Beruflich Dokumente
Kultur Dokumente
Madumathi
MODULE 2
Business Analysis
• Ratio Analysis
Comparative Statements
years side by side, such that an absolute comparison of the financial statement
indicate the percentage change over the previous year. This indicates the
Comparative Statement
Ratio Analysis
Types Of Ratios
• Profitability Ratios
• Liquidity Ratios
• Turnover Ratios
• Leverage Ratios
• Market Measure Ratios
Profitability Ratios
Net Profit Ratio
Higher the net profit ratio better the operational performance of the
company. An increase in the net profit ratio is always viewed positively.
Return on Investment
Liquidity Ratios
Current Ratio
The current ratio indicates the solvency position of a company.
The higher the current ratio the safer the solvency poison of the company. This
confirms the ability of the company to meet its current obligation through its
high ratio. Very high ratio then industry standards or expected figure would
indicate that the company could shift funds locked up in current assets to earning
A quick ratio position of 1.0 would be an adequate position for the company, here
also very high ratios do not indicate profit positions, through they might indicate
Turnover Ratios
Inventory Turnover Ratio
The relationship between cost of goods sold and inventory
level held by the company is measured by this ratio. This ratio is best utilized by
standard indicates that huge inventory positions are held by the company that
needs to be managed properly. A very high ratio might indicate that ‘out-of-stock’
by this ratio. An increase in the debtors turnover ratio indicates that the collection
process has improve. On the other hand if the ratio has declined from that of the
previous accounting duration, their indicates that the collection process has to be
larger the payment duration than the collection duration the company has an
the company. This indicates that the company is able to generate more revenue
Leverage Ratio
Debt Equity Ratio
P/E Ratio
Price Earning multiplier compares the earnings of the company to the market
price. A low P/E ratio indicates under pricing by the market.
Dividend yield
Dividend yield is a profitability measure. Higher the dividend yield higher the cash
return to the investor. This indicates immediate cash return to the shareholder
from investment in the company.
• Dividend Yield:
Dividend Per Share / Market Price
• P/E Multiplier:
Earnings Per Share / Market Price
variable cost. Using this definition, break even point may be said to be that point
Example