Zain Company Income Statment Analysis

Those ratios show how carefully Zain manage it controls and monitor its expenses and how well their earnings, which is the primary source of cash to repay a loan in most cases, are likely to be protected and grow.

Expense control measures 2010 2009 2008 Trend Effect

Cost of goods sold/net sales 57.3% 70.8% 96.7% Decrease Positive

Administrative expense/net sales 6 12.5 51.4 Decrease Positive

Depreciation expense/net sales 25.1 46.4 86 Decrease Positive

interest expense on borrowed fund /net sales 2.37 3.44 44.6 Decrease Positive

Salaries / net sales .92 1.4 9.7 Decrease Positive

Ratios Calculations

2008

Cost of goods sold/net sales = 488,737/ 505,196 = 96.7%

Administrative expense/net sales = 260,082 / 505,196 = 51.4%

Depreciation expense/net sales = 1,021,382 / 505,196 = 86%

interest expense on borrowed fund /net sales = 225,532 / 505,196 = 44.6%

Salaries / net sales = 49,421 / 505,196 = 9.7%

2009

Cost of goods sold/net sales = 2,127,026 / 3,004,052 = 70.8%

Administrative expense/net sales = 375,898 / 3,004,052 = 12.5%

Depreciation expense/net sales = 1,394,310 / 3,004,052 = 46.4%

interest expense on borrowed fund /net sales = 633,742 / 3,004,052 = 3.44%

Salaries / net sales = 41,762 / 3,004,052 =1.4%

2010

Cost of goods sold/net sales = 3,403,922/ 5,934,370 = 57.3%

Administrative expense/net sales = 351,143 / 5,934,370 = 6%

Depreciation expense/net sales = 1,494,220 / 5,934,370 = 25.1%

interest expense on borrowed fund /net sales = 1,195,511 / 5,934,370 = 2.37%

Salaries / net sales = 54,648 / 5,934,370 =.92%

An indicator of the quality of the of a business firm's management is how carefully it controls its expenses and how well its earnings. The above table shows the ratios that indicate the firm's expenses control:

Zain expenses ratio (selling, administrative, depreciation and other expenses) relative to net sale are declining over the three years. Hence, the loan officer may say that the company are controlling their expenses well which caused its revenue to increased as well.

2. Operating Efficiency: Measure of Zain's Performance Effectiveness

The following ratios measure Zain's performance effectiveness in two dimensions:

How effectively assets are being utilized to generate sales and cash flow for Zain

How efficiently sales are converted into cash.

Operating efficiency measures 2010 2009 2008 Trend Effect

Inventory turnover ratio 8.3x 7.1x 8.1x Stable Positive

Turnover of total assets 0.21x 0.10x 0.18x Stable Positive

Turnover of fixed assets 1.3x 0.8x 0.2x Increase Positive

Average collection period 88.7 days 120.7 days 157.2 days Decrease Positive

Ratio's Calculations

2008

Inventory turnover ratio: cost of goods sold/ Average inventory= 488,737/ 59,832 = 8.1x

Turnover of total assets: Net sales/ Total Assets= 505,196 /26,665,430 = 0.18x

Turnover of fixed assets: Net sales/ Net fixed assets= 505,196 /2,408,987 = 0.2x

Average collection period: Accounts receivable/ (Net sales /360) = 220,632 / (505,196 /360) = 157.2 days

2009

Inventory turnover ratio: cost of goods sold/ Average inventory= 2,127,026 /297,475= 7.1x

Turnover of total assets: Net sales/ Total Assets= 3,004,052 /27,830,113= 0.10x

Turnover of fixed assets: Net sales/ Net fixed assets= 3,004,052 /3, 846,700= 0.8x

Average collection period: Accounts receivable/ (Annual sales/360) = 1,007,247/ (3,004,052 /360) = 120.7 days

2010

Inventory turnover ratio: cost of goods sold/ Average inventory= 3,403,922/408,527= 8.3x

Turnover of total assets: Net sales/ Total Assets= 5,934,370 /28,055,437= 0.21x

Turnover of fixed assets: Net sales/ Net fixed assets= 5,934,370 /4,298,200 = 1.3x

Average collection period: Accounts receivable/ (Annual sales/360) = 1,463,166/ (5,934,370 /360) = 88.7 days

The second table is operating efficiency ratios: which tell how effectively are assets being utilize to generate sales and how efficiently are sales converted to cash.

1. Inventory turnover: indicate management effectiveness in controlling the size of the company's inventory position-the ratio show a flat increasing means in the year of 2008 it was 8.1 then it decrease at 7.1 in 2009 then again slightly increase at 8.3 this is not encouraging for the lender because the higher the inventory ratio the better it is for the lender as it shows the number of times during a year Zain turns over its investment in inventories by converting those inventories to goods sold. If the ratio is stable it indicate poor customer acceptance of zain's products.

2. As for turnover fixed assets and total assets, indicate how rapidly sales revenues are being generated as a result of using up the company's plant and equipments(fixed assets)to produce goods or services. In zain situation this ratio is raising as it indicated in the balance sheet also an increase in the fixed assets so it means the company is utilizing their fixed assets to