Assignment #1

Tri Pack Film Limited

Analysis of Solvency Ratios

Submitted To:
Sir Hafiz Imran

Submitted By:
Mohammad Usman
MB09036
MBA 4th (Morning)

University of the Punjab

Gujranwala campus
Solvency:

“The ability of a company to pay its long term debt or obligations is called
solvency”

Years involved:
Base year 2009

Current year 2010

Items included:

Profit

Interest

Debt

Equity

Total asset

long term debt

Intangible assets
Analytical table:

Name of Current Base Results Reasons for change

ratio year Year
Time interest EBIT 18 % ↑
earned 4.62 times 3.57 times Favourable Interest 3.67 % ↓
Fixed EBIT 18 % ↑
payment 2.14 times 1.80 times Favourable Fixed charges 2.86 %↓
overage ratio
Total debt 10.68 % ↓
Debt ratio 0.59 0.65 Favouable T.assat 2.59% ↓

Equity 12.20% ↑
Equity ratio 0.40 0.35 Favourable T.asset 2.59% ↓

Debt to Long term debt 6.3% ↓

equity 0.34 0.56 Favourable Equity % 12.20% ↑

Debt to Long term debt 6.3% ↓

tangible tangible networth
0.34 0.56 Favourable 12.47 % ↑
networth
Critical Analysis:

The solvency result of company Tri pack films limited is showing highly
favourable trend as compared to base year. Company’s periodical payment paying ability and
original debts paying ability is going better. The major reasons of solvency growth are increasing
EBIT 18%, decreasing interest 3.67%, total debt decreasing 10.68%, and equity increasing
12.20%. increasing tangible networth 12.47%.

Periodical payment paying ability:

Periodic payment paying ability of the company is favourable because company’s EBIT is
increasing 18% while interest charges are decreasing 3.67%. by looking the capital structure of
the company it comes into knowledge the company is decreasing its debts and increasing its
equity. Due to which company is performing well and has more security level toward the lender
for debt paying and interest charges.

Capital structure:
Company is more equity oriented company and this trend toward the equti orientation is
becoming stronger as compared to base year in current year. Company Long term debt 6.3% ↓
and Equity % 12.20% ↑ as compared to base year due to company’s overall solvency is going to
better. But company should not more equity oriented and should maintain a suitable level for so
that company could take benefit of tax shield and its EPS will also increase.