Financial Ratio Analysis of DISTMAFERQUI SAC in 2004
Solvency Analysis
Debt or Leverage:
This analysis shows the proportion of a company’s resources that are financed by debt. It indicates the company’s reliance on borrowed funds and provides insights into its financial sustainability. By combining short-term and long-term debts, we can assess the stability of the company’s capital structure. This analysis helps determine the risk associated with additional funding and identifies the sources of funds invested in assets. It also reveals the percentage of total funds contributed by the owner(s) or creditors. Financial institutions use established standards to measure debt levels and assess the associated risks. It’s crucial to understand that debt creates a cash flow obligation, and the risk of borrowing lies in the company’s ability to generate sufficient funds to repay debts as they mature.
Capital Structure (Debt-to-Equity Ratio):
This ratio compares the level of debt to equity, measuring the impact of total liabilities on the company’s ownership stake.
CAPITAL STRUCTURE = TOTAL LIABILITIES / ASSETS
For DISTMAFERQUI SAC in 2004, the capital structure ratio is 0.81. This indicates that for every unit of currency (UM) provided by the owner(s), there is 0.81 UM (or 81%) contributed by creditors.
Indebtedness:
This ratio represents the percentage of equity funds sourced from creditors, both short-term and long-term. It aims to measure the overall level of indebtedness and the proportion of funds provided by creditors.
TOTAL DEBT RATIO = LIABILITIES / TOTAL ASSETS
For DISTMAFERQUI SAC in 2004, the total debt ratio is 0.4474 or 44.74%. This means that 44.74% of the company’s total assets are funded by creditors. If these assets were liquidated at their carrying value, creditors would receive 44.74% of the proceeds, leaving the owners with the remaining 55.26%.
Coverage of Financial Expenses:
This ratio indicates the extent to which profits can be reduced without jeopardizing the company’s ability to pay its financial expenses.
FINANCIAL EXPENSE COVERAGE = Earnings Before Interest / Interest Expense
For DISTMAFERQUI SAC in 2004, the financial expense coverage ratio is 4.69 times. This suggests a relatively strong ability to meet interest obligations and is a key indicator used by financial institutions to assess creditworthiness.
Coverage of Fixed Costs:
This ratio assesses the company’s ability to cover its fixed costs and provides insights into its operational sustainability. It is calculated by dividing the gross margin by fixed costs. Gross margin represents the funds available to cover fixed costs and any additional expenses, such as financial services.
FIXED EXPENSE COVERAGE = GROSS PROFIT / FIXED COSTS
For DISTMAFERQUI SAC in 2004, the fixed expense coverage ratio is 1.44 times. In this case, fixed costs include selling, general and administrative expenses, and depreciation. It’s important to note that not all selling expenses are necessarily fixed costs. The classification of fixed and variable costs should be tailored to each company’s specific circumstances.
Profitability Analysis
Profitability analysis measures a company’s ability to generate profit. Its purpose is to evaluate the net result of management decisions and policies related to the use of company funds. It assesses the economic performance of the business and expresses its performance in relation to sales, assets, or capital. Profitability is essential for a company’s survival and growth. These indicators reflect the company’s ability to generate funds from its operations. Negative profitability indicators may signal a period of accumulation or financial strain, potentially leading to higher financial costs or requiring greater contributions from the owners to sustain the business.
Return on Equity (ROE):
This ratio measures the return generated on the funds invested by the owners.
ROE = NET PROFIT / CAPITAL OR EQUITY
For DISTMAFERQUI SAC in 2004, the ROE is 0.0325 or 3.25%. This means that for every UM invested by the owners, a return of 3.25% was generated in 2004. It reflects the company’s ability to generate profit for its shareholders.
Return on Investment (ROI):
This ratio measures the overall effectiveness of management in generating profit from the total assets available. It assesses the profitability of the business as an independent project, irrespective of the source of funding.
ROI = NET INCOME / TOTAL ASSETS
For DISTMAFERQUI SAC in 2004, the ROI is 0.01787 or 1.787%. This means that for every UM invested in assets in 2004, a return of 1.79% was generated. Higher ROI values indicate greater efficiency in generating profits from invested assets.
Utility Assets:
This ratio indicates the efficiency of a company’s assets in generating profit.
UTILITY ASSETS = (PROFIT AFTER TAX + INTEREST EXPENSE) / TOTAL ASSETS
For DISTMAFERQUI SAC in 2004, the utility assets ratio is 0.1230. This means that the company generated a profit of 12.30% for every UM invested in assets.
Sales Income:
This ratio expresses the profit generated from each UM of sales.
SALES INCOME = PROFIT BEFORE INTEREST AND TAX / SALES
For DISTMAFERQUI SAC in 2004, the sales income ratio is 0.1001. This means that for every UM of sales, a profit of 10.01% was generated in 2004.
Gross Margin:
This ratio indicates the profit generated from each UM of sales after deducting the cost of goods sold.
GROSS PROFIT MARGIN = (SALES – COST OF SALES) / SALES
For DISTMAFERQUI SAC in 2004, the gross profit margin is 0.3287 or 32.87%. This indicates the profitability of sales relative to the cost of goods sold. It reflects the efficiency of operations and pricing strategies. A higher gross margin is generally desirable, as it suggests lower production costs or higher selling prices.
Net Margin:
This ratio is a more specific measure of profitability than the gross margin. It represents the percentage of each UM of sales that remains as profit after all expenses, including taxes, have been deducted. A higher net margin indicates greater overall profitability.
NET MARGIN = NET PROFIT / NET SALES
For DISTMAFERQUI SAC in 2004, the net margin is 0.0146 or 1.46%. This means that for every UM of sales in 2004, the company generated a net profit of 1.46%. This ratio helps assess whether the company’s operations are generating adequate returns for the owners.
DuPont Analysis:
The DuPont analysis combines profitability and asset management ratios to provide a more comprehensive view of a company’s financial performance. It helps explain variations in net profit margins and provides a more realistic assessment of the company’s overall profitability.
DUPONT = PROFIT BEFORE TAX / TOTAL ASSETS
For DISTMAFERQUI SAC in 2004, the DuPont ratio is 0.0967 or 9.67%. This indicates that for every UM invested in assets, a return of 9.67% was generated before taxes. This analysis helps assess the combined impact of profitability and asset utilization on the company’s overall financial performance.