Basically current ratio shows the ability of a company to pay its short term obligations like short term debts. High ratio represent more liquidity of the company means company can convert its assets in to cash in short period and without losing money.
Here you can see in the graph the current ratio of three companies Nestle, Engro and UNILEVER respectively. It clearly shows that the current ratio of Engro is very much high than other two companies. It means that only Engro is able to pay its current liabilities out of its current assets because other two companies have more current liabilities than current assets.
So we can conclude that engro is more liquid company than other two companies and Nestle have to face problems to meet its short term liabilities.
It is also known as the acid test ratio and also uses to measure the liquidity of the company. It is calculated by dividing the (current assets-inventory) by current liabilities.
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Again here the quick ratio of the Engro foods is highest than the Nestle and UNILEVER it means that the financials of the Engro foods is strongest then the other two companies.
Here you can see in the graph that ratio of Engro foods is almost four times more than the ratio of Nestle Pakistan and the UNILEVER.
It also shows that Nestle and Unilever is maintaining more inventory than Engro foods.
Gross profit Ratio:
Gross profit is the amount which we get after the cost of goods sold from the sales revenues. You can say that this is the income coming out of the core business and in order to get the net profit margin a positive number u should have a positive number in gross profit margin.
Graph shows that the gross profit margin of the Nestle and Engro is almost same but the gross profit margin of the Unilever is little high then these two companies. It also shows that Unilever is earning more from its core business than other two companies.
Here we can also evaluate that Nestle and Engro foods are moving on the same pace and look like competitors. By looking at the graph we can analyze that the net profit of the Unilever will also be higher than these two companies.
Net Profit Margin:
It is the amount which we get after the deduction of all operating expenses, administrative expenses, interest, taxes and the preferred stock. It is the amount company have for its shareholders or company can also use it as a retain earning to increase its paid up capital.
As I mention earlier that the net profit of the Unilever should be higher so you can see here that it is higher than Nestle and Engro.
This is very important ratio for the shareholders of the company and they have a close look on it because it shows that how efficiently the company is converting its resources into profit.
Graph also shows that Unilever is most and Nestle is least effective in converting its resources into profit. We use this ratio in comparing these three companies because these are from the same industry i.e. food.
Inventory Turnover ratio:
Inventory turnover shows the number of days the company needed to sell its product to the final customer.
Graph clearly shows that the inventory turnover of the Nestle and Engro is very less as compared to the Unilever that is 58 day. It means Engro and Nestle are able to sell its products to the customer just in 8 days only.
It also shows that Engro and Unilever are enjoying the good inventory management system than Unilever. And high days in inventory show that company has large stock of inventory in its stores which shows the poor management. Different companies use different methods like FIFO, LIFO and Average Method to maintain their inventory system.
Total Asset turnover:
Assets turnover represents the efficiency of assets in generation of revenues for the company. High ratio is good for company and low the ratio bad for the company.
Always on Time
Marked to Standard
This ratio is very much important when we are going to compare the companies of same industry. You can see that asset turnover of Nestle and Unilever is quite good as compared with the Engro. For which one reason could be that as newly growing food processing company they are unable to achieve the efficiencies in its assets utilization. But with the passage of time it could be possible that they will achieve the excellence in their assets utilization.
The high ratio of Unilever and nestle shows that they are utilizing their assets at maximum level and low ratio of Engro shows that they are underutilizing their assets which could be create problems like inventory shortage.
Return on Capital Employed:
Basically it measures the profitability that how much money a company can earn by the investment of its shareholders.
So higher the ratio good for the company and represent the efficiency and ability to generate profit and lower the ration could be create problem for the company. Here in graph you can see that Unilever is performing much better than other two and Engro is below the average level, that is why the market price per share for the engro is very much less as compared with the Nestle and Unilever. It is also one of the most important ratios which we can use to make comparison of companies of same industry. So we can conclude that engro is performing very badly on ROE. It is because of a huge difference between 103, 36 and just 5% of Engro foods.
Earnings Per share:
EPS is calculated by dividing the net income by the total number of shares outstanding. So it shows the proportion of companyâ€™s income for the common stockholders.
Graph shows that the earning per share of the Nestle Pakistan is highest that is 127 per share and then Unilever and then Engro is at 20 per share.
Here what I see is that price per share also matters because one share of Nestle is sold for Rs 3597 and the price of Engro is just rupees 92. So by shareholders point of view if we invest 100000 for each Nestle and Engro than at the end we will earn just rupees 3538 for Nestle investment and rupees 21866 for Engro. So my conclusion is investor can earn more by investing in to Engro shares rather than Nestle, so Engro is do very well for its shareholders.
Price Earnings Ratio:
This ratio is used to compare the company present price per share and the earning per share of the same company. P/E ratio is very help full for the investors while making investment into an organization because it gives a quick snapshot to the investor before making investment into the company.
So here you can see that price earnings ratio of Nestle Pakistan is highest and the price earnings ratio of Engro is lowest. So while making investment investor will prefer to invest in Nestle Pakistan first because its investment is more secure and earnings are high.