FINANCIAL TABLES ANALYSIS OF ZARA
INVESTMENT CO.
ZARA INVESTMENT (HOLDING) COMPANY LTD. Horizontal Vertical
Balance Sheet Dec.31,2008 Dec.31,2007 ∆Amount ∆Percent 2008 2007
CURRENT ASSETS
Cash on hands and at banks 15,433,236 4,897,463 10,535,773 215.1% 6.04% 2.21%
Trading investment 72,500 -72,500 -100.0% 0.00% 0.03%
Inventories 2,114,546 1,740,542 374,004 21.5% 0.83% 0.79%
Account receivables 7,572,885 7,171,630 401,255 5.6% 2.96% 3.24%
Other current assets 5,209,347 5,009,173 200,174 4.0% 2.04% 2.26%
Total current assets 30,330,014 18,891,308 11,438,706 60.6% 11.87% 8.53%
NON-CURRENT ASSETS
Property and equipment 161,953,400 146,501,707 15,451,693 10.5% 63.37% 66.18%
Projects in progress 31,244,359 28,104,955 3,139,404 11.2% 12.22% 12.70%
Available for sales investment 27,351,906 23,785,948 3,565,958 15.0% 10.70% 10.75%
Advance payment on investment 4,700,000 4,076,512 623,488 15.3% 1.84% 1.84%
Total non-current assets 225,249,665 202,469,129 22,780,536 11.3% 88.13% 91.47%
Total assets 255,579,679 221,360,437 34,219,242 15.5% 100.00% 100.00%
CURRENT LIABILITIES
Current portion of long term loans 1,464,285 6,715,654 -5,251,369 -78.2% 0.57% 3.03%
Current portion of long term bonds 18,000,000 13,500,000 4,500,000 33.3% 7.04% 6.10%
Account payable 8,365,556 8,379,415 -13,859 -0.2% 3.27% 3.79%
Other current liabilities 10,089,518 7,995,069 2,094,449 26.2% 3.95% 3.61%
Due to banks 716,728 -716,728 -100.0% 0.00% 0.32%
Total current liabilities 37,919,359 37,306,866 612,493 1.6% 14.84% 16.85%
NON-CURRENT LIABILITIES
Long term loans 70,703,142 32,417,741 38,285,401 118.1% 27.66% 14.64%
Long term bonds 18,000,000 -18,000,000 -100.0% 0.00% 8.13%
Deferred tax liabilities 1,165,058 1,021,678 143,380 14.0% 0.46% 0.46%
Total non-current liabilities 71,868,200 51,439,419 20,428,781 39.7% 28.12% 23.24%
Total liabilities 109,787,559 88,746,285 21,041,274 23.7% 42.96% 40.09%
SHAREHOLDERS' EQUITY
Paid in capital 125,000,000 125,000,000 0 0.0% 48.91% 56.47%
Statuory reserve 2,030,948 1,026,381 1,004,567 97.9% 0.79% 0.46%
Voluntary reserve 689,496 689,496 0 0.0% 0.27% 0.31%
Fair value reserve 17,475,879 15,313,275 2,162,604 14.1% 6.84% 6.92%
(-)Accumulated losses 13,522,369 22,362,562 -8,840,193 -39.5% 5.29% 10.10%
131,673,954 119,666,590 12,007,364 10.0% 51.52% 54.06%
Minority interest 14,118,166 12,947,562 1,170,604 9.0% 5.52% 5.85%
Net equity 145,792,120 132,614,152 13,177,968 9.9% 57.04% 59.91%
Total equity and liabilities 255,579,679 221,360,437 34,219,242 15.5% 100.00% 100.00%
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ZARA INVESTMENT (HOLDING) COMPANY LTD.
12 Months Ended Horizontal Vertical
2007
Income Statement Dec.31,2008 Dec.31,2007 ∆Amount ∆Percent 2008
Operating revenues 77,820,204 58,209,826 19,610,378 33.7% 100.00% 100.00%
Operating expenses 48,536,029 36,968,097 11,567,932 31.3% 62.37% 63.51%
Gross operating income 29,284,175 21,241,729 8,042,446 37.9% 37.63% 36.49%
Less: Administrative expenses 3,382,417 2,748,474 633,943 23.1% 4.35% 4.72%
Losses from financial invest. 8,603 1,396,667 -1,388,064 -99.4% 0.01% 2.40%
Add: Other income 1,156,182 1,184,796 -28,614 -2.4% 1.49% 2.04%
Profit from operations 27,049,317 18,281,384 8,767,933 48.0% 34.76% 31.41%
Less: Net financing expenses 5,205,178 4,669,919 535,259 11.5% 6.69% 8.02%
Depreciation 6,367,565 7,221,114 -853,549 -11.8% 8.18% 12.41%
Provisions and other
expenses 2,465,819 10,083 2,455,736 24355.2% 3.17% 0.02%
Miscellaneous fees 393,420 242,635 150,785 62.1% 0.51% 0.42%
Profit before income tax 12,617,335 6,137,633 6,479,702 105.6% 16.21% 10.54%
Income tax 877,833 58,310 819,523 1405.5% 1.13% 0.10%
Profit for the year 11,739,502 6,079,323 5,660,179 93.1% 15.09% 10.44%
Attribute to:
Shareholders 9,844,760 4,669,869 5,174,891 110.8% 12.65% 8.02%
Minority interests 1,894,742 1,409,454 485,288 34.4% 2.43% 2.42%
11,739,502 6,079,323 5,660,179 93.1% 15.09% 10.44%
Earning(Losses) per share 0.079 0.037 0.042 113.5% 0.00% 0.00%
attribute to shareholders
2008 2007
CURRENT RATIO 0.8 0.51
QUICK RATIO 0.61 0.36
- -
WORKING CAPITAL 7,589,345 18,415,558
ACCOUNT RECEIVABLE
TURNOVER 10.56 7.86
INVENTORY TURNOVER 25.18 19.18
CURRENT ASSET TURNOVER 3.16 2.37
ASSET TURNOVER 0.33 0.24
GROSS PROFIT MARGIN 0.38 0.36
OPERATING PROFIT MARGIN 0.35 0.31
NET PROFIT MARGIN 0.15 0.1
RETURN ON ASSETS 0.05 0.03
RETURN ON EQUITY 0.08 0.04
TOTAL DEBT TO EQUITY 0.75 0.67
TOTAL DEBT RATIO 0.43 0.4
LONG TERM DEBT TO EQUITY 0.49 0.39
FIXED ASSETS TO EQUITY 1.11 1.1
LIQUIDITY RATIOS:
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1. Current Ratio = Current Assets
Current Liabilities
Current Ratio for 2008 = 30,330,014 = 0.80
37,919,359
Current Ratio for 2007 = 18,891,308 = 0.51
37,306,866
→A generally acceptable current ratio is 2 to 1. The rule of thumb says that current ratio
should be at least two; that is the current assets should meet current liabilities at least twice.
However, Zara’s current ratios for both years are lower than 1. In 2007, the company had only
51 cents worth of current assets for every dollar of liabilities. This grew to 80 cents in 2008
indicating increasing trend on liquidity, however the company is still unable to support its
short-term debt from its current assets and company have liquid problem. Since their current
ratio to low, they may be able to raise it by;
- paying some debts.
- increasing your current assets from loans or other borrowings with a maturity of more than
one year.
- converting non-current assets into current assets.
- increasing your current assets from new equity contributions.
-putting profits back into the business.
2. Quick Ratio = Current assets - Inventories - Other Current Assets
Total Current Liabilities
Quick Ratio for 2008 = 30,330,014 - 2,114,546 - 5,209,347 = 0.61
37,919,359
Quick Ratio for 2007 = 18,891,308 – 1,740,542 – 5,009,173 = 0.36
37,306,866
→Quick ratio is one of the best measures of liquidity. By excluding inventories, it
concentrates on the really liquid assets with value that is fairly uncertain. It helps to answer
the question: “If all sales revenues should disappear, could my business meet its current
obligations with the readily convertible ‘quick’ funds on hand?” If the ratio is equal or greater
than 1, the company can pay their short-term liabilities. In both years, Zara’s quick ratio is
lower than 1 and it means we they can not pay their short-term liabilities, but their quick ratio
is getting better from 2007 to 2008. They may increase their current assets or decrease the
current liabilities. Zara is a manufacturing company, so that current assets should be greater
than current liabilities.
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3. Working Capital = Total Current Assets-Total Current Liabilities
Working Capital for 2008 = 30,330,014 – 37,919359 = -7,589,345
Working Capital for 2007 = 18,891,308 – 37,306.866 = -18,415,558
→Working capital measures cash flow more than a ratio. The result of this calculation must
be positive. Bankers look at net working capital overtime to determine company’s ability to
whether financial crises. Loans are often tied to minimum working capital requirements.
Higher is safer but working capital has a low return; if too high, moneys better spent
elsewhere. Zara’s working capital is too low but again they are getting better from 2007 to
2008. they must have more working capital. They should increase total current assets or
decrease total current liabilities.
4. Account Receivable Turnover = Net Sales
Average Account Receivable
Account Receivable Turnover for 2008 = 77,820,204 = 10.56
(7,572,885+7,171,630)/2
Account Receivable Turnover for 2007 = 58,209,826 = 7.86
(7,572,885+7,171,630)/2
→It can be used to determine whether the company is having trouble collecting on sales it
provided customers on credit and it is used to assess the liquidity of the receivables. It
measures the number of times, on average, receivables are collected during the period.
Higher receivable turnover ratios are desirable. Indicated customers are paying quickly or
paying in cash. Zara’s account receivable turnover is good and getting better from 2007 to
2008.
5. Inventory Turnover = COGS
Average Inventory
Inventory Turnover for 2008 = 48,536,029 = 25.18
(2,114,546+1,740,542)/2
Inventory Turnover for 2007 = 36,968,097 = 19.18
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(2,114,546+1,740,542)/2
→This ratio reveals how well inventory is being managed. It is important because the
more times inventory can be turned in a given operating cycle, the greater the profit.
Because inventories are the least liquid form of asset, a high inventory turnover ratio is
generally positive. On the other hand, an unusually high ratio compared to the average for
your industry could mean a business is losing sales because of inadequate stock on hand.
Again inventory turnover is good and getting better from 2007 to 2008. It means Zara
have efficient management of inventory because the more frequently the stocks are sold,
the lesser amount of money is required to finance the inventory.
6. Current Asset Turnover = Net Sales
Average Current Assets
Current Asset Turnover for 2008 = 77,820,204 = 3.16
(30,330,014+18,891,308)/2
Current Asset Turnover for 2007 = 58,209,826 = 2.37
(30,330,014+18,891,308)/2
→Current asset turnover may be used as a broad measure of asset efficiency. How
efficiently a firm is using its current assets to generate revenue. Zara’s current asset
turnover is good and getting better from 2007 to 2008.
7. Asset Turnover = Net Sales
Average Assets
Asset Turnover for 2008 = 77,820,204 = 0.33
(255,579,679+221,360,437)/2
Asset Turnover for 2007 = 58,209,826 = 0.24
(255,579,679+221,360,437)/2
→Asset turnover shows the relationship between sales and assets. It is the calculation that
speaks volumes about the health of company. One general rule of thumb is that the higher
a company’s asset turnover, the lower the profit margin, since the company is able to sell
more products at a cheaper rate. Too low assets are useless assets but too high-perhaps not
enough assets, may be forgoing opportunities. Their asset turnover is too low, however
2008 is better than 2007. They should try to increase their asset turnover.
PROFITABILITY RATIOS:
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8. Gross Profit Margin = Net Sales - COGS
Net Sales
Gross Profit Margin for 2008 = 77,820,204 – 48,536,029 = 0.38
77,820,204
Gross Profit Margin for 2007 = 58,209,826 – 36,968,097 = 0.36
58,209,204
→It measures the percentage of sales dollars remaining available to pay the overhead
expenses of the company. A high gross profit margin indicates that a business can make a
reasonable profit on sales, as long as it keeps overhead costs in control. If your gross
profit is low, your net profit will be low. Zara’s gross profit is low, it may indicate that
competition has increased or that the company’s products have become less competitive
or both. If gross profit margin increases, either they increase their sales or decrease their
COGS. So, they should increase their number of sales items instead of increasing sales
price.
9. Operating Profit Margin = Operating Income
Net Sales
Operating Profit Margin for 2008 = 27,049,317 = 0.35
77,820,204
Operating Profit Margin for 2007 = 18,281,384 = 0.31
58,209,826
→Zara’s operating profit margin is getting better from 2007 to 2008.
10. Net Profit Margin = Net Income After Taxes
Net Sales
Net Profit Margin for 2008 = 11,739,502 = 0.15
77,820,204
Net Profit Margin for 2007 = 6,079,323 = 0.10
58,209,826
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→Net profit margin is used for measuring performance and is comparable across
companies in similar industries. Net profit margin is getting better from 2007 to 2008.
11. Return on Asset = Net Income(Profit)
Average Assets
Return on Asset for 2008 = 11,739,502 = 0.05
(255,579,679+221,360,437)/2
Return on Asset for 2007 = 6,079,323 = 0.03
(255,579,679+221,360,437)/2
→High return for assets means that company use their assets well. Zara’s return on asset
is very low. They have a liquidity problem and it causes troubles on profitability and
solvency. However, total asset is growing from 2007 to 2008.
12. Return on Equity = Net Income(Profit)
Average Equity
Return on Equity for 2008 = 11,739,502 = 0.08
(145,792,120+132,614,152)/2
Return on Equity for 2007 = 6,079,323 = 0.04
(145,792,120+132,614,152)/2
→High return on equity means happy shareholders/owners. Zara’s return on equity is very
low. They need to find new shareholders but it is really hard.
SOLVENCY RATIOS:
13. Total Debt to Equity = Total Debt
Shareholders’ Equity
Total Debt to Equity for 2008 = 109,787,559 = 0.75
145,792,120
Total Debt to Equity for 2007 = 88,746,285 = 0.67
132,614,152
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→A high debt to equity ratio generally means that a company has been aggressive in
financing its growth with debt. This can result in volatile earnings as a result of the
additional interest expense. If a lot of debt is used to finance increased operations (high
debt to equity) the company could potentially generate more earnings than it would have
without this outside financing. If this were to increase earning by a greater amount, then
the debt cost then the shareholders’ benefit as more earnings are being spread among the
same amount of shareholders. This can lead bankruptcy which would leave shareholders
with nothing.
14. Total Debt Ratio = Total Debt
Total Assets
Total Debt Ratio for 2008 = 109,787,559 = 0.43
255,579,679
Total Debt Ratio for 2007 = 88,746,285 = 0.40
221,360,437
→ Lower is safer. Too high means highly leveraged (either too much debt or too small
equity base) Also too low means inefficient use of equity. Their total debt to equity is low
and again there is an increase from 2007 to 2008.
15. Long Term Debt to Equity = Long Term Debt
Shareholders’ Equity
Long Term Debt to Equity for 2008 = 71,838,200 = 0.49
145,792,120
Long Term Debt to Equity for 2007 = 51,439,419 = 0.39
132,614,152
→ The long-term debt to equity ratio can tell you how much debt a company is using to
finance its operations. If this number is too high it may signify future liquidity problems. If
this number is too low it can signify inefficient use of the financing alternatives available
to a company. Long term debt to equity is increasing from 2007 to 2008.
16. Fixed Assets to Equity = Fixed Assets
Shareholders’ Equity
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Fixed Assets to Equity for 2008 = 161,953,400 = 1.11
145,792,120
Fixed Assets to Equity for 2007 = 146,501,707 = 1.10
132,614,152
→Fixed assets to equity indicates the company’s ability to satisfy long term debt. A ratio
is greater than 1 means that some of the fixed assets are financed by debt. Zara’s fixed
asset to equity ratio is greater than 1, so that they finance their debts with fixed assets.
