Gross profit margin is used to measure of profitability that will show the percentage of sales is revenue. The gross profit margin of AirAsia Company is 19.86% but in Malaysian Airline company is 4.08%. The gross profit margin of Airsia Company is more than the Malaysian Airline company.
Net profit margin is used to determine the profitability generated from the income. The net profit margin of AirAsia Company is 16.16% but for the Malaysian Airline is 4.36%. The net profit margin of AirAsia Company is larger than the Malaysian Airline.
Return on total asset is used to determine the efficiency of the company which the management used the available resources to generate the income of the company. The return on total asset of the AirAsia company is 4.4% but the Malaysian Airline company is 5.7%. So, the Malaysian Airline company is more efficiency on the return of total asset if compare with the AirAsia company.
Return on common equity is used to indicate the rate of return that the company earned on the common stockholder's investment. The return on common equity of the AirAsia Company is 24% but the Malaysian Airline is 20%. So the rate of return on the AirAsia is better than the Malaysian Airline company.
Return on capital employed is used to measure different aspects of financial performance of the company. The return on common equity of AirAsia Company is 19% but the Malaysian Airline is 16%. So the AirAsia company financial performance is better than the Malaysian Airline company.
Liquidity ratio
Liquidity ratio
Formula
AirAsia
(RM'000)
Malaysian
Airline (RM'000)
Net working capital
Current assets - Current liabilities
2,220,972 -1,709,688
= 511,284
4,733,130 - 5,504,240
= -771,110
Current Ratio
= 1.3
= 0.86
Acid-test (Quick) Ratio
= 1.13
= 0.75
Liquidity ratio is refers to the level of ease that the asset of the company can be turned into cash without making any loss. There are two common ratios that used to measure liquidity which are current ratio and acid-test ratio.
The current ratio of the AirAsia company is 1.3 while the Malaysian Airline is 0.86. Generally, the current ratio of the organization should be between 1.5 and 2. The current ratio which less than 1.5 means that the company have a poor liquidity position. It shows that both AirAsia company and Malaysian Airline have a liquidity position and thus future insolvency.
The acid-test ratio is used to indicate the ability of the company to pay the creditors, current taxation, and others. The acid-test ratio of the AirAsia company is 1.13 but the result of the Malaysian Airline just have 0.75. In generally, the result of the acid-test ratio should be at least 1. If the result is below 1, then the company might face losses in the business.
The result of net working capital of AirAsia company is RM511,284,000 but the Malaysian Airline company have a negative result which is RM- 771,110. It means that Malaysian Airline have no more capital to expand their business but the AirAsia company is able to expand their business.
Asset utilization (activity) ratio
Asset utilization (activity) ratio
Formula
AirAsia
(RM'000)
Malaysian
Airline (RM'000)
Account receivable turnover
=4.442
= 6.94
Average collection period
= 21.16 = 21 days
x 365 days
= 45.05 = 45 days
Inventory turnover ratio
-----
-----
Fixed Asset turnover
= 0.34
= 2.98
Total asset turnover
= 0.27
= 1.33
Asset utilization ratio is used to determine on how effective the firm on managing their own assets. We can calculate the asset utilization ratio by calculate it's accounts receivable turnover, average collection period, inventory turnover ratio, fixed asset turnover and total asset turnover.
Account receivable turnover is used to indicate how many times the account receivable collected during the year. The account receivable turnover of the AirAsia company is 4.442 but the Malaysian Airline company is 6.94. So the account receivable turnover of the Malaysian Airline is better than the AirAsia company.
Average collection period is used to indicate the days that the firm collect the account receivable. The average collection period of the AirAsia Company is 21 days but the Malaysian Airline Company is 45 days.
Fixed asset turnover is refers to how firm's used the fixed asset to generate income of the company. The fixed asset turnover of the AirAsia Company is 0.34 but the Malaysia Airline company is 2.98. It means that Malaysia Airline can more efficiently in using fixed asset to generate their company income.
Total asset turnover is refers to the ability that the company used their asset to generate income such as fixed asset and current asset. The total asset turnover of the AirAsia company is 0.27 but the Malaysian Airline Company is 1.33. So the Malaysian Airline company is more capable in using their asset to generate the income of the company.
Leverage ratios
Leverage ratios
Formula
AirAsia
(RM'000)
Malaysian
Airline (RM'000)
Debt ratio
= 0.15 : 1
= 0.65 : 1
Debt/ equity ratio
= 0.65 : 1
= 11.23 :1
Times interest earned (Interest coverage) Ratio
= 2.43
= 4.465
Leverage ratio is used to calculate the financial leverage of the company to indicate the ability to meets financial obligations. The leverage ratio is included debt ratio, debt per equity ratio and times interest earned.
Debt ratio is used to evaluate the percentage of total funds of the company obtained from the creditors. The debt ratio of the AirAsia company is 0.15 : 1 but the Malaysian Airline is 0.65:1.
Debt per equity ratio is a measurement that used to calculate by dividing total liabilities by shareholders' equity. The debt per equity ratio of the AirAsia company is 0.65:1 but the Malaysian Airline company is 11.23:1.
Times interest earned is used to calculate the number of times earnings before interest and taxes and divide by total interest payable. The times interest earned of the AirAsia company is 2.43 but the Malaysian Airline company is 4.465.
Market Value Ratio
Market Value Ratio
Formula
AirAsia
(RM'000)
Malaysian
Airline (RM'000)
Earnings per share
= 0.206
= 20.6 cent
= 0.293
= 29.3 cent
Price/Earnings Ratio
= 0.485
= 48.5%
= 0.341
= 34.1 cent
Book value per share
= 5.24
= 1.53
Dividend yields
-----
-----
Dividend payout
-----
-----
Market value ratio is related to the firm's stock price to its earnings per share. Market value ratio is included earnings per share, price per earnings ratio, book value per share, dividend yield and dividend payout.
Earnings per share are used to indicate the amount of earnings for distribution as dividends to ordinary shareholders. The earnings per share of the AirAsia Company are 20.6 cent but the Malaysian Airline is 29.3 cent.
Price per earning is used to indicate the investing public considers the company. The price per earning of the AirAsia Company is 0.485 but the Malaysian Airline Company is 0.341.
Book value per share is the book value per share compare with the market price per share. The book value per share of the AirAsia Company is 1.07 but the Malaysian Airline Company is 1.53.
Limitations or problems of using accounting ratios
There are many limitations when we analyze the ratio analysis.
The first limitation is if we compare between a companies with another company over time might be misleading. This is because the accounting policies that the company used might different with another company which they used calculate the profits and value assets. So that different accounting policies can distort comparisons.
The data that need to be used in some of the ratios are not disclosed or never mentioned in published accounts. For example, for comparing two Airline company, it is unable to find out the inventory turnover rate because both of the companies are in the service sector. So that they have no cost of goods sold. On the other hand, it is also unable to calculate the dividends yields and dividends payout because the company had never mentioned the dividends per share at the end of Dec 2009.
The evidence that AirAsia company and Malaysian Airline Company that did not mentioned on the dividends in the respect of year
The general performance criteria of the company that maybe applied to certain ratios are not appropriate for all types of industry. For example, the price per earnings ratio is often between 10 and 25 that considerably between in the same industry. The result that calculated from both of the AirAsia Company and Malaysian Airline Company are 0.485 and 0.341.
On the other hand, the limitations are also no standard year ends among the companies. For example, Company A annual report was established at 15 September 2009 but the Company B was established their company annual report at 27 September 2009. The date of the annual report is different. So when we comparing the ratio between Company A and Company B will have some error although we calculate all the ratios.
