company has not been able to maintain it's profit to the previous years levels and it has fallen drastically as it is reflected that the net profit margin had shrunk heavily and it has almost fallen to the extent of 30% from the highs of 2017.