How Our Business Ratios are Calculated:

Note: All data is provided by the business directly. Beehive reviews and analyses this data, but it does not undertake an audit of the data and does not carry out additional verification of the data provided. Businesses can provide either audited or unaudited information. If unaudited, then the information should be treated as such. Beehive can confirm that the ratios are correct but does not offer an opinion on them.

 

1 – Financial Ratios

 

Performance Ratios

 

Revenue Growth %

Total revenue growth in the period divided by the revenue from the previous year. A positive number means your revenue increased, while a negative result means that your revenue declined. The higher the percentage, the stronger the improvement or decrease is.

 

Net Profit Margin %

The net profit is the company’s revenue less all expenses. The net profit margin is the net profit divided by revenue. Net profit margin is one of the most important indicators of a business’s financial health. By tracking increases and decreases in its net profit margin, a business can assess whether current practices are working and forecast profits based on revenues. Because companies express net profit margin as a percentage rather than a monetary value, it is possible to compare the profitability of two or more businesses regardless of size.

 

Return on Equity

Net profit divided by the average shareholder equity. The average shareholder equity is calculated by adding the shareholders’ equity at the beginning of a period to the shareholders’ equity at period’s end and dividing the result by two. Return on Equity is useful in comparing the profitability of a company to that of other companies in the same industry. It illustrates how effective the company is at turning the cash put into the business into greater gains and growth for the company and investors. The higher the return on equity, the more efficient the company’s operations are making use of those funds

 

Return on Assets

Net profit for the period divided by total assets for the period. Return on assets tells you what earnings were generated from assets. Return on assets for companies can vary substantially and will be highly dependent on their industry. This is why when using return on assets as a comparative measure, it is best to compare it against a company’s previous return on assets numbers or against a similar company’s return on assets.

 

Asset management and Utilization Ratios

 

Inventory Days

Average inventory divided by cost of sales and then multiplied by the number of days in the period. Average inventory is calculated by adding opening inventory to closing inventory and then dividing by two. Inventory turnover measures how fast a company sells inventory and analysts compare it to industry averages. Low turnover implies weak sales and, excess inventory. A high ratio implies either strong sales or large discounts.

 

Debtors Days

Year-end trade debtors divided by revenue and then multiplied by the number of days in the period. A high debtors days number shows that a company is selling its product to customers on credit and taking longer to collect money. This may lead to cash flow problems because of the long duration between the time of a sale and the time the company receives payment. A low debtors days value means that it takes a company fewer days to collect its accounts receivable. In effect, the ability to determine the average length of time that a company’s outstanding balances are carried in receivables can in some cases tell a great deal about the nature of the company’s cash flow.

 

Creditors Days

Year-end trade creditors divided by cost of sales and then multiplied by the number of days in the period. Companies must strike a delicate balance with creditors days. The longer they take to pay their creditors, the more money the company has on hand, which is good for working capital and free cash flow. In this case, a high creditors days is advantageous. A high days payable outstanding also comes with its disadvantages. If the company takes too long to pay its creditors, the creditors will be unhappy, and may refuse to extend credit in the future, or they may offer less favorable terms. Also, because some creditors give companies a discount for timely payments, the company may be paying more than it needs to for its supplies. If cash is tight, however, the cost of increasing creditors days may be less than the cost of foregoing that cash earlier and having to borrow the shortfall to continue operations.

 

Leverage Ratios

 

Debt Ratio

Total liabilities divided by total assets. A debt ratio greater than 100% tells you that a company has more debt than assets. Meanwhile, a debt ratio less than 100% indicates that a company has more assets than debt. Used in conjunction with other measures of financial health, the debt ratio can help investors determine a company’s risk level.

 

Interest Cover Ratio

Earnings before interest (EBI) divided by the interest expense. The lower a company’s interest coverage ratio is, the more its debt expenses burden the company. When a company’s interest coverage ratio is 150% or lower, its ability to meet interest expenses may be questionable. 150% is generally considered to be a bare minimum acceptable ratio for a company and the tipping point below which lenders will likely refuse to lend the company more money, as the company’s risk for default may be perceived as too high.

 

Debt Service Coverage

Ratio Net profit divided by annual debt service cost (capital and interest). Lenders will routinely assess a borrower’s debt service coverage ratio before making a loan. A debt coverage service ratio of less than 100% means negative cash flow which means that the borrower

will be unable to cover or pay current debt obligations without drawing on outside sources—without, in essence, borrowing more. or example, debt service coverage ratio of 0.95 means that there is only enough net operating profit to cover 95% of annual debt payments. In the context of personal finance, this would mean that the borrower would have to delve into his or her personal funds every month to keep the project afloat. In general, lenders frown on a negative cash flow, but some allow it if the borrower has strong resources outside income. If the debt-service coverage ratio is too close to 100%, say 110%, the entity is vulnerable, and a minor decline in cash flow could make it unable to service its debt. Lenders may in some cases require that the borrower maintain a certain minimum debt service coverage ratio while the loan is outstanding. Some agreements will consider a borrower who falls below that minimum to be in default. Typically, a debt service coverage ratio greater than 100% means the entity has sufficient income to pay its current debt obligations.

 

Debt to Equity Ratio

Total liabilities divided by total equity. If a lot of debt is used to finance increased operations (high debt to equity), the company could potentially generate more earnings than it would have without this outside financing. If this were to increase earnings by a greater amount than the debt cost (interest), then the shareholders benefit as more earnings are being spread among the same number of shareholders. However, if the cost of debt financing ends up outweighing the returns that the company generates on the debt through investment and business activities, stakeholders’ share values may take a hit. If the cost of debt becomes too much for the company to handle, it can even lead to bankruptcy.

 

Liquidity Ratios

 

Current Ratio

Total current assets divided by current liabilities. A ratio under 100% indicates that a company’s liabilities are greater than its assets and suggests that the company in question would be unable to pay off its obligations if they came due at that point. While a current ratio below 100% shows that the company is not in good financial health, it does not necessarily mean that it will go bankrupt. There are many ways for a company to access financing, and this is particularly so if a company has realistic expectations of future earnings against which it might borrow. For example, if a company has a reasonable amount of short-term debt but is expecting substantial returns from a project or other investment not too long after its debts are due, it will likely be able to stave off its debt.

 

Quick Ratio

The sum of cash, cash equivalents, short-term investments, and current receivables divided by current liabilities. While a quick ratio lower than 100% does not necessarily mean the company is going into default or bankruptcy, it could mean that the company is relying heavily on inventory or other assets to pay its short term liabilities. The higher the quick ratio, the better the company’s liquidity position. However, too high a quick ratio may indicate that the company has too much cash sitting in its reserves. It may also mean that the company has a high accounts receivable, indicating that the company may be having problems collecting on its account receivables.

 

Operating Cashflow Ratio

Cash flow from operations for the period divided by current liabilities. The operating cash flow ratio is a measure of the number of times a company can pay off current debts with

cash generated within the same period. A high number greater than 100% indicates that a company has generated more cash in a period than what is needed to pay off its current liabilities. A ratio less than one indicates the opposite, the company has not generated enough cash to cover its current liabilities. To investors and analysts, a low ratio could mean that the company needs more capital. However, there could be many interpretations, and not all are indications of poor financial health. For example, a company may embark on a project that compromises cash flows temporarily but renders great reward in the future.

 

2 – Cash Cover Ratios Calculated by Beehive

 

Repayment Coverage Strength

This opinion is based on the financial information Beehive has been supplied with and the result of it the analyses undertaken. Our opinion is based on the average bank balance divided by equated monthly installments (EMI’S) the result of this calculation is then ranked from Excellent to Weak.

 

^{Note: this information should not be interpreted as advice on whether money should be lent to the borrower or invested by the issuer.}