{"id":2368,"date":"2021-10-31T02:03:22","date_gmt":"2021-10-31T02:03:22","guid":{"rendered":"https:\/\/danieel.id\/?p=2368"},"modified":"2024-01-19T13:54:13","modified_gmt":"2024-01-19T06:54:13","slug":"understanding-financial-ratios-for-analysis-of-company-performance","status":"publish","type":"post","link":"https:\/\/danieel.id\/en\/understanding-financial-ratios-for-analysis-of-company-performance\/","title":{"rendered":"Understanding Financial Ratios for Analysis of Company Performance"},"content":{"rendered":"<p style=\"text-align: justify;\"><span style=\"font-family: 'comic sans ms', sans-serif; font-size: 12pt;\">To analyse the financial performance of a company comprehensively, it is not enough just from the numbers listed in 4 types of financial statements, the number will be more meaningful when compared to something (in the form of ratios),<\/span><\/p>\n<p style=\"text-align: justify;\"><span style=\"font-family: 'comic sans ms', sans-serif; font-size: 12pt;\">To see the magnitude relatively and to be easier than, both in time-series with the same ratio in the previous year and with the performance of competitors or industry average performance in the same sector in the reporting year.<\/span><\/p>\n<p style=\"text-align: justify;\"><span style=\"font-family: 'comic sans ms', sans-serif; font-size: 12pt;\">There are 5 categories of financial ratios as follows:<\/span><\/p>\n<ul>\n<li style=\"text-align: justify;\"><span style=\"font-family: 'comic sans ms', sans-serif; font-size: 12pt;\"><em>Liquidity Ratios<\/em> (consisting of Current Ratio and Quick Ratio)<\/span><\/li>\n<li style=\"text-align: justify;\"><span style=\"font-family: 'comic sans ms', sans-serif; font-size: 12pt;\"><em>Activity Ratios<\/em> (consisting of Inventory Turnover, Average Collection Period, Average Payment Period and Total Assets Turnover)<\/span><\/li>\n<li style=\"text-align: justify;\"><span style=\"font-family: 'comic sans ms', sans-serif; font-size: 12pt;\"><em>Debt Ratios<\/em> (consisting of Debt to Equity Ratio, Times Interest Earned Ratio\/ Interest Coverage Ratio, and Fixed Payment Coverage Ratio)<\/span><\/li>\n<li style=\"text-align: justify;\"><span style=\"font-family: 'comic sans ms', sans-serif; font-size: 12pt;\"><em>Profitability Ratios<\/em> (consisting of Gross Profit Margin, Operating Profit Margin, Net profit Margin, Earning Per Share (EPS), Return On Assets (ROA) and Return On Equity (ROE)<\/span><\/li>\n<li style=\"text-align: justify;\"><span style=\"font-family: 'comic sans ms', sans-serif; font-size: 12pt;\"><em>Market Ratios<\/em> (consisting of Price\/Earnings (P\/E) Ratio and Price to Book (P\/B) Value<\/span><\/li>\n<\/ul>\n<p>&nbsp;<\/p>\n<h3 style=\"text-align: justify; padding-left: 40px;\"><span style=\"font-family: 'comic sans ms', sans-serif; font-size: 12pt; color: #008000;\"><strong>Why We Need Ratios<\/strong><\/span><\/h3>\n<p style=\"text-align: justify; padding-left: 40px;\"><span style=\"font-family: 'comic sans ms', sans-serif; font-size: 12pt;\">In order to more easily understand the importance of using ratios in analyzing financial performance, I try to describe it through the short story below.<\/span><\/p>\n<p style=\"text-align: justify; padding-left: 40px;\"><span style=\"font-family: 'comic sans ms', sans-serif; font-size: 12pt;\">Suppose you are asked to compare the profits of two companies in the same period, Company A net profit of $ 100, and Company B with a net profit of $ 150.\u00a0&#8220;Which is better?&#8221;<\/span><\/p>\n<p style=\"text-align: justify; padding-left: 40px;\"><span style=\"font-family: 'comic sans ms', sans-serif; font-size: 12pt;\">With that information alone, of course you will answer <em>&#8220;Company B for sure.&#8221;<\/em><\/span><\/p>\n<p style=\"text-align: justify; padding-left: 40px;\"><span style=\"font-family: 'comic sans ms', sans-serif; font-size: 12pt;\">but then you may ask <em>&#8220;but, uh, first, to be fair, let&#8217;s compare the profit judging by the percentage against the total sales?&#8221;,<\/em>\u00a0<\/span><\/p>\n<p style=\"text-align: justify; padding-left: 40px;\"><span style=\"font-family: 'comic sans ms', sans-serif; font-size: 12pt;\">Then you are given additional information, Company A sales revenue in that year is $ 500, while Company B total revenue are $ 900.<\/span><\/p>\n<p style=\"text-align: justify; padding-left: 40px;\"><span style=\"font-family: 'comic sans ms', sans-serif; font-size: 12pt;\">When compared to its sales revenue, company A&#8217;s net profit margin is =$100 \/ $500 = 20 %, while company B = $150 \/ $900 = 16.7%.<\/span><\/p>\n<p style=\"text-align: justify; padding-left: 40px;\"><em><span style=\"font-family: 'comic sans ms', sans-serif; font-size: 12pt;\">&#8220;Oh if it&#8217;s better Company A, although nominally profits are smaller, but on a percentage margin basis, Company A margin is higher&#8221;<\/span><\/em><\/p>\n<p style=\"text-align: justify; padding-left: 40px;\"><span style=\"font-family: 'comic sans ms', sans-serif; font-size: 12pt;\">Okay, to be more apple to apple, what about the size of the two companies, let&#8217;s compare the profits of the two companies with their total assets.<\/span><\/p>\n<p style=\"text-align: justify; padding-left: 40px;\"><span style=\"font-family: 'comic sans ms', sans-serif; font-size: 12pt;\">You have additional information, that The Total Assets of Company A is $2,000, while The Total Assets of Company B is $2,500<\/span><\/p>\n<p style=\"text-align: justify; padding-left: 40px;\"><span style=\"font-family: 'comic sans ms', sans-serif; font-size: 12pt;\">Oh, it turns out, Return On Assets (ROA) Company A = $100 \/ $2,000 = 5%, while Company B = $150 \/ 2,500 = 6 %<\/span><\/p>\n<p style=\"text-align: justify; padding-left: 40px;\"><span style=\"font-family: 'comic sans ms', sans-serif; font-size: 12pt;\"><em>&#8220;If you look at the comparison of profits with assets, Company B won&#8230;&#8221;<\/em><\/span><\/p>\n<p style=\"text-align: justify; padding-left: 40px;\"><span style=\"font-family: 'comic sans ms', sans-serif; font-size: 12pt;\">Apparently, although Company B&#8217;s profit margin is thinner than Company A, Company B is more able to optimize the use of its Asset Assets to generate profits than Company A.<\/span><\/p>\n<p style=\"text-align: justify; padding-left: 40px;\"><span style=\"font-family: 'comic sans ms', sans-serif; font-size: 12pt;\"><em>&#8220;Um, are you satisfied here?&#8221;\u00a0<\/em><\/span><\/p>\n<p style=\"text-align: justify; padding-left: 40px;\"><span style=\"font-family: 'comic sans ms', sans-serif; font-size: 12pt;\">Later, let&#8217;s see also from the point of view of the comparison of the profits of the two companies compared to their own capital (owner&#8217;s equity).<\/span><\/p>\n<p style=\"text-align: justify; padding-left: 40px;\"><span style=\"font-family: 'comic sans ms', sans-serif; font-size: 12pt;\">You get information Owner&#8217;s equity Company A is $1,000, while Owner&#8217;s equity Company B is $2,000 (it turns out Company A has more capital coming from debt than Company B yes..).<\/span><\/p>\n<p style=\"text-align: justify; padding-left: 40px;\"><span style=\"font-family: 'comic sans ms', sans-serif; font-size: 12pt;\">With this data, you calculate Company A&#8217;s Return on Equity (ROE) = $100 \/ $1,000 = 10%, while Company B ROE = $150 \/ $2,000 = 8%.<\/span><\/p>\n<p style=\"text-align: justify; padding-left: 40px;\"><span style=\"font-family: 'comic sans ms', sans-serif; font-size: 12pt;\">You know, it turns out that ROE Company A is higher than Company B, this means that with less capital alone, Company A can make better profits than Company B.<\/span><\/p>\n<p style=\"text-align: justify; padding-left: 40px;\"><span style=\"font-family: 'comic sans ms', sans-serif; font-size: 12pt;\"><em>So, which company won?\u00a0\ud83d\ude42<\/em><\/span><\/p>\n<p style=\"text-align: justify; padding-left: 40px;\"><span style=\"font-family: 'comic sans ms', sans-serif; font-size: 12pt;\"><em>If you have $1,000, would you prefer to donate it to Company A or Company B?<\/em><\/span><\/p>\n<p style=\"text-align: justify; padding-left: 40px;\"><span style=\"font-family: 'comic sans ms', sans-serif; font-size: 12pt;\">To be clear, the above story I present in the following simple table:<\/span><\/p>\n<figure id=\"attachment_2396\" aria-describedby=\"caption-attachment-2396\" style=\"width: 650px\" class=\"wp-caption aligncenter\"><img loading=\"lazy\" decoding=\"async\" class=\"wp-image-2396\" src=\"https:\/\/danieel.id\/wp-content\/uploads\/2021\/02\/why_we_need_ratio-1024x461.png\" alt=\"why we need ratio\" width=\"650\" height=\"293\" srcset=\"https:\/\/danieel.id\/wp-content\/uploads\/2021\/02\/why_we_need_ratio-1024x461.png 1024w, https:\/\/danieel.id\/wp-content\/uploads\/2021\/02\/why_we_need_ratio-300x135.png 300w, https:\/\/danieel.id\/wp-content\/uploads\/2021\/02\/why_we_need_ratio-768x346.png 768w, https:\/\/danieel.id\/wp-content\/uploads\/2021\/02\/why_we_need_ratio-696x314.png 696w, https:\/\/danieel.id\/wp-content\/uploads\/2021\/02\/why_we_need_ratio-1068x481.png 1068w, https:\/\/danieel.id\/wp-content\/uploads\/2021\/02\/why_we_need_ratio.png 1150w\" sizes=\"auto, (max-width: 650px) 100vw, 650px\" \/><figcaption id=\"caption-attachment-2396\" class=\"wp-caption-text\">why we need ratio<\/figcaption><\/figure>\n<p style=\"text-align: justify;\"><span style=\"font-family: 'comic sans ms', sans-serif; font-size: 12pt;\">With a short story illustration and table above, hopefully we can better understand why we need to use ratios to be able to analyse the performance of a company more comprehensively.<\/span><\/p>\n<p style=\"padding-left: 40px;\"><span style=\"font-family: 'comic sans ms', sans-serif; font-size: 12pt;\">This is the second of my three articles on the Company&#8217;s Financial Statements The other two articles are:<\/span><\/p>\n<ul>\n<li style=\"list-style-type: none;\">\n<ul>\n<li style=\"list-style-type: none;\">\n<ul>\n<li><span style=\"text-decoration: underline; color: #0000ff;\"><a style=\"color: #0000ff;\" href=\"https:\/\/danieel.id\/en\/understanding-4-types-of-company-financial-statements\/\" target=\"_blank\" rel=\"noopener\"><span style=\"font-family: 'comic sans ms', sans-serif; font-size: 12pt;\">Understanding 4 Types of Company Financial Statements<\/span><\/a><\/span><\/li>\n<li><span style=\"text-decoration: underline;\"><span style=\"color: #0000ff; text-decoration: underline;\"><a style=\"color: #0000ff; text-decoration: underline;\" href=\"https:\/\/danieel.id\/en\/using-dupont-formula-for-company-roa-and-roe-analysis\/\" target=\"_blank\" rel=\"noopener\"><span style=\"font-family: 'comic sans ms', sans-serif; font-size: 12pt;\">Using DuPont Formula for Company ROA and ROE Analysis<\/span><\/a><\/span><\/span><\/li>\n<\/ul>\n<\/li>\n<\/ul>\n<\/li>\n<\/ul>\n<p style=\"text-align: justify;\"><span style=\"font-family: 'comic sans ms', sans-serif; font-size: 12pt;\">Now let&#8217;s go back to discussing the type of financial ratio, the ratio is obtained from the numbers on financial statements, especially income statements and balance sheets.<\/span><\/p>\n<p style=\"text-align: justify;\"><span style=\"font-family: 'comic sans ms', sans-serif; font-size: 12pt;\">To facilitate the discussion, we show back the Income Statement and Balance Sheet of the Imaginer Company &#8220;danieel.id Company&#8221; (which we have discussed in detail in the previous article: <span style=\"text-decoration: underline;\"><span style=\"color: #0000ff; text-decoration: underline;\"><a style=\"color: #0000ff; text-decoration: underline;\" href=\"https:\/\/danieel.id\/en\/understanding-4-types-of-company-financial-statements\/\" target=\"_blank\" rel=\"noopener\">Understanding the 4 Types of Company Financial Statements<\/a><\/span><\/span>)<\/span><\/p>\n<figure id=\"attachment_2355\" aria-describedby=\"caption-attachment-2355\" style=\"width: 650px\" class=\"wp-caption aligncenter\"><img loading=\"lazy\" decoding=\"async\" class=\"wp-image-2355\" src=\"https:\/\/danieel.id\/wp-content\/uploads\/2021\/02\/Income_Statement-985x1024.png\" alt=\"Income Statement\" width=\"650\" height=\"676\" srcset=\"https:\/\/danieel.id\/wp-content\/uploads\/2021\/02\/Income_Statement-985x1024.png 985w, https:\/\/danieel.id\/wp-content\/uploads\/2021\/02\/Income_Statement-289x300.png 289w, https:\/\/danieel.id\/wp-content\/uploads\/2021\/02\/Income_Statement-768x798.png 768w, https:\/\/danieel.id\/wp-content\/uploads\/2021\/02\/Income_Statement-696x723.png 696w, https:\/\/danieel.id\/wp-content\/uploads\/2021\/02\/Income_Statement-1068x1110.png 1068w, https:\/\/danieel.id\/wp-content\/uploads\/2021\/02\/Income_Statement.png 1070w\" sizes=\"auto, (max-width: 650px) 100vw, 650px\" \/><figcaption id=\"caption-attachment-2355\" class=\"wp-caption-text\">&#8220;danieel.id Company&#8221; Income Statement 2019<\/figcaption><\/figure>\n<p>&nbsp;<\/p>\n<figure id=\"attachment_2354\" aria-describedby=\"caption-attachment-2354\" style=\"width: 650px\" class=\"wp-caption aligncenter\"><img loading=\"lazy\" decoding=\"async\" class=\"wp-image-2354\" src=\"https:\/\/danieel.id\/wp-content\/uploads\/2021\/02\/Balance_Sheet-1024x904.png\" alt=\"Balance Sheet\" width=\"650\" height=\"574\" srcset=\"https:\/\/danieel.id\/wp-content\/uploads\/2021\/02\/Balance_Sheet-1024x904.png 1024w, https:\/\/danieel.id\/wp-content\/uploads\/2021\/02\/Balance_Sheet-300x265.png 300w, https:\/\/danieel.id\/wp-content\/uploads\/2021\/02\/Balance_Sheet-768x678.png 768w, https:\/\/danieel.id\/wp-content\/uploads\/2021\/02\/Balance_Sheet-696x614.png 696w, https:\/\/danieel.id\/wp-content\/uploads\/2021\/02\/Balance_Sheet-1068x943.png 1068w, https:\/\/danieel.id\/wp-content\/uploads\/2021\/02\/Balance_Sheet.png 1296w\" sizes=\"auto, (max-width: 650px) 100vw, 650px\" \/><figcaption id=\"caption-attachment-2354\" class=\"wp-caption-text\">&#8220;danieel.id Company&#8221; Balance Sheet 2019<\/figcaption><\/figure>\n<p style=\"text-align: justify;\"><span style=\"font-family: 'comic sans ms', sans-serif; font-size: 12pt;\">Let&#8217;s start discussing one by one the ratios of these:<\/span><\/p>\n<p style=\"text-align: justify;\"><span style=\"font-family: 'comic sans ms', sans-serif; font-size: 12pt;\"><em>if there are any questions, suggestions or suggestions, please submit through the comments field at the bottom of this article<\/em><\/span><\/p>\n<h2 style=\"text-align: justify;\"><span style=\"font-size: 14pt; color: #0000ff;\"><strong style=\"font-family: 'comic sans ms', sans-serif;\">A. Liquidity Ratios<\/strong><\/span><\/h2>\n<h3 style=\"text-align: justify;\"><span style=\"color: #008000;\"><strong style=\"font-family: 'comic sans ms', sans-serif; font-size: 12pt;\">1. Current Ratio<\/strong><\/span><\/h3>\n<p style=\"text-align: justify;\"><span style=\"font-family: 'comic sans ms', sans-serif; font-size: 12pt;\"><em>Current ratio <\/em>is a ratio to measure a company&#8217;s ability to meet its short-term obligations.<\/span><\/p>\n<p style=\"text-align: justify;\"><span style=\"font-family: 'comic sans ms', sans-serif; font-size: 12pt;\">The formula is as follows:<\/span><\/p>\n<p style=\"text-align: justify;\"><span style=\"font-family: 'comic sans ms', sans-serif; font-size: 12pt;\"><em> <img loading=\"lazy\" decoding=\"async\" class=\"aligncenter wp-image-2390\" src=\"https:\/\/danieel.id\/wp-content\/uploads\/2021\/02\/current_ratio.png\" alt=\"current_ratio\" width=\"500\" height=\"86\" srcset=\"https:\/\/danieel.id\/wp-content\/uploads\/2021\/02\/current_ratio.png 720w, https:\/\/danieel.id\/wp-content\/uploads\/2021\/02\/current_ratio-300x52.png 300w, https:\/\/danieel.id\/wp-content\/uploads\/2021\/02\/current_ratio-696x120.png 696w\" sizes=\"auto, (max-width: 500px) 100vw, 500px\" \/><\/em><\/span><\/p>\n<p style=\"text-align: justify;\"><span style=\"font-family: 'comic sans ms', sans-serif; font-size: 12pt;\">From the Balance Sheet &#8220;danieel.id Company&#8221;, the Current Ratio of this company in 2019 is : $ 2,487 \/ $985 = 2.53<\/span><\/p>\n<p style=\"text-align: justify;\"><span style=\"font-family: 'comic sans ms', sans-serif; font-size: 12pt;\">Current Ratio of more than 1 means the Company&#8217;s Current Assets are sufficient to meet its short-term liabilities<\/span><\/p>\n<h3 style=\"text-align: justify;\"><span style=\"color: #008000;\"><strong style=\"font-family: 'comic sans ms', sans-serif; font-size: 12pt;\">2. Quick Ratio<\/strong><\/span><\/h3>\n<p style=\"text-align: justify;\"><span style=\"font-family: 'comic sans ms', sans-serif; font-size: 12pt;\"><em>Quick Ratio <\/em>or also called <em>acid-test ratio, <\/em>almost the same as the current ratio, except in this ratio, inventory values are excluded from the calculation.<\/span><\/p>\n<p style=\"text-align: justify;\"><span style=\"font-family: 'comic sans ms', sans-serif; font-size: 12pt;\">Inventory is excluded from the calculation of this ratio due to its low liquidity, this is caused by:<\/span><\/p>\n<p style=\"text-align: justify;\"><span style=\"font-family: 'comic sans ms', sans-serif; font-size: 12pt;\">Some types of inventory are semi-finished items (work in progress) that are not easy to sell.<\/span><\/p>\n<p style=\"text-align: justify;\"><span style=\"font-family: 'comic sans ms', sans-serif; font-size: 12pt;\">Some inventory (finish good material), usually sold on credit, so it does not immediately become cash.<\/span><\/p>\n<p style=\"text-align: justify;\"><span style=\"font-family: 'comic sans ms', sans-serif; font-size: 12pt;\">The Quick Ratio formula is as follows:<\/span><\/p>\n<p style=\"text-align: justify;\"><span style=\"font-family: 'comic sans ms', sans-serif; font-size: 12pt;\"><em> <img loading=\"lazy\" decoding=\"async\" class=\"aligncenter wp-image-2391\" src=\"https:\/\/danieel.id\/wp-content\/uploads\/2021\/02\/quick_ratio.png\" alt=\"quick ratio\" width=\"500\" height=\"77\" srcset=\"https:\/\/danieel.id\/wp-content\/uploads\/2021\/02\/quick_ratio.png 804w, https:\/\/danieel.id\/wp-content\/uploads\/2021\/02\/quick_ratio-300x46.png 300w, https:\/\/danieel.id\/wp-content\/uploads\/2021\/02\/quick_ratio-768x118.png 768w, https:\/\/danieel.id\/wp-content\/uploads\/2021\/02\/quick_ratio-696x107.png 696w\" sizes=\"auto, (max-width: 500px) 100vw, 500px\" \/><\/em><\/span><\/p>\n<p style=\"text-align: justify;\"><span style=\"font-family: 'comic sans ms', sans-serif; font-size: 12pt;\">From the Balance Sheet &#8220;danieel.id Company&#8221;, the Current Ratio of this company in 2019 is: ($2,487-$560) \/ $985 = 1.96<\/span><\/p>\n<p>&nbsp;<\/p>\n<p style=\"text-align: justify;\"><span style=\"font-family: 'comic sans ms', sans-serif; font-size: 12pt; color: #008000;\"><strong>Summary Liquidity Ratios<\/strong><\/span><\/p>\n<p style=\"text-align: justify;\"><span style=\"font-family: 'comic sans ms', sans-serif; font-size: 12pt;\">The greater the current ratio and quick ratio indicate the better the company&#8217;s liqudity.<\/span><\/p>\n<p style=\"text-align: justify;\"><span style=\"font-family: 'comic sans ms', sans-serif; font-size: 12pt;\">But of course this value has an optimum point, because for companies hoarding too much cash is also not good in terms of productivity and return on assets, because the company loses the opportunity (potential loss) to rotate the money in the company&#8217;s machine to make more profit.<\/span><\/p>\n<p style=\"text-align: justify;\"><span style=\"font-family: 'comic sans ms', sans-serif; font-size: 12pt;\"><em>Liquidity ratios <\/em>also vary ideally depending on the size of the Company, the level of volatility of its business and how it accesses short-term financing (such as short-term credit from banks).<\/span><\/p>\n<p style=\"text-align: justify;\"><span style=\"font-family: 'comic sans ms', sans-serif; font-size: 12pt;\">To further assess whether the company&#8217;s liquidity ratio ratio is good enough or not, let&#8217;s compare it time-series with the previous year&#8217;s performance and the average liquidity ratios of similar industries in the reporting year (2019).<\/span><\/p>\n<figure id=\"attachment_2379\" aria-describedby=\"caption-attachment-2379\" style=\"width: 650px\" class=\"wp-caption aligncenter\"><img loading=\"lazy\" decoding=\"async\" class=\"wp-image-2379\" src=\"https:\/\/danieel.id\/wp-content\/uploads\/2021\/02\/liquidity_ratio-1024x278.png\" alt=\"Liquidity Ratios\" width=\"650\" height=\"177\" srcset=\"https:\/\/danieel.id\/wp-content\/uploads\/2021\/02\/liquidity_ratio-1024x278.png 1024w, https:\/\/danieel.id\/wp-content\/uploads\/2021\/02\/liquidity_ratio-300x82.png 300w, https:\/\/danieel.id\/wp-content\/uploads\/2021\/02\/liquidity_ratio-768x209.png 768w, https:\/\/danieel.id\/wp-content\/uploads\/2021\/02\/liquidity_ratio-1536x418.png 1536w, https:\/\/danieel.id\/wp-content\/uploads\/2021\/02\/liquidity_ratio-696x189.png 696w, https:\/\/danieel.id\/wp-content\/uploads\/2021\/02\/liquidity_ratio-1392x378.png 1392w, https:\/\/danieel.id\/wp-content\/uploads\/2021\/02\/liquidity_ratio-1068x290.png 1068w, https:\/\/danieel.id\/wp-content\/uploads\/2021\/02\/liquidity_ratio.png 1758w\" sizes=\"auto, (max-width: 650px) 100vw, 650px\" \/><figcaption id=\"caption-attachment-2379\" class=\"wp-caption-text\">&#8220;danieel.id Company&#8221; Liquidity Ratios 2019<\/figcaption><\/figure>\n<p style=\"text-align: justify;\"><span style=\"font-family: 'comic sans ms', sans-serif; font-size: 12pt;\">From the table above we can see that when compared to the previous year, both the current ratio and the quick ratio &#8220;danieel.id Company&#8221; increased nilanya, and also higher when compared to the average liquidity ratio of similar industries.<\/span><\/p>\n<p style=\"text-align: justify;\"><span style=\"font-family: 'comic sans ms', sans-serif; font-size: 12pt;\">This shows that in terms of liquidity, the Company can be said to be healthy and has more than enough cash to meet its short-term obligation obligations.<\/span><\/p>\n<p style=\"text-align: justify;\"><span style=\"font-family: 'comic sans ms', sans-serif; font-size: 12pt;\">Now let&#8217;s continue discussing Activity Ratios on the following page (page 2)<\/span><\/p>\n<p><!--nextpage--><\/p>\n<h2><span style=\"color: #0000ff; font-size: 14pt;\"><strong style=\"font-family: 'comic sans ms', sans-serif; text-align: justify;\">B. Activity Ratios<\/strong><\/span><\/h2>\n<h3><span style=\"color: #008000;\"><strong style=\"font-family: 'comic sans ms', sans-serif; font-size: 12pt; text-align: justify;\">1. Inventory Turnover<\/strong><\/span><\/h3>\n<p style=\"text-align: justify;\"><span style=\"font-family: 'comic sans ms', sans-serif; font-size: 12pt;\"><em>Inventory turnover<\/em> is a ratio that indicates the turnover rate of inventory in a given period (e.g. one year).\u00a0<\/span><\/p>\n<p style=\"text-align: justify;\"><span style=\"font-family: 'comic sans ms', sans-serif; font-size: 12pt;\">This ratio is obtained by dividing the value of Cost of goods sold (COGS) with inventory.<\/span><\/p>\n<p><img loading=\"lazy\" decoding=\"async\" class=\"aligncenter wp-image-2392\" src=\"https:\/\/danieel.id\/wp-content\/uploads\/2021\/02\/inventory_turnover-300x49.png\" alt=\"inventory turnover\" width=\"500\" height=\"81\" srcset=\"https:\/\/danieel.id\/wp-content\/uploads\/2021\/02\/inventory_turnover-300x49.png 300w, https:\/\/danieel.id\/wp-content\/uploads\/2021\/02\/inventory_turnover-696x113.png 696w, https:\/\/danieel.id\/wp-content\/uploads\/2021\/02\/inventory_turnover.png 766w\" sizes=\"auto, (max-width: 500px) 100vw, 500px\" \/><\/p>\n<p style=\"text-align: justify;\"><span style=\"font-family: 'comic sans ms', sans-serif; font-size: 12pt;\">From the Income Statement and Balance Sheet &#8220;danieel.id Company&#8221;, in 2019, we can calculate its Inventory Turnover = $4,355\/$560 = 7.74<\/span><\/p>\n<p style=\"text-align: justify;\"><span style=\"font-family: 'comic sans ms', sans-serif; font-size: 12pt;\">This means that in one year, there are 7.7 times inventory turnover in this Company.<\/span><\/p>\n<p style=\"text-align: justify;\"><span style=\"font-family: 'comic sans ms', sans-serif; font-size: 12pt;\">Another commonly used approach to measuring this activity is the average age of inventory, which is to divide the number of days in a year (365) by the ratio of inventory turnover.<\/span><\/p>\n<p style=\"text-align: justify;\"><span style=\"font-family: 'comic sans ms', sans-serif; font-size: 12pt;\">In case &#8220;danieel.id Company&#8221; this means 365\/7.74 = 47.2 days.<\/span><\/p>\n<p style=\"text-align: justify;\"><span style=\"font-family: 'comic sans ms', sans-serif; font-size: 12pt;\">This means that the average inventory at the Company lasts 47 days before it is finally sold.<\/span><\/p>\n<p style=\"text-align: justify;\"><span style=\"font-family: 'comic sans ms', sans-serif; font-size: 12pt;\">The ideal range or value for this number certainly varies according to the type of business and its product. Stores or food \/ beverage companies for example whose products are relatively faster damaged so that they must be sold quickly, will have a higher Inventory Turnover value than for example automotive companies.<\/span><\/p>\n<h3 style=\"text-align: justify;\"><span style=\"color: #008000;\"><strong style=\"font-family: 'comic sans ms', sans-serif; font-size: 12pt;\">2. Average Collection Period<\/strong><\/span><\/h3>\n<p style=\"text-align: justify;\"><span style=\"font-family: 'comic sans ms', sans-serif; font-size: 12pt;\"><em>Average Collection Period <\/em>is a ratio that indicates the average life of a receivable account in a Company.<\/span><\/p>\n<p style=\"text-align: justify;\"><span style=\"font-family: 'comic sans ms', sans-serif; font-size: 12pt;\">The formula of this ratio is as follows:<\/span><\/p>\n<p><img loading=\"lazy\" decoding=\"async\" class=\"aligncenter wp-image-2393\" src=\"https:\/\/danieel.id\/wp-content\/uploads\/2021\/02\/average_collection_period-300x31.png\" alt=\"average_collection_period\" width=\"550\" height=\"57\" srcset=\"https:\/\/danieel.id\/wp-content\/uploads\/2021\/02\/average_collection_period-300x31.png 300w, https:\/\/danieel.id\/wp-content\/uploads\/2021\/02\/average_collection_period-1024x105.png 1024w, https:\/\/danieel.id\/wp-content\/uploads\/2021\/02\/average_collection_period-768x79.png 768w, https:\/\/danieel.id\/wp-content\/uploads\/2021\/02\/average_collection_period-696x72.png 696w, https:\/\/danieel.id\/wp-content\/uploads\/2021\/02\/average_collection_period-1068x110.png 1068w, https:\/\/danieel.id\/wp-content\/uploads\/2021\/02\/average_collection_period.png 1206w\" sizes=\"auto, (max-width: 550px) 100vw, 550px\" \/><\/p>\n<p style=\"text-align: justify;\"><span style=\"font-family: 'comic sans ms', sans-serif; font-size: 12pt;\">We apply this formula to &#8220;danieel.id Company, then obtained the Average Collection Period of this Company in 2019 is $ 920 \/ ($6,115\/365) = 54.91 days.<\/span><\/p>\n<p style=\"text-align: justify;\"><span style=\"font-family: 'comic sans ms', sans-serif; font-size: 12pt;\">This figure means that on average it takes 54.9 days for a company &#8220;danieel.id Company&#8221; to collect its receivables.<\/span><\/p>\n<p style=\"text-align: justify;\"><span style=\"font-family: 'comic sans ms', sans-serif; font-size: 12pt;\">This figure is strongly related to the credit-term policy (or term of payment given to the customer) applied by the Company, If let&#8217;s say most customers are given a term of payment of 60 days, then the average collection days of 54.9 days is a pretty good number, because it means the average customer pays faster than due-date debt.<\/span><\/p>\n<p style=\"text-align: justify;\"><span style=\"font-family: 'comic sans ms', sans-serif; font-size: 12pt;\">However, if most of the terms of payment given by this Company to its customers are 30 days, then the number 54.9 days is a poor collection performance figure.<\/span><\/p>\n<p style=\"text-align: justify;\"><span style=\"font-family: 'comic sans ms', sans-serif; font-size: 12pt;\">(Below we will compare also in time-series and similar industry average numbers)<\/span><\/p>\n<p style=\"text-align: justify;\"><span style=\"font-family: 'comic sans ms', sans-serif; font-size: 12pt;\">The <em>term of payment<\/em> is part of the Company&#8217;s sales strategy, and is very dependent also on the competition situation in the market, on the one hand the Company must provide attractive offers to customers (both in terms of selling price and term of payment), while other credit sales can also be seen as a kind of providing interest-free debt to customers. These two sides should be able to be balanced and managed properly.<\/span><\/p>\n<p style=\"text-align: justify;\"><span style=\"font-family: 'comic sans ms', sans-serif; font-size: 12pt;\">Note: sales referred to in the Average Collection Period formula can be in the form of total sales or only credit-sales. The meaning will be slightly different.<\/span><\/p>\n<p style=\"text-align: justify;\"><span style=\"font-family: 'comic sans ms', sans-serif; font-size: 12pt;\">If the total sales (cash &amp; credit sales) will be obtained the average value of collection on the sales of a company as a whole, the more sales are made in cash, the average collection period value will decrease.<\/span><\/p>\n<p style=\"text-align: justify;\"><span style=\"font-family: 'comic sans ms', sans-serif; font-size: 12pt;\">This is easier to do to compare the value of several similar companies, because in the company&#8217;s financial statements (in the Income Statement section), Sales Revenue is not distinguished whether it comes from credit sales or cash sales.<\/span><\/p>\n<p style=\"text-align: justify;\"><span style=\"font-family: 'comic sans ms', sans-serif; font-size: 12pt;\">However, the figures obtained in this way cannot be used specifically to assess the performance of a Company in collecting its receivable accounts, and become less relevant when compared to the duration of the term of payment provided by the Company for the sale of its credits.<\/span><\/p>\n<p style=\"text-align: justify;\"><span style=\"font-family: 'comic sans ms', sans-serif; font-size: 12pt;\">If necessary to assess the performance of a company in collecting its receivables, the value of sales used is credit sales.\u00a0<\/span><\/p>\n<h3 style=\"text-align: justify;\"><span style=\"color: #008000;\"><strong style=\"font-family: 'comic sans ms', sans-serif; font-size: 12pt;\">3. Average Payment Period<\/strong><\/span><\/h3>\n<p style=\"text-align: justify;\"><span style=\"font-family: 'comic sans ms', sans-serif; font-size: 12pt;\"><em>Average Payment Period <\/em>is a ratio that indicates the average life of debt to vendors (payable accounts) in a Company.<\/span><\/p>\n<p style=\"text-align: justify;\"><span style=\"font-family: 'comic sans ms', sans-serif; font-size: 12pt;\">The average payment period formula is as follows:<\/span><\/p>\n<p><img loading=\"lazy\" decoding=\"async\" class=\"aligncenter wp-image-2394\" src=\"https:\/\/danieel.id\/wp-content\/uploads\/2021\/02\/average_payment_period-300x31.png\" alt=\"average_payment_period\" width=\"550\" height=\"57\" srcset=\"https:\/\/danieel.id\/wp-content\/uploads\/2021\/02\/average_payment_period-300x31.png 300w, https:\/\/danieel.id\/wp-content\/uploads\/2021\/02\/average_payment_period-1024x105.png 1024w, https:\/\/danieel.id\/wp-content\/uploads\/2021\/02\/average_payment_period-768x79.png 768w, https:\/\/danieel.id\/wp-content\/uploads\/2021\/02\/average_payment_period-696x72.png 696w, https:\/\/danieel.id\/wp-content\/uploads\/2021\/02\/average_payment_period-1068x110.png 1068w, https:\/\/danieel.id\/wp-content\/uploads\/2021\/02\/average_payment_period.png 1206w\" sizes=\"auto, (max-width: 550px) 100vw, 550px\" \/><\/p>\n<p style=\"text-align: justify;\"><span style=\"font-family: 'comic sans ms', sans-serif; font-size: 12pt;\">It is rather difficult to calculate this value directly from the Financial Statements of a Company, because the annual purchase value is not listed in the report. Generally the annual purchase value approach is a certain percentage of the Cost of goods sold (COGS).<\/span><\/p>\n<p style=\"text-align: justify;\"><span style=\"font-family: 'comic sans ms', sans-serif; font-size: 12pt;\">For the case &#8220;danieel.id Company&#8221; let&#8217;s assume the annual purchase is 65% of the COGS value, then in 2019 the value of the Company&#8217;s Average Payment Period is : $ 453 \/ ((0.65 x $ 4,335)\/365)) = 41.6 days.<\/span><\/p>\n<p style=\"text-align: justify;\"><span style=\"font-family: 'comic sans ms', sans-serif; font-size: 12pt;\">Just like the <em>Average Collection Period<\/em>, this figure will be more meaningful when compared to the credit-term given by the Supplier to this company.<\/span><\/p>\n<p style=\"text-align: justify;\"><span style=\"font-family: 'comic sans ms', sans-serif; font-size: 12pt;\">If the average supplier gives a credit-term (term of payment) for 60 days, then the figure of 41.6 days is good, because the Company pays faster, and vice versa if the average credit-term given by the supplier is 30 days, then the credit-rating of this Company will be bad, because it pays the bill too long.<\/span><\/p>\n<p style=\"text-align: justify;\"><span style=\"font-family: 'comic sans ms', sans-serif; font-size: 12pt;\">In another point of view, in cash flow, the average payment period number can also be compared to the Average Collection Period,<\/span><\/p>\n<p style=\"text-align: justify;\"><span style=\"font-family: 'comic sans ms', sans-serif; font-size: 12pt;\">If the Average Collection Period can be viewed as a kind of giving interest-free debt to the customer, then the Average Collection Period is the opposite, it can be viewed as a kind of debt given by the supplier without interest.<\/span><\/p>\n<p style=\"text-align: justify;\"><span style=\"font-family: 'comic sans ms', sans-serif; font-size: 12pt;\">In the case &#8220;danieel.id Company&#8221; in 2019, the Average Payment Period was 41.60 days, smaller than its Average Collection Period (54.91 days).<\/span><\/p>\n<p style=\"text-align: justify;\"><span style=\"font-family: 'comic sans ms', sans-serif; font-size: 12pt;\">If viewed from this point of view, in cash flow, the Average Payment Period is not good, because the company pays debt (payable account) faster than the company&#8217;s ability to collect its receivable account.<\/span><\/p>\n<p style=\"text-align: justify;\"><span style=\"font-family: 'comic sans ms', sans-serif; font-size: 12pt;\">(Below we will compare also in time-series and similar industry average numbers)<\/span><\/p>\n<h3 style=\"text-align: justify;\"><span style=\"color: #008000;\"><strong style=\"font-family: 'comic sans ms', sans-serif; font-size: 12pt;\">4. Total Asset Turnover<\/strong><\/span><\/h3>\n<p style=\"text-align: justify;\"><span style=\"font-family: 'comic sans ms', sans-serif; font-size: 12pt;\"><em>Total Asset Turnover is <\/em>a ratio that indicates the effectiveness of a company in using its asset assets to generate sales.<\/span><\/p>\n<p style=\"text-align: justify;\"><span style=\"font-family: 'comic sans ms', sans-serif; font-size: 12pt;\">The formula is as follows:<\/span><\/p>\n<p><img loading=\"lazy\" decoding=\"async\" class=\"aligncenter wp-image-2395\" src=\"https:\/\/danieel.id\/wp-content\/uploads\/2021\/02\/total_assets_turnover-300x53.png\" alt=\"total_assets_turnover\" width=\"400\" height=\"70\" srcset=\"https:\/\/danieel.id\/wp-content\/uploads\/2021\/02\/total_assets_turnover-300x53.png 300w, https:\/\/danieel.id\/wp-content\/uploads\/2021\/02\/total_assets_turnover-696x123.png 696w, https:\/\/danieel.id\/wp-content\/uploads\/2021\/02\/total_assets_turnover.png 704w\" sizes=\"auto, (max-width: 400px) 100vw, 400px\" \/><\/p>\n<p style=\"text-align: justify;\"><span style=\"font-family: 'comic sans ms', sans-serif; font-size: 12pt;\">From the Income Statement and Balance Sheet &#8220;danieel Company&#8221;, we can calculate the Total Asset Turnover of this company in 2019 is : $ 6,115 \/ $ 11,025 = 0.55<\/span><\/p>\n<p style=\"text-align: justify;\"><span style=\"font-family: 'comic sans ms', sans-serif; font-size: 12pt;\">In general, the bigger this number means the better.<\/span><\/p>\n<p style=\"text-align: justify;\"><span style=\"font-family: 'comic sans ms', sans-serif; font-size: 12pt;\">If a company has a lot of assets, but its assets are mostly unproductive and do not support increased sales, then this ratio will tend to be smaller than similar industries.<\/span><\/p>\n<p>&nbsp;<\/p>\n<p style=\"text-align: justify;\"><span style=\"font-family: 'comic sans ms', sans-serif; font-size: 12pt; color: #008000;\"><strong>Summary Activity Ratios<\/strong><\/span><\/p>\n<p style=\"text-align: justify;\"><span style=\"font-family: 'comic sans ms', sans-serif; font-size: 12pt;\">Here is a summary of Activity Ratios &#8220;danieel.id Company&#8221; when compared to the previous year (time-series) and similar industry averages.<\/span><\/p>\n<figure id=\"attachment_2378\" aria-describedby=\"caption-attachment-2378\" style=\"width: 650px\" class=\"wp-caption aligncenter\"><img loading=\"lazy\" decoding=\"async\" class=\"wp-image-2378\" src=\"https:\/\/danieel.id\/wp-content\/uploads\/2021\/02\/activity_ratio-300x114.png\" alt=\"activity ratios\" width=\"650\" height=\"247\" srcset=\"https:\/\/danieel.id\/wp-content\/uploads\/2021\/02\/activity_ratio-300x114.png 300w, https:\/\/danieel.id\/wp-content\/uploads\/2021\/02\/activity_ratio-1024x389.png 1024w, https:\/\/danieel.id\/wp-content\/uploads\/2021\/02\/activity_ratio-768x292.png 768w, https:\/\/danieel.id\/wp-content\/uploads\/2021\/02\/activity_ratio-1536x584.png 1536w, https:\/\/danieel.id\/wp-content\/uploads\/2021\/02\/activity_ratio-2048x779.png 2048w, https:\/\/danieel.id\/wp-content\/uploads\/2021\/02\/activity_ratio-696x265.png 696w, https:\/\/danieel.id\/wp-content\/uploads\/2021\/02\/activity_ratio-1392x529.png 1392w, https:\/\/danieel.id\/wp-content\/uploads\/2021\/02\/activity_ratio-1068x406.png 1068w, https:\/\/danieel.id\/wp-content\/uploads\/2021\/02\/activity_ratio-1920x730.png 1920w\" sizes=\"auto, (max-width: 650px) 100vw, 650px\" \/><figcaption id=\"caption-attachment-2378\" class=\"wp-caption-text\">&#8220;danieel.id Company&#8221; activity ratios 2019<\/figcaption><\/figure>\n<p style=\"text-align: justify;\"><span style=\"font-family: 'comic sans ms', sans-serif; font-size: 12pt;\">We can see in the table above, for Inventory Turnover, the performance of &#8220;danieel.id Company&#8221; 2019 increased compared to the previous year, and the ratio (7.74) is better than the average of similar industries in 2019 (6.6).<\/span><\/p>\n<p style=\"text-align: justify;\"><span style=\"font-family: 'comic sans ms', sans-serif; font-size: 12pt;\">For the Average Collection Period, in 2019 the number increased to 54.91 days, compared to the previous year&#8217;s 47.59 days,<\/span><\/p>\n<p style=\"text-align: justify;\"><span style=\"font-family: 'comic sans ms', sans-serif; font-size: 12pt;\">This is certainly a less good indication, indicating that the Company in the reporting year (2019) took longer to collect its receivable account.<\/span><\/p>\n<p style=\"text-align: justify;\"><span style=\"font-family: 'comic sans ms', sans-serif; font-size: 12pt;\">This could be because some customers are late in making payments, or it could be because the Company deliberately relaxes its term of payment policy to attract customers amid tight competition.<\/span><\/p>\n<p style=\"text-align: justify;\"><span style=\"font-family: 'comic sans ms', sans-serif; font-size: 12pt;\">When compared to the equivalent Industry average (44.3 days), the Average Collection Period ratio in 2019 is also higher, this can be a warning for this Company to improve the performance of its receivable collection.<\/span><\/p>\n<p style=\"text-align: justify;\"><span style=\"font-family: 'comic sans ms', sans-serif; font-size: 12pt;\">For the Average Payment Period, in the table above we see the number decreased compared to the previous year, (from 51.31 days in 2018 to 41.60 days in 2019), this can generally be said to be good in terms of credit-rating, because the Company in the reporting year made faster payments to suppliers. This figure is also much lower than the average of similar industries (66.5 days).<\/span><\/p>\n<p style=\"text-align: justify;\"><span style=\"font-family: 'comic sans ms', sans-serif; font-size: 12pt;\">But as we discussed earlier, paying suppliers too quickly (compared to the Average Collection Period) can burden the Company&#8217;s cash flow.<\/span><\/p>\n<p style=\"text-align: justify;\"><span style=\"font-family: 'comic sans ms', sans-serif; font-size: 12pt;\">For Total Asset Turnover, the Company&#8217;s Performance in 2019 decreased slightly compared to the previous year (0.55 in 2019 compared to 0.57 in 2018), and this ratio is also lower than the average of similar industries (0.75).\u00a0<\/span><\/p>\n<p style=\"text-align: justify;\"><span style=\"font-family: 'comic sans ms', sans-serif; font-size: 12pt;\">This shows that the Company has not been effective enough to use its asset assets in generating sales.<\/span><\/p>\n<p style=\"text-align: justify;\"><span style=\"font-family: 'comic sans ms', sans-serif; font-size: 12pt;\">It could be because some of the Company&#8217;s assets are unproductive assets, or assets that do not play a role either directly or indirectly to increase sales.<\/span><\/p>\n<p style=\"text-align: justify;\"><span style=\"font-family: 'comic sans ms', sans-serif; font-size: 12pt;\">The low Total Asset Turnover ratio can also be caused, among others, because the production capacity of the factory has not been maximized.<\/span><\/p>\n<p style=\"text-align: justify;\"><span style=\"font-family: 'comic sans ms', sans-serif; font-size: 12pt;\">(This is for example due to miscalculation, building a factory with a capacity greater than demand, or sales that are not as large as originally expected)<\/span><\/p>\n<p style=\"text-align: justify;\"><span style=\"font-family: 'comic sans ms', sans-serif; font-size: 12pt;\">Or it could be because the new company is making a new investment (building a new factory or making new machinery), where the factory or new machine is still in the construction stage, so it has not played a role in producing products to increase sales.<\/span><\/p>\n<p style=\"text-align: justify;\"><span style=\"font-family: 'comic sans ms', sans-serif; font-size: 12pt;\">This Total Asset Turnover Ratio can be a warning for the Company&#8217;s management to be more effective and efficient in using the Company&#8217;s exploit assets to generate sales, careful in choosing the right new investment (which provides the best return), including if necessary considering divesting (selling) assets that are less productive.<\/span><\/p>\n<p style=\"text-align: justify;\"><span style=\"font-family: 'comic sans ms', sans-serif; font-size: 12pt;\">Next let&#8217;s discuss Debt Ratios on page 3<\/span><\/p>\n<p><!--nextpage--><\/p>\n<h2><span style=\"font-family: 'comic sans ms', sans-serif; font-size: 14pt; color: #0000ff;\"><strong>C. Debt Ratios<\/strong><\/span><\/h2>\n<h3><span style=\"color: #008000;\"><strong style=\"font-family: 'comic sans ms', sans-serif; font-size: 12pt; text-align: justify;\">1. Debt to Equity Ratio<\/strong><\/span><\/h3>\n<p style=\"text-align: justify;\"><span style=\"font-family: 'comic sans ms', sans-serif; font-size: 12pt;\"><em>Debt To Equity<\/em> (DER) <em>ratio<\/em> measures the comparison between a Company&#8217;s Total Debt compared to its Equity.<\/span><\/p>\n<p style=\"text-align: justify;\"><span style=\"font-family: 'comic sans ms', sans-serif; font-size: 12pt;\">The debt to equity ratio is as follows:<\/span><\/p>\n<p><img loading=\"lazy\" decoding=\"async\" class=\"aligncenter wp-image-2380\" src=\"https:\/\/danieel.id\/wp-content\/uploads\/2021\/02\/Debt_to_equity_ratio-300x41.png\" alt=\"Debt_to_equity_ratio\" width=\"500\" height=\"69\" srcset=\"https:\/\/danieel.id\/wp-content\/uploads\/2021\/02\/Debt_to_equity_ratio-300x41.png 300w, https:\/\/danieel.id\/wp-content\/uploads\/2021\/02\/Debt_to_equity_ratio-768x106.png 768w, https:\/\/danieel.id\/wp-content\/uploads\/2021\/02\/Debt_to_equity_ratio-696x96.png 696w, https:\/\/danieel.id\/wp-content\/uploads\/2021\/02\/Debt_to_equity_ratio.png 1000w\" sizes=\"auto, (max-width: 500px) 100vw, 500px\" \/><\/p>\n<p style=\"text-align: justify;\"><span style=\"font-family: 'comic sans ms', sans-serif; font-size: 12pt;\">From the Balance Sheet &#8220;danieel.id Company&#8221;, we can calculate the company&#8217;s DER in 2019 is $ 3,455 \/ $ 7,570 = 45.6%<\/span><\/p>\n<p style=\"text-align: justify;\"><span style=\"font-family: 'comic sans ms', sans-serif; font-size: 12pt;\">Debt to equity ratio measures the level of debt use by a company compared to its own capital (shareholders&#8217; equity).<\/span><\/p>\n<p style=\"text-align: justify;\"><span style=\"font-family: 'comic sans ms', sans-serif; font-size: 12pt;\">It also shows the company&#8217;s ability to cover all its debts with shareholders&#8217; equity, if at any time the company goes into bankruptcy.<\/span><\/p>\n<p style=\"text-align: justify;\"><span style=\"font-family: 'comic sans ms', sans-serif; font-size: 12pt;\">Debt to equity ratio is important for evaluating a company&#8217;s financial leverage (financial leveraging is the use of debt to acquire additional assets). The larger this ratio indicates the greater the Company is using other people&#8217;s money (debt) to make a profit.<\/span><\/p>\n<p style=\"text-align: justify;\"><span style=\"font-family: 'comic sans ms', sans-serif; font-size: 12pt;\">Of course, the greater the debt means the greater the risk borne by the Company (if then for example the profit generated from the debt is less than the cost of its debt (interest).<\/span><\/p>\n<p style=\"text-align: justify;\"><span style=\"font-family: 'comic sans ms', sans-serif; font-size: 12pt;\">But behind the great risk also contained a large potential return as well (as we often hear in the business world &#8220;high risk high return&#8221;).<\/span><\/p>\n<p style=\"text-align: justify;\"><span style=\"font-family: 'comic sans ms', sans-serif; font-size: 12pt;\">Of course there are optimum and maximum numbers of this ratio. Ratio 1 is often viewed as the optimum ratio where it means liabilities = equity.<\/span><\/p>\n<p style=\"text-align: justify;\"><span style=\"font-family: 'comic sans ms', sans-serif; font-size: 12pt;\">For maximum ratios vary depending on the type and size of the Company, for most companies the maximum ratio is 1.5 &#8211; 2.<\/span><\/p>\n<p style=\"text-align: justify;\"><span style=\"font-family: 'comic sans ms', sans-serif; font-size: 12pt;\">For creditors\/ lenders, debt to equity is an important ratio for evaluation, whether the company can be considered for additional debt.<\/span><\/p>\n<p style=\"text-align: justify;\"><span style=\"font-family: 'comic sans ms', sans-serif; font-size: 12pt;\">For investors, the debt to equity of a company that is too large (or an increasing trend compared to the previous year) indicates increased risk.<\/span><\/p>\n<p style=\"text-align: justify;\"><span style=\"font-family: 'comic sans ms', sans-serif; font-size: 12pt;\">Conversely, debt to equity that is too low can mean that the company has not used its financial leverage optimally to increase profits.<\/span><\/p>\n<p>&nbsp;<\/p>\n<h3 style=\"text-align: justify;\"><span style=\"color: #008000;\"><strong style=\"font-family: 'comic sans ms', sans-serif; font-size: 12pt;\">2. Times Interest Earned Ratio (Interest Coverage Ratio)<\/strong><\/span><\/h3>\n<p style=\"text-align: justify;\"><span style=\"font-family: 'comic sans ms', sans-serif; font-size: 12pt;\"><em>Times Interest Earned Ratio <\/em>or often called<em> Interest Coverage Ratio <\/em>is a ratio that measures a company&#8217;s ability to pay interest costs from its loans.<\/span><\/p>\n<p style=\"text-align: justify;\"><span style=\"font-family: 'comic sans ms', sans-serif; font-size: 12pt;\">The Formula Times Interest Earned Ratio is as follows:<\/span><\/p>\n<p><img loading=\"lazy\" decoding=\"async\" class=\"aligncenter wp-image-2381\" src=\"https:\/\/danieel.id\/wp-content\/uploads\/2021\/02\/Interest_coverage_ratio-300x34.png\" alt=\"Interest_coverage_ratio\" width=\"550\" height=\"63\" srcset=\"https:\/\/danieel.id\/wp-content\/uploads\/2021\/02\/Interest_coverage_ratio-300x34.png 300w, https:\/\/danieel.id\/wp-content\/uploads\/2021\/02\/Interest_coverage_ratio-1024x117.png 1024w, https:\/\/danieel.id\/wp-content\/uploads\/2021\/02\/Interest_coverage_ratio-768x88.png 768w, https:\/\/danieel.id\/wp-content\/uploads\/2021\/02\/Interest_coverage_ratio-696x80.png 696w, https:\/\/danieel.id\/wp-content\/uploads\/2021\/02\/Interest_coverage_ratio-1068x122.png 1068w, https:\/\/danieel.id\/wp-content\/uploads\/2021\/02\/Interest_coverage_ratio.png 1208w\" sizes=\"auto, (max-width: 550px) 100vw, 550px\" \/><\/p>\n<p style=\"text-align: justify;\"><span style=\"font-family: 'comic sans ms', sans-serif; font-size: 12pt;\">From the Income Statement &#8220;danieel.id Company&#8221;, we can calculate the Times Interest Earned Ratio of this company in 2019 is : $ 935 \/ $ 199 = 4.7<\/span><\/p>\n<p style=\"text-align: justify;\"><span style=\"font-family: 'comic sans ms', sans-serif; font-size: 12pt;\">The greater this ratio means the better the Company&#8217;s ability to pay its interest obligations, and vice versa.<\/span><\/p>\n<p style=\"text-align: justify;\"><span style=\"font-family: 'comic sans ms', sans-serif; font-size: 12pt;\">This ratio is very important for creditors or lenders in assessing the feasibility of a Company getting additional debt.<\/span><\/p>\n<p style=\"text-align: justify;\"><span style=\"font-family: 'comic sans ms', sans-serif; font-size: 12pt;\">In extreme situations, where the ratio is too small (e.g. 1), the Company is caught up in a situation called a &#8220;Zombie Company&#8221;, where the Company generates only enough profit to pay interest on its debts.<\/span><\/p>\n<p style=\"text-align: justify;\"><span style=\"font-family: 'comic sans ms', sans-serif; font-size: 12pt;\">(or if the ratio is below 1, it means that the profit generated is even less than the interest costs that the Company has to bear).<\/span><\/p>\n<p>&nbsp;<\/p>\n<h3 style=\"text-align: justify;\"><span style=\"font-family: 'comic sans ms', sans-serif; font-size: 12pt; color: #008000;\"><strong>3. Fixed Payment Coverage Ratio<\/strong><\/span><\/h3>\n<p style=\"text-align: justify;\"><span style=\"font-family: 'comic sans ms', sans-serif; font-size: 12pt;\"><em>Fixed Payment Coverage Ratio<\/em> is a ratio that measures a Company&#8217;s ability to pay all of its fixed obligations, such as interest expenses, including principal, rental costs, and preferred stock dividends.<\/span><\/p>\n<p style=\"text-align: justify;\"><span style=\"font-family: 'comic sans ms', sans-serif; font-size: 12pt;\">The Fixed Payment Coverage Ratio formula is as follows:<\/span><\/p>\n<p><img loading=\"lazy\" decoding=\"async\" class=\"aligncenter wp-image-2382\" src=\"https:\/\/danieel.id\/wp-content\/uploads\/2021\/02\/fixed_payment_coverage_ratio-300x25.png\" alt=\"fixed_payment_coverage_ratio\" width=\"550\" height=\"46\" srcset=\"https:\/\/danieel.id\/wp-content\/uploads\/2021\/02\/fixed_payment_coverage_ratio-300x25.png 300w, https:\/\/danieel.id\/wp-content\/uploads\/2021\/02\/fixed_payment_coverage_ratio-1024x85.png 1024w, https:\/\/danieel.id\/wp-content\/uploads\/2021\/02\/fixed_payment_coverage_ratio-768x64.png 768w, https:\/\/danieel.id\/wp-content\/uploads\/2021\/02\/fixed_payment_coverage_ratio-1536x127.png 1536w, https:\/\/danieel.id\/wp-content\/uploads\/2021\/02\/fixed_payment_coverage_ratio-696x58.png 696w, https:\/\/danieel.id\/wp-content\/uploads\/2021\/02\/fixed_payment_coverage_ratio-1392x115.png 1392w, https:\/\/danieel.id\/wp-content\/uploads\/2021\/02\/fixed_payment_coverage_ratio-1068x89.png 1068w, https:\/\/danieel.id\/wp-content\/uploads\/2021\/02\/fixed_payment_coverage_ratio.png 1664w\" sizes=\"auto, (max-width: 550px) 100vw, 550px\" \/><\/p>\n<p style=\"text-align: justify;\"><span style=\"font-family: 'comic sans ms', sans-serif; font-size: 12pt;\">Note:\u00a0<\/span><span style=\"font-family: 'comic sans ms', sans-serif; font-size: 12pt;\">T is a corporate income tax that applies to the company.<\/span><\/p>\n<p style=\"text-align: justify;\"><span style=\"font-family: 'comic sans ms', sans-serif; font-size: 12pt;\">The term [1\/(1-T)] is used to readjust the principal&#8217;s after-tax value and preferred stock dividend to its before-tax value to be consistent with other parameters in this formula.<\/span><\/p>\n<p style=\"text-align: justify;\"><span style=\"font-family: 'comic sans ms', sans-serif; font-size: 12pt;\">From the financial statements &#8220;danieel.di Company), we can calculate the Fixed Payment Coverage Ratio is: ($935 + $68) \/ {($199 + $68) + (($36 + $30) x [1\/1-0.25])} = 2.83<\/span><\/p>\n<p style=\"text-align: justify;\"><span style=\"font-family: 'comic sans ms', sans-serif; font-size: 12pt;\">This ratio of 2.83 indicates that the Company&#8217;s profits are almost three times greater than the amount of its fixed liability obligations. This number is safe and more than enough.<\/span><\/p>\n<p style=\"text-align: justify;\"><span style=\"font-family: 'comic sans ms', sans-serif; font-size: 12pt;\">Like the Interest Coverage Ratio, the greater this ratio means the smaller the risk for both lenders and owners, and vice versa.<\/span><\/p>\n<p>&nbsp;<\/p>\n<p style=\"text-align: justify;\"><span style=\"font-family: 'comic sans ms', sans-serif; font-size: 12pt; color: #008000;\"><strong>Summary Debt Ratios<\/strong><\/span><\/p>\n<figure id=\"attachment_2377\" aria-describedby=\"caption-attachment-2377\" style=\"width: 650px\" class=\"wp-caption aligncenter\"><img loading=\"lazy\" decoding=\"async\" class=\"wp-image-2377\" src=\"https:\/\/danieel.id\/wp-content\/uploads\/2021\/02\/debt_ratio-300x85.png\" alt=\"Summary Debt Ratio\" width=\"650\" height=\"184\" srcset=\"https:\/\/danieel.id\/wp-content\/uploads\/2021\/02\/debt_ratio-300x85.png 300w, https:\/\/danieel.id\/wp-content\/uploads\/2021\/02\/debt_ratio-1024x291.png 1024w, https:\/\/danieel.id\/wp-content\/uploads\/2021\/02\/debt_ratio-768x218.png 768w, https:\/\/danieel.id\/wp-content\/uploads\/2021\/02\/debt_ratio-1536x436.png 1536w, https:\/\/danieel.id\/wp-content\/uploads\/2021\/02\/debt_ratio-2048x581.png 2048w, https:\/\/danieel.id\/wp-content\/uploads\/2021\/02\/debt_ratio-696x198.png 696w, https:\/\/danieel.id\/wp-content\/uploads\/2021\/02\/debt_ratio-1392x395.png 1392w, https:\/\/danieel.id\/wp-content\/uploads\/2021\/02\/debt_ratio-1068x303.png 1068w, https:\/\/danieel.id\/wp-content\/uploads\/2021\/02\/debt_ratio-1920x545.png 1920w\" sizes=\"auto, (max-width: 650px) 100vw, 650px\" \/><figcaption id=\"caption-attachment-2377\" class=\"wp-caption-text\">&#8220;danieel.id Company&#8221; Debt Ratios 2019<\/figcaption><\/figure>\n<p style=\"text-align: justify;\"><span style=\"font-family: 'comic sans ms', sans-serif; font-size: 12pt;\">From the table above we can see, in the case &#8220;danieel.id Company&#8221;:<\/span><\/p>\n<p style=\"text-align: justify;\"><span style=\"font-family: 'comic sans ms', sans-serif; font-size: 12pt;\">Debt to Equity ratio of this company in 2019 increased compared to 2018, this figure is also slightly higher than the average Debt to Equity ratio of similar industries.<\/span><\/p>\n<p style=\"text-align: justify;\"><span style=\"font-family: 'comic sans ms', sans-serif; font-size: 12pt;\">As we discussed earlier above, if viewed from a risk point of view, this can be less good, in the sense that the Company&#8217;s risk in bearing the burden of debt increases.<\/span><\/p>\n<p style=\"text-align: justify;\"><span style=\"font-family: 'comic sans ms', sans-serif; font-size: 12pt;\">However, if viewed from the point of view of financial leverage and potential growth, this means that the Company is increasing its investment, which comes in part from additional debt, in hopes of increasing returns in the future (with a note if the investment is right and the business is growing properly of course).<\/span><\/p>\n<p style=\"text-align: justify;\"><span style=\"font-family: 'comic sans ms', sans-serif; font-size: 12pt;\">And as we also discussed in the previous article (Understanding the 4 Types of Company Financial Statements), if we look at the Balance Sheet and Cash Flow Statement (Statement of Cashflow) &#8220;danieel.id Company&#8221; in 2019, we can see that companies make investments mainly by buying new machine machines (can be seen from the increase in gross fixed assets on the balance sheet).<\/span><\/p>\n<p style=\"text-align: justify;\"><span style=\"font-family: 'comic sans ms', sans-serif; font-size: 12pt;\">Investors looking for growth opportunities for a company usually see this as a good indication that the Company is trying to grow.<\/span><\/p>\n<p style=\"text-align: justify;\"><span style=\"font-family: 'comic sans ms', sans-serif; font-size: 12pt;\">For the Interest Coverage Ratio, the &#8220;danieel.id Company&#8221; number decreased slightly compared to the previous year (4.70 in 2019, compared to 4.75 in 2018), but this ratio is still better than the average of similar industries in 2019 (4.3).<\/span><\/p>\n<p style=\"text-align: justify;\"><span style=\"font-family: 'comic sans ms', sans-serif; font-size: 12pt;\">For the Fixed Payment Coverage Ratio, the Company&#8217;s Performance increased, from 2.79 in 2018 to 2.83 in 2019. This figure is much better than the average of similar industries in the same year.<\/span><\/p>\n<p style=\"text-align: justify;\"><span style=\"font-family: 'comic sans ms', sans-serif; font-size: 12pt;\">Overall, Debt Ratios The company is still good, and there is still space to optimize its financial leverage in an effort to pursue growth.<\/span><\/p>\n<p style=\"text-align: justify;\"><span style=\"font-family: 'comic sans ms', sans-serif; font-size: 12pt;\">Next let&#8217;s discuss Profitability Ratios on page 4<\/span><\/p>\n<p><!--nextpage--><\/p>\n<h2 style=\"text-align: justify;\"><span style=\"color: #0000ff; font-size: 14pt;\"><strong style=\"font-family: 'comic sans ms', sans-serif;\">D. Profitability Ratios<\/strong><\/span><\/h2>\n<h3 style=\"text-align: justify;\"><span style=\"color: #008000;\"><strong style=\"font-family: 'comic sans ms', sans-serif; font-size: 12pt;\">1. Gross Profit Margin<\/strong><\/span><\/h3>\n<p style=\"text-align: justify;\"><span style=\"font-family: 'comic sans ms', sans-serif; font-size: 12pt;\"><em>Gross profit margin<\/em> measures the percentage of gross profit (sales revenue &#8211; cost of goods sold) against sales revenue.<\/span><\/p>\n<p style=\"text-align: justify;\"><span style=\"font-family: 'comic sans ms', sans-serif; font-size: 12pt;\">Gross profit margin formula is:<\/span><\/p>\n<p><img loading=\"lazy\" decoding=\"async\" class=\"aligncenter wp-image-2383\" src=\"https:\/\/danieel.id\/wp-content\/uploads\/2021\/02\/gross_profit_margin-300x60.png\" alt=\"gross_profit_margin\" width=\"400\" height=\"80\" srcset=\"https:\/\/danieel.id\/wp-content\/uploads\/2021\/02\/gross_profit_margin-300x60.png 300w, https:\/\/danieel.id\/wp-content\/uploads\/2021\/02\/gross_profit_margin.png 686w\" sizes=\"auto, (max-width: 400px) 100vw, 400px\" \/><\/p>\n<p style=\"text-align: justify;\"><span style=\"font-family: 'comic sans ms', sans-serif; font-size: 12pt;\">From the Income Statement &#8220;danieel.id Company&#8221;, we can calculate, the company&#8217;s gross profit margin in 2019 = $ 1,780 \/ $ 6,115 = 29.1 %<\/span><\/p>\n<p>&nbsp;<\/p>\n<h3 style=\"text-align: justify;\"><span style=\"color: #008000;\"><strong style=\"font-family: 'comic sans ms', sans-serif; font-size: 12pt;\">2. Operating Profit Margin<\/strong><\/span><\/h3>\n<p style=\"text-align: justify;\"><span style=\"font-family: 'comic sans ms', sans-serif; font-size: 12pt;\"><em>Operating profit margin<\/em> is the percentage of operating profit (gross profit &#8211; operating expense) against sales revenue<\/span><\/p>\n<p style=\"text-align: justify;\"><span style=\"font-family: 'comic sans ms', sans-serif; font-size: 12pt;\">Operating profit margin formula is:<\/span><\/p>\n<p><img loading=\"lazy\" decoding=\"async\" class=\"aligncenter wp-image-2402\" src=\"https:\/\/danieel.id\/wp-content\/uploads\/2021\/11\/Operating_Profit_Margin-300x33.png\" alt=\"operating profit margin\" width=\"550\" height=\"61\" srcset=\"https:\/\/danieel.id\/wp-content\/uploads\/2021\/11\/Operating_Profit_Margin-300x33.png 300w, https:\/\/danieel.id\/wp-content\/uploads\/2021\/11\/Operating_Profit_Margin-1024x113.png 1024w, https:\/\/danieel.id\/wp-content\/uploads\/2021\/11\/Operating_Profit_Margin-768x85.png 768w, https:\/\/danieel.id\/wp-content\/uploads\/2021\/11\/Operating_Profit_Margin-696x77.png 696w, https:\/\/danieel.id\/wp-content\/uploads\/2021\/11\/Operating_Profit_Margin-1068x118.png 1068w, https:\/\/danieel.id\/wp-content\/uploads\/2021\/11\/Operating_Profit_Margin.png 1282w\" sizes=\"auto, (max-width: 550px) 100vw, 550px\" \/><\/p>\n<p style=\"text-align: justify;\"><span style=\"font-family: 'comic sans ms', sans-serif; font-size: 12pt;\">From the Income Statement &#8220;danieel.id Company&#8221;, the company&#8217;s operating profit margin in 2019 was $935 \/ $6,115 = 15.3%.<\/span><\/p>\n<p>&nbsp;<\/p>\n<h3 style=\"text-align: justify;\"><span style=\"color: #008000;\"><strong style=\"font-family: 'comic sans ms', sans-serif; font-size: 12pt;\">3. Net Profit Margin<\/strong><\/span><\/h3>\n<p style=\"text-align: justify;\"><span style=\"font-family: 'comic sans ms', sans-serif; font-size: 12pt;\"><em>Net Profit Margin<\/em> is the percentage of earning available for common stakeholders (net profit after taxes after being reduced preferred stock dividend) to sales revenue<\/span><\/p>\n<p style=\"text-align: justify;\"><span style=\"font-family: 'comic sans ms', sans-serif; font-size: 12pt;\">The net profit margin formula is:<\/span><\/p>\n<p><img loading=\"lazy\" decoding=\"async\" class=\"aligncenter wp-image-2384\" src=\"https:\/\/danieel.id\/wp-content\/uploads\/2021\/02\/net_profit_margin-300x33.png\" alt=\"net_profit_margin\" width=\"500\" height=\"54\" srcset=\"https:\/\/danieel.id\/wp-content\/uploads\/2021\/02\/net_profit_margin-300x33.png 300w, https:\/\/danieel.id\/wp-content\/uploads\/2021\/02\/net_profit_margin-1024x111.png 1024w, https:\/\/danieel.id\/wp-content\/uploads\/2021\/02\/net_profit_margin-768x83.png 768w, https:\/\/danieel.id\/wp-content\/uploads\/2021\/02\/net_profit_margin-696x76.png 696w, https:\/\/danieel.id\/wp-content\/uploads\/2021\/02\/net_profit_margin-1068x116.png 1068w, https:\/\/danieel.id\/wp-content\/uploads\/2021\/02\/net_profit_margin.png 1270w\" sizes=\"auto, (max-width: 500px) 100vw, 500px\" \/><\/p>\n<p style=\"text-align: justify;\"><span style=\"font-family: 'comic sans ms', sans-serif; font-size: 12pt;\">In the case &#8216;danieel.id company&#8217;, from the Income Statement of this company we can calculate its Net Profit margin in 2019 = $ 530 \/ $6,115 = 8.7 %<\/span><\/p>\n<p style=\"text-align: justify;\"><span style=\"font-family: 'comic sans ms', sans-serif; font-size: 12pt;\">The ideal value range for net profit margin differs depending on the type of industry.<\/span><\/p>\n<p style=\"text-align: justify;\"><span style=\"font-family: 'comic sans ms', sans-serif; font-size: 12pt;\">For retail stores such as a net profit margin of 1-2% is common, but for jewellery stores, a margin of 10% is still considered too low.<\/span><\/p>\n<p style=\"text-align: justify;\"><span style=\"font-family: 'comic sans ms', sans-serif; font-size: 12pt;\">It is also related to its Inventory Turnover, businesses with small net profit margins usually have high inventory turnover and vice versa.<\/span><\/p>\n<p>&nbsp;<\/p>\n<h3 style=\"text-align: justify;\"><span style=\"font-family: 'comic sans ms', sans-serif; font-size: 12pt; color: #008000;\"><strong>4. Earnings per share (EPS)<\/strong><\/span><\/h3>\n<p style=\"text-align: justify;\"><span style=\"font-family: 'comic sans ms', sans-serif; font-size: 12pt;\"><em>Earnings per share<\/em> is a figure that shows the amount of profit earned for each share of the Company (common stock).<\/span><\/p>\n<p style=\"text-align: justify;\"><span style=\"font-family: 'comic sans ms', sans-serif; font-size: 12pt;\">Earnings per share formula is as follows:<\/span><\/p>\n<p><img loading=\"lazy\" decoding=\"async\" class=\"aligncenter wp-image-2385\" src=\"https:\/\/danieel.id\/wp-content\/uploads\/2021\/02\/Earning_per_share-300x29.png\" alt=\"Earning per share\" width=\"550\" height=\"52\" srcset=\"https:\/\/danieel.id\/wp-content\/uploads\/2021\/02\/Earning_per_share-300x29.png 300w, https:\/\/danieel.id\/wp-content\/uploads\/2021\/02\/Earning_per_share-1024x98.png 1024w, https:\/\/danieel.id\/wp-content\/uploads\/2021\/02\/Earning_per_share-768x73.png 768w, https:\/\/danieel.id\/wp-content\/uploads\/2021\/02\/Earning_per_share-696x66.png 696w, https:\/\/danieel.id\/wp-content\/uploads\/2021\/02\/Earning_per_share-1392x133.png 1392w, https:\/\/danieel.id\/wp-content\/uploads\/2021\/02\/Earning_per_share-1068x102.png 1068w, https:\/\/danieel.id\/wp-content\/uploads\/2021\/02\/Earning_per_share.png 1446w\" sizes=\"auto, (max-width: 550px) 100vw, 550px\" \/><\/p>\n<p style=\"text-align: justify;\"><span style=\"font-family: 'comic sans ms', sans-serif; font-size: 12pt;\">From the Income Statement &#8220;danieel.id&#8221;, we can calculate the earnings per share of this company in 2019 is : $ 530,000 \/ 300,000 = $ 1.77<\/span><\/p>\n<p style=\"text-align: justify;\"><span style=\"font-family: 'comic sans ms', sans-serif; font-size: 12pt;\">Note, Earnings Per Share does not automatically show the actual value obtained by shareholders, because not necessarily all of the Company&#8217;s profits in that year are distributed to shareholders (in the form of dividends).<\/span><\/p>\n<p style=\"text-align: justify;\"><span style=\"font-family: 'comic sans ms', sans-serif; font-size: 12pt;\">The actual value obtained by shareholders is called dividend per share (DPS), in the case &#8220;danieel.id Company&#8221; we can see in the Financial Statements the value for 2019 is $ 0.52.<\/span><\/p>\n<p style=\"text-align: justify;\"><span style=\"font-family: 'comic sans ms', sans-serif; font-size: 12pt;\">While the comparison between DPS and EPS is called dividend pay out ratio, for &#8220;danieel.id Company&#8221; in 2019 is $0.52 \/ $1.77 = 29.4%.<\/span><\/p>\n<p style=\"text-align: justify;\"><span style=\"font-family: 'comic sans ms', sans-serif; font-size: 12pt;\">How much dividend value is distributed each year is decided in the General Meeting of Shareholders, there is no definite benchmark value, what is the ideal range of value for this.<\/span><\/p>\n<p style=\"text-align: justify;\"><span style=\"font-family: 'comic sans ms', sans-serif; font-size: 12pt;\">However, this value is closely related to the future growth potential of the company.<\/span><\/p>\n<p style=\"text-align: justify;\"><span style=\"font-family: 'comic sans ms', sans-serif; font-size: 12pt;\">A low <em>dividend pay-out<\/em> indicates that the company allocates most of its profits to invest again, and this means the opportunity to grow (growth) is greater, compared to the Company that decides to share all or most of its profits in the form of dividends.<\/span><\/p>\n<p>&nbsp;<\/p>\n<h3 style=\"text-align: justify;\"><span style=\"color: #008000;\"><strong style=\"font-family: 'comic sans ms', sans-serif; font-size: 12pt;\">5. Return On Total Assets<\/strong><\/span><\/h3>\n<p style=\"text-align: justify;\"><span style=\"font-family: 'comic sans ms', sans-serif; font-size: 12pt;\"><em>Return on Total Assets<\/em> (ROA), sometimes also called Retun on Investment (ROI) is a measure that describes the level of effectiveness of a company in using a company&#8217;s asset assets to generate profit.<\/span><\/p>\n<p style=\"text-align: justify;\"><span style=\"font-family: 'comic sans ms', sans-serif; font-size: 12pt;\">The Return on Total Assets formula is as follows:<\/span><\/p>\n<p><img loading=\"lazy\" decoding=\"async\" class=\"aligncenter wp-image-2386\" src=\"https:\/\/danieel.id\/wp-content\/uploads\/2021\/02\/return_on_total_assets-300x28.png\" alt=\"return_on_total_assets\" width=\"550\" height=\"52\" srcset=\"https:\/\/danieel.id\/wp-content\/uploads\/2021\/02\/return_on_total_assets-300x28.png 300w, https:\/\/danieel.id\/wp-content\/uploads\/2021\/02\/return_on_total_assets-1024x96.png 1024w, https:\/\/danieel.id\/wp-content\/uploads\/2021\/02\/return_on_total_assets-768x72.png 768w, https:\/\/danieel.id\/wp-content\/uploads\/2021\/02\/return_on_total_assets-696x65.png 696w, https:\/\/danieel.id\/wp-content\/uploads\/2021\/02\/return_on_total_assets-1392x131.png 1392w, https:\/\/danieel.id\/wp-content\/uploads\/2021\/02\/return_on_total_assets-1068x100.png 1068w, https:\/\/danieel.id\/wp-content\/uploads\/2021\/02\/return_on_total_assets.png 1470w\" sizes=\"auto, (max-width: 550px) 100vw, 550px\" \/><\/p>\n<p style=\"text-align: justify;\"><span style=\"font-family: 'comic sans ms', sans-serif; font-size: 12pt;\">From the Income Statement and Balance Sheet &#8220;danieel.id Company&#8221;, we can calculate the company&#8217;s ROA in 2019 = $ 530 \/ $11,025 = 4.8 %<\/span><\/p>\n<p style=\"text-align: justify;\"><span style=\"font-family: 'comic sans ms', sans-serif; font-size: 12pt;\">This figure shows that the Company makes a profit of 4.1 cents for every 1 dollar of its assets.<\/span><\/p>\n<p>&nbsp;<\/p>\n<h3 style=\"text-align: justify;\"><span style=\"color: #008000;\"><strong style=\"font-family: 'comic sans ms', sans-serif; font-size: 12pt;\">6. Return On Common Equity (ROE)<\/strong><\/span><\/h3>\n<p style=\"text-align: justify;\"><span style=\"font-family: 'comic sans ms', sans-serif; font-size: 12pt;\"><em>Return on Common Equity (ROE) is <\/em>a measure that describes the level of effectiveness of the Company to generate profits from its own capital (common equity).<\/span><\/p>\n<p style=\"text-align: justify;\"><span style=\"font-family: 'comic sans ms', sans-serif; font-size: 12pt;\">The Return on Equity formula is as follows:<\/span><\/p>\n<p><img loading=\"lazy\" decoding=\"async\" class=\"aligncenter wp-image-2387\" src=\"https:\/\/danieel.id\/wp-content\/uploads\/2021\/02\/return_on_common_equity-300x29.png\" alt=\"return_on_common_equity\" width=\"550\" height=\"53\" srcset=\"https:\/\/danieel.id\/wp-content\/uploads\/2021\/02\/return_on_common_equity-300x29.png 300w, https:\/\/danieel.id\/wp-content\/uploads\/2021\/02\/return_on_common_equity-1024x99.png 1024w, https:\/\/danieel.id\/wp-content\/uploads\/2021\/02\/return_on_common_equity-768x74.png 768w, https:\/\/danieel.id\/wp-content\/uploads\/2021\/02\/return_on_common_equity-696x67.png 696w, https:\/\/danieel.id\/wp-content\/uploads\/2021\/02\/return_on_common_equity-1392x134.png 1392w, https:\/\/danieel.id\/wp-content\/uploads\/2021\/02\/return_on_common_equity-1068x103.png 1068w, https:\/\/danieel.id\/wp-content\/uploads\/2021\/02\/return_on_common_equity.png 1430w\" sizes=\"auto, (max-width: 550px) 100vw, 550px\" \/><\/p>\n<p style=\"text-align: justify;\"><span style=\"font-family: 'comic sans ms', sans-serif; font-size: 12pt;\">From the Income Statement and Balance Sheet &#8220;danieel.id Company&#8221;, we can calculate the ROE of this company in 2019 = $ 530 \/ $6,970 * = 7.6 %<\/span><\/p>\n<p style=\"text-align: justify;\"><span style=\"font-family: 'comic sans ms', sans-serif; font-size: 12pt;\">* Remember for common equity the total value of shareholder&#8217;s equity on the balance sheet needs to be reduced first with preferred stock.<\/span><\/p>\n<p style=\"text-align: justify;\"><span style=\"font-family: 'comic sans ms', sans-serif; font-size: 12pt;\">This figure shows that the Company makes a profit of 7.6 cents for every $1 of its common equity.<\/span><\/p>\n<p>&nbsp;<\/p>\n<p style=\"text-align: justify;\"><span style=\"font-family: 'comic sans ms', sans-serif; font-size: 12pt; color: #008000;\"><strong>Summary Profitability Ratios<\/strong><\/span><\/p>\n<figure id=\"attachment_2376\" aria-describedby=\"caption-attachment-2376\" style=\"width: 650px\" class=\"wp-caption aligncenter\"><img loading=\"lazy\" decoding=\"async\" class=\"wp-image-2376\" src=\"https:\/\/danieel.id\/wp-content\/uploads\/2021\/02\/profitability_ratio-300x131.png\" alt=\"Profitability Ratio\" width=\"650\" height=\"283\" srcset=\"https:\/\/danieel.id\/wp-content\/uploads\/2021\/02\/profitability_ratio-300x131.png 300w, https:\/\/danieel.id\/wp-content\/uploads\/2021\/02\/profitability_ratio-1024x446.png 1024w, https:\/\/danieel.id\/wp-content\/uploads\/2021\/02\/profitability_ratio-768x335.png 768w, https:\/\/danieel.id\/wp-content\/uploads\/2021\/02\/profitability_ratio-1536x669.png 1536w, https:\/\/danieel.id\/wp-content\/uploads\/2021\/02\/profitability_ratio-2048x892.png 2048w, https:\/\/danieel.id\/wp-content\/uploads\/2021\/02\/profitability_ratio-696x303.png 696w, https:\/\/danieel.id\/wp-content\/uploads\/2021\/02\/profitability_ratio-1392x607.png 1392w, https:\/\/danieel.id\/wp-content\/uploads\/2021\/02\/profitability_ratio-1068x465.png 1068w, https:\/\/danieel.id\/wp-content\/uploads\/2021\/02\/profitability_ratio-1920x837.png 1920w\" sizes=\"auto, (max-width: 650px) 100vw, 650px\" \/><figcaption id=\"caption-attachment-2376\" class=\"wp-caption-text\">&#8220;danieel.id Company Profitability Ratios 2019<\/figcaption><\/figure>\n<p style=\"text-align: justify;\"><span style=\"font-family: 'comic sans ms', sans-serif; font-size: 12pt;\">From the table above, we can conclude the profitability ratio for the case &#8220;danieel.id Company) as follows:<\/span><\/p>\n<p style=\"text-align: justify;\"><span style=\"font-family: 'comic sans ms', sans-serif; font-size: 12pt;\">Gross Profit margin decreased slightly (from 31% in 2018, to 29.1% in 2019), if we look at the Income Statement this is because the Cost of goods sold rose by 15% (higher than the increase in sales revenue which was only 12%).<\/span><\/p>\n<p style=\"text-align: justify;\"><span style=\"font-family: 'comic sans ms', sans-serif; font-size: 12pt;\">The company&#8217;s 2019 gross profit margin was also slightly lower than the same industry average in the same year.<\/span><\/p>\n<p style=\"text-align: justify;\"><span style=\"font-family: 'comic sans ms', sans-serif; font-size: 12pt;\">Operating Profit Margin &#8220;danieel.id Company&#8221; decreased compared to the previous year (from 16.3% in 2018, to 15.3% in 2019), but this figure is better than the average of similar industries in 2019 (11%)<\/span><\/p>\n<p style=\"text-align: justify;\"><span style=\"font-family: 'comic sans ms', sans-serif; font-size: 12pt;\">The Company&#8217;s Net Profit Margin also fell slightly compared to the previous year (from 9.2% in 2108, to 8.7% in 2019), but this figure is better than the same-sex industry average in the same year (6.2%).<\/span><\/p>\n<p style=\"text-align: justify;\"><span style=\"font-family: 'comic sans ms', sans-serif; font-size: 12pt;\">Overall of the three profitability ratios above, we can see that although nominally, the company&#8217;s profit increased compared to the previous year, but if viewed in terms of profit ratio decreased.<\/span><\/p>\n<p style=\"text-align: justify;\"><span style=\"font-family: 'comic sans ms', sans-serif; font-size: 12pt;\">This shows that actually the Company continues to grow positively, it&#8217;s just that its profit margin is corrected, usually this is due to the tight competition, especially from the table above we can see that the Company&#8217;s profit margin is relatively higher than its competitors.<\/span><\/p>\n<p style=\"text-align: justify;\"><span style=\"font-family: 'comic sans ms', sans-serif; font-size: 12pt;\">For Retun On Assets (ROA), the &#8216;danieel.id Company&#8217; in 2018 recorded 4.8%, down from 2018 (5.3%), although it remained better than the average of similar industries which was only at the level of 4.6%.<\/span><\/p>\n<p style=\"text-align: justify;\"><span style=\"font-family: 'comic sans ms', sans-serif; font-size: 12pt;\">For ROA, as we discussed earlier in the Total Asset Turnover section, the Company needs to increase the effectiveness of using its asset assets to generate profits, among others by optimizing the production capacity of existing assets, investing in new assets that are feasible, and if necessary divesting against unproductive asset assets.<\/span><\/p>\n<p style=\"text-align: justify;\"><span style=\"font-family: 'comic sans ms', sans-serif; font-size: 12pt;\">Return on Equity (ROE), in 2019 of 7.6%, also fell compared to the previous year (8.3%), and this figure is also lower than the average of similar industries (8.5%).<\/span><\/p>\n<p style=\"text-align: justify;\"><span style=\"font-family: 'comic sans ms', sans-serif; font-size: 12pt;\">For this ROE, &#8220;danieel.id Company&#8221; still has a chance to increase,<\/span><\/p>\n<p style=\"text-align: justify;\"><span style=\"font-family: 'comic sans ms', sans-serif; font-size: 12pt;\">As we have discussed in the debt ratios section before, the company needs to (carefully of course) optimize its financial leverage in order to increase investments that will ultimately increase the profit ratio for each dollar of its own capital (owner equity).<\/span><\/p>\n<p style=\"padding-left: 40px;\"><span style=\"font-family: 'comic sans ms', sans-serif; font-size: 12pt;\">To better understand the Profitability Ratio of ROA and ROE, please also read the following article:<\/span><\/p>\n<ul>\n<li style=\"list-style-type: none;\">\n<ul>\n<li style=\"list-style-type: none;\">\n<ul>\n<li><span style=\"text-decoration: underline;\"><a href=\"https:\/\/danieel.id\/en\/using-dupont-formula-for-company-roa-and-roe-analysis\/\" target=\"_blank\" rel=\"noopener\"><span style=\"font-family: 'comic sans ms', sans-serif; font-size: 12pt; color: #0000ff; text-decoration: underline;\">Using DuPont Formula for Company ROA and ROE Analysis<\/span><\/a><\/span><\/li>\n<\/ul>\n<\/li>\n<\/ul>\n<\/li>\n<\/ul>\n<p style=\"text-align: justify;\"><span style=\"font-family: 'comic sans ms', sans-serif; font-size: 12pt;\">Next let&#8217;s discuss Market Ratios on page 5<\/span><\/p>\n<p><!--nextpage--><\/p>\n<h2 style=\"text-align: justify;\"><span style=\"color: #0000ff; font-size: 14pt;\"><strong style=\"font-family: 'comic sans ms', sans-serif;\">E. Market Ratios<\/strong><\/span><\/h2>\n<h3 style=\"text-align: justify;\"><span style=\"color: #008000;\"><strong style=\"font-family: 'comic sans ms', sans-serif; font-size: 12pt;\">1. Price \/ Earnings (P\/E) Ratio (PER)<\/strong><\/span><\/h3>\n<p style=\"text-align: justify;\"><span style=\"font-family: 'comic sans ms', sans-serif; font-size: 12pt;\"><em>Price\/Earnings (P\/E) Ratio (PER) <\/em>is the ratio used to relatively assess a company&#8217;s stock price by comparing it to the earnings per share (EPS) of that company.<\/span><\/p>\n<p style=\"text-align: justify;\"><span style=\"font-family: 'comic sans ms', sans-serif; font-size: 12pt;\">The Price\/Earnings (P\/E) Ratio (PER) formula is as follows:<\/span><\/p>\n<p><img loading=\"lazy\" decoding=\"async\" class=\"aligncenter wp-image-2388\" src=\"https:\/\/danieel.id\/wp-content\/uploads\/2021\/02\/price_to_earning_ratio-300x31.png\" alt=\"price_to_earning_ratio\" width=\"550\" height=\"58\" srcset=\"https:\/\/danieel.id\/wp-content\/uploads\/2021\/02\/price_to_earning_ratio-300x31.png 300w, https:\/\/danieel.id\/wp-content\/uploads\/2021\/02\/price_to_earning_ratio-1024x107.png 1024w, https:\/\/danieel.id\/wp-content\/uploads\/2021\/02\/price_to_earning_ratio-768x80.png 768w, https:\/\/danieel.id\/wp-content\/uploads\/2021\/02\/price_to_earning_ratio-696x73.png 696w, https:\/\/danieel.id\/wp-content\/uploads\/2021\/02\/price_to_earning_ratio-1068x112.png 1068w, https:\/\/danieel.id\/wp-content\/uploads\/2021\/02\/price_to_earning_ratio.png 1320w\" sizes=\"auto, (max-width: 550px) 100vw, 550px\" \/><\/p>\n<p style=\"text-align: justify;\"><span style=\"font-family: 'comic sans ms', sans-serif; font-size: 12pt;\">If it is known that the common stock price of &#8220;danieel.id Company&#8221; per share at the end of 2019 is $ 24.5, then we can calculate per company = $ 24.5 \/ $ 1.77 = 13.86<\/span><\/p>\n<p style=\"text-align: justify;\"><span style=\"font-family: 'comic sans ms', sans-serif; font-size: 12pt;\">This figure means that investors pay $13.86 for every $1 earnings generated by the Company.<\/span><\/p>\n<p style=\"text-align: justify;\"><span style=\"font-family: 'comic sans ms', sans-serif; font-size: 12pt;\">Or in other words, this ratio describes the value that investors are willing to pay for every $1 earnings the Company generates.<\/span><\/p>\n<p style=\"text-align: justify;\"><span style=\"font-family: 'comic sans ms', sans-serif; font-size: 12pt;\">This figure will be more meaningful when compared to the PER of similar companies (which we will do soon below).\u00a0 If the value is higher than other companies, then it can be said that the stock price of this company is relatively expensive and vice versa.<\/span><\/p>\n<p>&nbsp;<\/p>\n<h3 style=\"text-align: justify;\"><span style=\"color: #008000;\"><strong style=\"font-family: 'comic sans ms', sans-serif; font-size: 12pt;\">2. Market\/Book (M\/B Ratio) or Price to Book Value (PBV)<\/strong><\/span><\/h3>\n<p style=\"text-align: justify;\"><span style=\"font-family: 'comic sans ms', sans-serif; font-size: 12pt;\"><em>Market \/Book (M\/B Ratio)<\/em> or<em> Price to Book (P\/B) Ratio<\/em> is the ratio of assessing the relative share price of a company by comparing it to the company&#8217;s book value.<\/span><\/p>\n<p style=\"text-align: justify;\"><span style=\"font-family: 'comic sans ms', sans-serif; font-size: 12pt;\">The Market\/Book (M\/B Ratio) or Price to Book Value (PBV) formula is as follows:<\/span><\/p>\n<p><img loading=\"lazy\" decoding=\"async\" class=\"aligncenter wp-image-2389\" src=\"https:\/\/danieel.id\/wp-content\/uploads\/2021\/02\/price_to_book_value-300x31.png\" alt=\"price_to_book_value\" width=\"550\" height=\"58\" srcset=\"https:\/\/danieel.id\/wp-content\/uploads\/2021\/02\/price_to_book_value-300x31.png 300w, https:\/\/danieel.id\/wp-content\/uploads\/2021\/02\/price_to_book_value-1024x107.png 1024w, https:\/\/danieel.id\/wp-content\/uploads\/2021\/02\/price_to_book_value-768x80.png 768w, https:\/\/danieel.id\/wp-content\/uploads\/2021\/02\/price_to_book_value-696x73.png 696w, https:\/\/danieel.id\/wp-content\/uploads\/2021\/02\/price_to_book_value-1068x112.png 1068w, https:\/\/danieel.id\/wp-content\/uploads\/2021\/02\/price_to_book_value.png 1320w\" sizes=\"auto, (max-width: 550px) 100vw, 550px\" \/><\/p>\n<p style=\"text-align: justify;\"><span style=\"font-family: 'comic sans ms', sans-serif; font-size: 12pt;\">The book value of a Company is equal to the value of its common stock equity,<\/span><\/p>\n<p style=\"text-align: justify;\"><span style=\"font-family: 'comic sans ms', sans-serif; font-size: 12pt;\">The book value per share is<\/span><\/p>\n<p style=\"text-align: justify;\"><span style=\"font-family: 'comic sans ms', sans-serif; font-size: 12pt;\">\u00a0= common stock equity \/ number of share of common stock outstanding.<\/span><\/p>\n<p style=\"text-align: justify;\"><span style=\"font-family: 'comic sans ms', sans-serif; font-size: 12pt;\">Note: If the Company goes bankrupt and is then sold, the value of the company is the value of all its assets minus all liabilities of the company.<\/span><\/p>\n<p style=\"text-align: justify;\"><span style=\"font-family: 'comic sans ms', sans-serif; font-size: 12pt;\">Remember: Assets &#8211; Liabilities = Equity<\/span><\/p>\n<p style=\"text-align: justify;\"><span style=\"font-family: 'comic sans ms', sans-serif; font-size: 12pt;\">For the &#8220;danieel.id Company&#8221; case, the book value per share of common stock in 2019 is: ($7,750,000 &#8211; $600,000) \/ 300,000 = $23.23<\/span><\/p>\n<p style=\"text-align: justify;\"><span style=\"font-family: 'comic sans ms', sans-serif; font-size: 12pt;\">If the stock price of &#8220;daniel.id Company at the end of 2019 is $ 24.5<\/span><\/p>\n<p style=\"text-align: justify;\"><span style=\"font-family: 'comic sans ms', sans-serif; font-size: 12pt;\">So the price to book value of this company in that year was $24.5 \/ 23.23 = 1.05<\/span><\/p>\n<p style=\"text-align: justify;\"><span style=\"font-family: 'comic sans ms', sans-serif; font-size: 12pt;\">This figure means that investors pay $1.05 for every $1 book value of this company.<\/span><\/p>\n<p style=\"text-align: justify;\"><span style=\"font-family: 'comic sans ms', sans-serif; font-size: 12pt;\">Or in other words, this ratio describes the value that investors are willing to pay for every $1 of the company&#8217;s book value.<\/span><\/p>\n<p style=\"text-align: justify;\"><span style=\"font-family: 'comic sans ms', sans-serif; font-size: 12pt;\">Just like the Price to Earnings Ratio (PER), this figure will be more meaningful when compared to the P \/ B ratio of similar companies (which we will do soon below).\u00a0<\/span><\/p>\n<p style=\"text-align: justify;\"><span style=\"font-family: 'comic sans ms', sans-serif; font-size: 12pt;\">If the value is higher than other companies, then it can be said that the stock price of this company is relatively expensive and vice versa.<\/span><\/p>\n<p>&nbsp;<\/p>\n<p style=\"text-align: justify;\"><span style=\"font-family: 'comic sans ms', sans-serif; font-size: 12pt; color: #008000;\"><strong>Summary Market Ratios<\/strong><\/span><\/p>\n<figure id=\"attachment_2375\" aria-describedby=\"caption-attachment-2375\" style=\"width: 650px\" class=\"wp-caption aligncenter\"><img loading=\"lazy\" decoding=\"async\" class=\"wp-image-2375\" src=\"https:\/\/danieel.id\/wp-content\/uploads\/2021\/02\/market_ratio-300x72.png\" alt=\"Market Ratios\" width=\"650\" height=\"157\" srcset=\"https:\/\/danieel.id\/wp-content\/uploads\/2021\/02\/market_ratio-300x72.png 300w, https:\/\/danieel.id\/wp-content\/uploads\/2021\/02\/market_ratio-1024x247.png 1024w, https:\/\/danieel.id\/wp-content\/uploads\/2021\/02\/market_ratio-768x185.png 768w, https:\/\/danieel.id\/wp-content\/uploads\/2021\/02\/market_ratio-1536x371.png 1536w, https:\/\/danieel.id\/wp-content\/uploads\/2021\/02\/market_ratio-2048x494.png 2048w, https:\/\/danieel.id\/wp-content\/uploads\/2021\/02\/market_ratio-696x168.png 696w, https:\/\/danieel.id\/wp-content\/uploads\/2021\/02\/market_ratio-1392x336.png 1392w, https:\/\/danieel.id\/wp-content\/uploads\/2021\/02\/market_ratio-1068x258.png 1068w, https:\/\/danieel.id\/wp-content\/uploads\/2021\/02\/market_ratio-1920x463.png 1920w\" sizes=\"auto, (max-width: 650px) 100vw, 650px\" \/><figcaption id=\"caption-attachment-2375\" class=\"wp-caption-text\">&#8220;danieel.id Company&#8221; Market Ratios 2019<\/figcaption><\/figure>\n<p style=\"text-align: justify;\"><span style=\"font-family: 'comic sans ms', sans-serif; font-size: 12pt;\">The &#8220;danieel.id Company&#8221; stock price note in 2018 was $25, and in 2019 it was $24.5<\/span><\/p>\n<p style=\"text-align: justify;\"><span style=\"font-family: 'comic sans ms', sans-serif; font-size: 12pt;\">From the table above, we can conclude market ratios for the case &#8220;danieel.id Company) as follows:<\/span><\/p>\n<p style=\"text-align: justify;\"><span style=\"font-family: 'comic sans ms', sans-serif; font-size: 12pt;\">The company&#8217;s Price to Earnings Ratio (ER) increased slightly (from 13.83 in 2018 to 13.86% in 2019), this is partly because the company&#8217;s share price fell slightly smaller (2%) than the decrease in earnings per share (EPS) (2.2%).<\/span><\/p>\n<p style=\"text-align: justify;\"><span style=\"font-family: 'comic sans ms', sans-serif; font-size: 12pt;\">This ratio is also still higher when compared to the average PER of similar industries in 2019.<\/span><\/p>\n<p style=\"text-align: justify;\"><span style=\"font-family: 'comic sans ms', sans-serif; font-size: 12pt;\">This indicates the market is reacting not too much with the decline in the Company&#8217;s EPS in 2019, because various other parameters of the Company as indicated by the financial statements and various ratios that we have discussed so far show &#8220;danieel.id Company&#8221; is still good financially and has the potential to grow.<\/span><\/p>\n<p style=\"text-align: justify;\"><span style=\"font-family: 'comic sans ms', sans-serif; font-size: 12pt;\">Market\/Book (M\/B Ratio) or Price to Book (P\/B) Ratio &#8220;danieel.id Company&#8221; decreased compared to the previous year (from 1.15 in 2018 to 1.05) and this figure is also lower than the average of similar industries in 2019 (1.3).<\/span><\/p>\n<p style=\"text-align: justify;\"><span style=\"font-family: 'comic sans ms', sans-serif; font-size: 12pt;\">This is partly because the Company&#8217;s book value per share in 2019 increased compared to the previous year ($23.33 in 2019 compared to $21.81 in 2018), while the stock market price per share actually fell slightly.<\/span><\/p>\n<p style=\"text-align: justify;\"><span style=\"font-family: 'comic sans ms', sans-serif; font-size: 12pt;\">If we look again at the company&#8217;s balance sheet, there is an increase in the company&#8217;s common equity derived from the release of new shares (20,000 shares in 2019) and the increase in retained earnings used by the Company to finance some of its investments (the purchase of new engine engines) has not been directly reflected in the increase in the company&#8217;s profit margin in the year.<\/span><\/p>\n<p style=\"text-align: justify;\"><span style=\"font-family: 'comic sans ms', sans-serif; font-size: 12pt;\">Of course, it takes time from the moment the investment begins until the investment results are seen as an increase in sales and profits in the company&#8217;s Financial statements (if the investment is successful).\u00a0 Investors who are observant in reading the company&#8217;s financial statements and financial ratio ratios, will see this as an opportunity to buy &#8220;danieel.id Company&#8221; shares when the price is &#8220;slightly&#8221; lower than its growth potential.<\/span><\/p>\n<p style=\"text-align: justify;\"><span style=\"font-family: 'comic sans ms', sans-serif; font-size: 12pt;\">Market ratios [either Price to Book Value (PBV) or Price Earnings Ratio (PER)] are also commonly used methods for valuation of a company&#8217;s stock.<\/span><\/p>\n<h3><\/h3>\n<h3><span style=\"color: #008000; font-family: 'comic sans ms', sans-serif; font-size: 12pt;\"><strong>Closing<\/strong><\/span><\/h3>\n<p style=\"text-align: justify;\"><span style=\"font-family: 'comic sans ms', sans-serif; font-size: 12pt;\">Thus our discussion of the Company&#8217;s Financial Ratios,\u00a0<\/span><\/p>\n<p style=\"text-align: justify;\"><span style=\"font-family: 'comic sans ms', sans-serif; font-size: 12pt;\">Hopefully useful.<\/span><\/p>\n<p style=\"text-align: justify;\"><span style=\"font-family: 'comic sans ms', sans-serif; font-size: 12pt;\">Next you can start practicing by analysing the financial ratio ratio in your company&#8217;s Financial Statement, or try to analyse the Financial Statements of companies listed on the Indonesia Stock Exchange.\u00a0<\/span><\/p>\n<p style=\"text-align: justify;\"><span style=\"font-family: 'comic sans ms', sans-serif; font-size: 12pt;\">Annual Financial Statements (and also quarterly) of Companies in Indonesia that have gone public, and are listed on the Stock Exchange can be downloaded on the official website of PT Bursa Efek Indonesia: <span style=\"text-decoration: underline;\"><span style=\"color: #0000ff; text-decoration: underline;\"><a style=\"color: #0000ff; text-decoration: underline;\" href=\"https:\/\/www.idx.co.id\" target=\"_blank\" rel=\"noopener\">https:\/\/www.idx.co.id<\/a><\/span><\/span><\/span><\/p>\n<p style=\"text-align: justify;\"><span style=\"font-family: 'comic sans ms', sans-serif; font-size: 12pt;\">Or you can try evaluating the financial statements directly in the form of summary and ratio ratios of various companies listed on the Exchange, both in Indonesia and other countries from several sources that provide such information, including Yahoo Finance, Bloomberg, Reuters, PT RTI Infokom (<span style=\"text-decoration: underline;\"><span style=\"color: #0000ff; text-decoration: underline;\"><a style=\"color: #0000ff; text-decoration: underline;\" href=\"https:\/\/rti.co.id\" target=\"_blank\" rel=\"noopener\">https:\/\/rti.co.id<\/a><\/span><\/span>) and Indopremier (<span style=\"text-decoration: underline;\"><a href=\"https:\/\/www.indopremier.com\/ipotgo\/\" target=\"_blank\" rel=\"noopener\"><span style=\"color: #0000ff; text-decoration: underline;\">https:\/\/www.indopremier.com\/ipotgo\/<\/span><\/a><\/span>)<\/span><\/p>\n<p style=\"text-align: justify;\"><span style=\"font-family: 'comic sans ms', sans-serif; font-size: 12pt;\"><em>If you have any questions, or suggestions regarding this article, feel free to comment below.<\/em><\/span><\/p>\n<p>&nbsp;<\/p>\n<p style=\"text-align: justify;\"><span style=\"font-family: 'comic sans ms', sans-serif; font-size: 10pt;\">Source :<\/span><\/p>\n<ul>\n<li style=\"text-align: justify;\"><span style=\"font-family: 'comic sans ms', sans-serif; font-size: 10pt;\">Lawrence J Gitman &amp; Chad J.Zutter, &#8220;<em>Principles of Managerial Finance<\/em>&#8221; 13<sup>th<\/sup>\u00a0Edition<\/span><\/li>\n<li style=\"text-align: justify;\"><span style=\"font-family: 'comic sans ms', sans-serif; font-size: 10pt;\">Merrill Lynch &#8220;<em>How to read a financial report<\/em>&#8221; booklet<\/span><\/li>\n<li style=\"text-align: justify;\"><span style=\"font-family: 'comic sans ms', sans-serif; font-size: 10pt;\"><u><a href=\"https:\/\/www.investopedia.com\/\">Investopedia.com<\/a><\/u><\/span><\/li>\n<\/ul>\n","protected":false},"excerpt":{"rendered":"<p>To analyse the financial performance of a company comprehensively, it is not enough just from the numbers listed in 4 types of financial statements, the number will be more meaningful when compared to something (in the form of ratios), To see the magnitude relatively and to be easier than, both in time-series with the same [&hellip;]<\/p>\n","protected":false},"author":1,"featured_media":1740,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"tdm_status":"","tdm_grid_status":"","footnotes":""},"categories":[1721],"tags":[],"class_list":{"0":"post-2368","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-finance-en"},"aioseo_notices":[],"amp_enabled":true,"_links":{"self":[{"href":"https:\/\/danieel.id\/en\/wp-json\/wp\/v2\/posts\/2368","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/danieel.id\/en\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/danieel.id\/en\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/danieel.id\/en\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/danieel.id\/en\/wp-json\/wp\/v2\/comments?post=2368"}],"version-history":[{"count":3,"href":"https:\/\/danieel.id\/en\/wp-json\/wp\/v2\/posts\/2368\/revisions"}],"predecessor-version":[{"id":2421,"href":"https:\/\/danieel.id\/en\/wp-json\/wp\/v2\/posts\/2368\/revisions\/2421"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/danieel.id\/en\/wp-json\/wp\/v2\/media\/1740"}],"wp:attachment":[{"href":"https:\/\/danieel.id\/en\/wp-json\/wp\/v2\/media?parent=2368"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/danieel.id\/en\/wp-json\/wp\/v2\/categories?post=2368"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/danieel.id\/en\/wp-json\/wp\/v2\/tags?post=2368"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}