1 Analysis on Financial Ratio 1.Caution and Limitation in Analyzing the Financial Ratio (1)Caution (2)Limitation 2. Standard Ratio 3. Analysis on Balance Sheet Ratio (1)Liquidity Ratio (2)Leverage Ratio (3)Stability Ratio 4. Analysis on Income Statement Ratio (1)Profitability Ratio (2)Activation Ratio (3)Productivity Ratio (4)Growth Ratio

2 1. Caution and Limitation in Analyzing Financial Ratio (1)Caution Caution in Analyzing Financial Ratio First. Financial ratio itself cannot be basis for decision-making. Second, Diverse estimation and determination is interposed in financial statement Third, Ratio completely depends on reliability of data used in calculation of ratio “ GARBAGE IN, GARBAGE OUT ” Limitation in Analyzing Financial Ratio First, Reflection of circumstances, transaction, incidents and environment of past Second, Ratio is reflected as previous book value Third, Calculation of ratio is completely standardized Fourth, Difference between companies and each period has influence on ratio in applied accounting principle and policy Fifth, It is difficult to compare between companies although they belong to same industry when company is diversified or their risk is different 2. Standard Ratio What is Standard Ratio? Financial ratio that is standard to judge good or bad of measured financial ratio Type of Standard Ratio Industrial Standard Ratio Average ratio of companies belong to same industry with analysis target company Previous Average Ratio Average ratio calculated using financial data of previous several years of analysis target company Ideal Benchmarks Ratio generally recognized by previous experience Realizable Ratio Ideal goal ratio of the company recognized to be realizable (2)Limitation 3. Analysis on Ratio of Balance Sheet Liquidity Ratio Ratio to measure the payment capability of short-term bond of company (1)Liquidity Ratio 1. Ratio presenting how much current asset there is to appropriate to payment of short-term loan Liquidity Ratio= Current Asset/Current Liabilities x100 Value of Ratio Excellent Liquidity Value of Ratio Lowering of payment capability of company for short-term bond 2.In analyzing the liquidity ratio, contents of liquidity asset is grasped and meaning of liquidity ratio is specified *Does summed current asset has asset value equivalent to book value *Can asset be appropriated immediately in payment of short-term bond *Can ’ t possessing Inventory be utilized *Does non-collectible trade receivables exist as bad bond *Summing of liquidity asset of investment securities *Change in current ratio based on discount scale to be received Quick Ratio = Quick Asset/Current Liabilities x100 = (Current Asset – Inventory)/Current Liabilities x Ratio evaluating the payment capability of short-term loan with only quick asset easy for self-liquidating including the cash, cash equivalents or trade receivables, marketable securities, etc

3 Leverage Ratio Ratio to measure who much company depends on other ’ s capital. Referred to as liability ratio (2)Leverage Ratio 2.Position of Creditor in Bond Management- Standard liability ratio shall be less than 100% considering stability of bond collection Liability Ratio = Liability / Equity x100 3.Position of Equity of Company- Prefers the high liability ratio since it can increase the profitability of Equityl 1.Ratio in that other ’ s capital is divided by equity Ratio of Equity=Equity/Total Capital x100 2.One of the financial stability index used to determine propriety of capital composition 3.Company with ratio of equity of over 50% is evaluated to be excellent in stability 1.Ratio presenting the ratio equity takes in total capital Dependency on Loan= Total Loan/Total Capital x Analysis on qualitative aspect including the composition of short-term and long-term loan, composition of loan financial institution, trend in interest for each loan, type of repayment expiration, etc 1.Composition ratio of loan to total capital and it is utilized to evaluate level of financial risk for company Interest Coverage Ratio= Ordinary profit before Interest Payment/ interest expense Ratio presenting how many times ordinary profit before interest payment is to interest expense generated using the other ’ s capital It presents that interest expense is normally paid when it is over day (1). Ratio of Plant to Long-Term Liabilities= (investment asset+ tangible asset+ intangible asset)/(fixed liabilities+ equity) x100 1.Ratio presenting the appropriateness in procurement of fund operated to fixed asset and degree of fixation in investment 2.It is determined to be excellent when it is around 100% 3.In case ratio is excessively high or low, it can be considered that harmony between procurement and operation of capital has been broken off Stability Ratio Ratio measuring how procured capital is properly distributed in asset of company. (3)Stability Ratio 1.It is equity divided by fixed asset and ratio measuring the degree of fixation of equity Fixed Ratio= Fixed Asset/equity x General ratio of fixed ratio is less than 100% Exceeding the Ratio of Plant to Long-Term Liabilities of over 100% Procurement considerable amount of current liability for investment for tangible asset or investment asset Remarkably low in ratio of plant to long-term liabilities Considerable amount of investment on current asset is carried out with long-term capital Meaning investment on more profitable asset is dull Possibility for default in repayment exists with increase in financial risk

4 4. Analysis on Ratio of Income Statement Profitability Ratio Ratio measuring the performance of management activity during certain period in integration (1)Profitability Ratio Gross-profit margin= Gross profit/ sales X Ratio dividing gross profit by sales and ratio measuring the productivity of company 2.Sales cost ratio is calculated by deducting gross-profit margin from 1 Operating Income to Sales =Operating Income/Sales x Ratio dividing operating profit by sales and ratio measuring the productivity of unique sales activity of company 2. Reflect sales strategy, productivity, management and sales productivity of company => widely utilized in profitability analysis of company 3. It is evaluated to be excellent in profitability when operating income to sales is high Ordinary Income to Sales = Ordinary Income/sales x100 1.Ratio dividing ordinary profit by sales, ratio presenting the profitability after taking charge of interest expense in stage next of operating profit 2. Company with fair operating profit to sales but low ordinary profit to sales => Company with burden of Financial expense with excessive loan 3. Company with low operating profit to sales but fair ordinary profit to sales =>Company with great interest profit With considerable amount of financial asset 4. Since burden of financial expense of manufacturers in Korea is very high, ordinary profit to sales is very low Net profit to sales = net profit/sales x100 1.Ratio dividing net profit by sales, ratio used to determine the efficiency in overall management of company Operating profit to capital = Operating profit/total capital x100 1.It is called operating profit to asset and rating of profit acquired from sales activity to total capital invested by company 2.Important financial information used to estimate the investment profitability and current net value of company ROE (Return on equities) = net profit/equity x100 1.Ratio dividing net profit by equity, ratio measuring the profitability acquired regarding the capital invested on company by shareholders 2. ROE is considered to be normal when at least it is over normal interest level in market ROI (Return on investments) =net profit/total capital x100 1.Ratio dividing net profit by total capital, ratio measuring how much profit do total capital invested to company creates ultimately 2. ROI is ratio combination of income statement and balance sheet and it is used as standard index of overall financial control system of company

5 (2)Activation Ratio trade receivables turnover ratio = sales/trade receivables x Ratio dividing sales by trade receivables, ratio measuring the liquidation speed of trade receivables 2.High trade receivables turnover ratio- it means excellence in trade receivables management and quick liquidation speed of trade receivables *trade receivables is determined of size by sales, credit period, supply & demand policy, etc Activation Ratio Rating that presents how company is effectively utilizing the resource possessed Inventory turnover ratio =sales/inventoryx Rotating speed presenting how many times inventory has turned into quick asset during certain period 2. Low inventory turnover ratio - Possibility for generation of problem including the lack of operating fund with excessive inventory compared to sales 3. High inventory turnover ratio- It is interpreted to be excellent in activity and there is concern for generation of chance loss if it is excessively high 4.Inventory turnover period = 1/inventory turnover ratio 3.Average trade receivables turnover period = 1/trade receivables turnover ratio = trade receivables/sales×365 days Trade payables turnover ratio = sales/trade payablesx100 1.Trade payables turnover ratio is ratio dividing sales by trade payables and ratio measuring the payment speed of trade payables 2.Trade payables turnover period = 1/trade payables turnover ratio = trade payables/sales × 365 days Inventory Turnover Ratio 6 = Sales rotates 6 times a year 6 times the inventory Inventory turnover period is 2 month 1 year divided by 6 “ Relation between turnover ratio and turnover period ” Turnover ratio and turnover period is in an inverse relation Operating fund turnover ratio =sales/ operating fund (trade receivables + inventory – trade payables) x High operating fund turnover ratio *Positive aspect In case turnover ratio is quick due to early collection of trade receivables, reduction scale of inventory with effective management, extension in date of trade payables, etc., it is considered as excellent flow of operating fund flow *Negative aspect When it is by not securing appropriate inventory due to lack of fund, extension in day of trade payables of affiliated company, etc, Iit can be distorted as excellent flow of operating fund =>When examining the operating fund turnover ratio in practical affairs, evaluation on details of each operating fund shall always be carried out together 2. Low operating fund turnover ratio *it means that speed of cash inflow through sales activity is not smooth =>It shall be evaluated in comparison with industrial average or operating fund turnover ratio of competitors, analysis on turnover period shall be carried out as well

6 Total asset turnover ratio =sales/total assetx100 Equity turnover ratio =sales/equityx100 1.Ratio dividing sales by equity and ratio presenting utilization of capital invested by shareholders 1.Ratio dividing sales by total asset, index presenting the utilization of total asset invested by company in overall 2. Low equity turnover ratio * Ineffective utilization of equity with excessive equity and too small sales 3. High equity turnover ratio * Large scale of sales with effective utilization of equity When equity turnover ratio is excessively fast, dependency on other ’ s capital is excessively high. Therefore, Financial stability is low and examination on possibility for bad company by capital encroachment shall be carried out Productivity Ratio Ratio presenting how much value company creates with investment of resource (3)Productivity ratio Value added ratio = value added/salesx100 1.Ratio dividing value added created in certain period by sales during same period 2.Calculation method of value-added Subtraction Method Seek by subtracting the external input including raw cost of material, outsourcing manufacturing cost, etc from production of 1 year Adduction Method Method to calculate value-added by summing up all composition of value-added 3. Composition Items of Value-Added Ordinary Profit Including special gain and loss, corporate tax, dividend, advance, etc Ordinary profit is share distributed to government, shareholders and company Labor Cost Including raw cost of labor, welfare expense, wage, bonus, allowance, etc Share directly and indirectly distributed to the labor Net Financing Cost Share distributed to debtor including the remaining after deducting interest earned from total of interest expense, discount and company-bonds interest Rent Rent for land, building, machinery, etc Share distributed to owner of land and building Tax, Utility Bills All tax and utility bill except corporate tax Share distributed to government and local self-governing organization Depreciation Depreciation generated in manufacturing and sales management sector Share fundamentally re-distributed to company “ Value-added is the value created by company and it is distributed to interest party whom helped company activity ” Labor productivity = value-added/no. of staffx100 2.Meaning value created for 1 year by 1 staff, it is important standard in determination of wage 1.Ratio dividing value-added by no. of staff, index presenting the productivity per unit of labor Productivity in Capital =Value-added/total capitalx100 1.Rate presenting how much value-added can invested total capital by company can create for 1 year 2.High productivity of capital=>meaning effective operation of capital

7 Growth Ratio Index presenting the growth of company in current year compared to previous year, Index indirectly presenting competitiveness or future profit creating ability of company (4)Growth Ratio Sales increase ratio= (sales for current term-sales for previous term)/sales for previous termx Ratio presenting how much sales has increased in current year compared to previous year 2. Physical growth measurement index and quick sales increase ratio than competitor means the increase in market occupation Total asset increase ratio= (total asset at end of current term-total asset at end of previous term/total asset at end of previous term x Index measuring the scale of physical growth, ratio presenting how much total asset increased in current year compared to previous year 2. Increase in scale of total asset does not guarantee the actual growth of company =>Actual increase shall be determined with net profit increase ratio and earning per share Equity increase ratio= (equity at end of current term-equity at end of previous term)/equity at end of previous term x Index presenting how much equity has increased in current year compared to previous year 2. Growth index grasping how much wealth of shareholder has increased with book value Net profit increase ratio=(net profit of current term-net profit of previous term)/net profit of previous term x Ratio presenting how much net profit of current year has increased compared to previous year