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DuPont Analysis: A DuPont Analysis of Milton Ltd. and the technology industry is show in table below. The information reflected by the DuPont analysis is similar to the information interpreted by analysing ratios: Milton Ltd. must focus on financial performance by increasing the profitability of the company. In contrast to the industry as whole, Milton Ltd has a demerit in its profitability ratio (Return on Asset of 10% in comparison to 13% for the industry) but have better utilization of assets (Total Asset turnover of 1.26 in comparison to 1.13), resultant efficiency to generate profit from total asset. Further has a low return on equity due to its low net profit margin. Increase in sales revenue may help the ROA situation. Since higher leverage ratio tends to decrease net profit margin, it indicates that net profit is expected to be 8% in comparison to 12% from industry averages. New product development investments must be intently assessed to guarantee that Milton Ltd. is creating products that will be esteemed in the commercial centre. Be that as it may, other companies from industry will not just give Milton Ltd. a chance to accelerate sales and market share of the overall industry to their detriment.

MILTO N LTD. RETURN ON EQUITY= 12% X NET PROFIT MARGIN 8% X TOTAL ASSET TURNOVER 1.26 X ASSET-TOEQUITY RATIO 1.26

INDUSTR Y

18% 12% 1.13 1.33

Above Table (available upon request) shows the Return on Asset (ROA) portion of the Dupont analysis ROE = NPM * TAT * A/E = ROA * A/E

Short Term Liquidity Management:

Liquidity (Short-term solvency) Ratios 2.50 2.17 2.00

2.01

1.50

1.28

1.00

0.88 0.44

0.50

0.16 0.00

Current Ratio

Quick Ratio

Cash Ratio

Relative to the Industry averages such as quick ratio and cash ratio at 0.88 and 0.16, Milton Ltd enjoys favourability in liquidity at 1.28 and 0.44. This indicates that Milton Ltd. has strong position to meet its short-term obligations. This improvement in liquidity is highlighted from decreases in the current position of long-term debt (bank loan). But a major amount improvement is attributable to large increases in cash and cash equivalents. There was a rise in balance of cash and cash equivalents during the period (can be witnessed through the model). The expansion in cash is because of improving the collection cycle and efficient utilization of assets for money-oriented transactions. Well after evaluating the liquidity ratio, it can be forecasted that keeping aside excessive cash balance will only provide loss to business as it does not generate return or profits. Too much contribution to cash balance will lead to adding up cost to business and loosing of opportunity cost. The ideal current ratio must be 2:1 wherein company can maintain ability to pay short term liabilities and which can subsequent contribute to increase in net profit margin.

Capital structure and Debt Management In order to understand the capital structure, both short term and long-term is analysed. To have better view of capital structure, Debt-to-Equity ratio is referred. This is used to gauge the extent to which a company is taking on debt as a means of leveraging its assets and provides insight into the riskiness of a company to invest in. Generally, a high Debt-to-Equity ratio is associated with high risk; it means that a company has been aggressive in financing its growth with debt and recognised as relatively highly levered. From the previous year data provided in model, it can be witnessed that there has been a trend of decrease in long term debt (bank loan). The capital structure of Milton Ltd. is financing its overall operations and growth by using different sources of funds. Company has financed its debt from bank loan whereas share capital has been classified as equity and retained earnings. As the long-term debt had decline on year-on-year basis, it has significantly decreased the cost of debt as well. However, Milton Ltd expects to have lower Debt-to-Equity ratio in contrast to Industry averages at 0.26 against 0.33 respectively which may also indicate that

company will not take advantage of the increased profits that the financial leverage may bring.

Summary and Conclusion: The Milton Ltd. is young and dynamic company which operates in a software development and retailing. In this report, I have shown that financial ratio analysis evaluates and provides the expected liquidity, solvency, profitability and turnover ratios about the Milton Ltd in FY2023. After assessing the financial ratios, Milton Ltd is expected to have strong short-term solvency or liquidity, hence it provides company with credibility while taking loans from financial institutions. Further company also reflects the significant improvement in operational efficiencies. Increase in activity turnover ratios are a good indication a company is using its assets, managing production and driving sales effectively. The main concern of the company is profitability, they have to improve net profit margin by decreasing the ideal cash kept to meet short term obligation....