Beruflich Dokumente
Kultur Dokumente
1
14-09-2017
FINANCIAL STATEMENTS
ANALYSIS
Ratio Analysis
Ratio Analysis
2
14-09-2017
Basis of Comparison
1) Trend Analysis involves comparison of a firm over a
period of time, that is, present ratios are compared with
past ratios for the same firm. It indicates the direction of
change in the performance improvement, deterioration
or constancy over the years.
Types of Ratios
Integrated
Growth Ratios
Analysis Ratios
3
14-09-2017
Liquidity Ratios
4
14-09-2017
Current Ratio
Current Ratio is a measure of liquidity calculated dividing
the current assets by the current liabilities
Current Assets
Current Ratio =
Current Liabilities
(Rs. in Lakh) (Rs. in Lakh)
Particulars Firm A Firm B
Current Assets Rs 180 Rs 30
Current Liabilities Rs 120 Rs 10
Current Ratio = 3:2 (1.5:1) 3:1
Acid-Test Ratio
The quick or acid test ratio takes into consideration
the differences in the liquidity of the
components of current assets
Quick Assets
Acid-test Ratio =
Current Liabilities
5
14-09-2017
Cash Rs 20
Debtors 20
Inventory 120
Total current assets 160
Total current liabilities 80
(1) Current Ratio 2:1
(2) Acid-test Ratio 0.5 : 1
Inventory Turnover
Debtors Turnover Ratio
Ratio
6
14-09-2017
The ratio indicates how fast inventory is sold. A high ratio is good
from the viewpoint of liquidity and vice versa. A low ratio
would signify that inventory does not sell fast and stays
on the shelf or in the warehouse for a long time.
A firm has sold goods worth Rs 300 lakh with a gross profit margin of
20 per cent. The stock at the beginning and the end of the year
was Rs 35 lakh and Rs 45 lakh respectively. What is the
inventory turnover ratio?
Inventory 12 months
= = 2 months
holding period Inventory turnover ratio, (6)
7
14-09-2017
A firm has made credit sales of Rs 240 lakh during the year. The
outstanding amount of debtors at the beginning and at the end
of the year respectively was Rs 27.5 lakh and Rs 32.5 lakh.
Determine the debtors turnover ratio.
8
14-09-2017
Creditors 12 months
= = 3 months
payment period Creditors turnover ratio, (4)
9
14-09-2017
10
14-09-2017
I. Debt-equity ratio
Debt-equity ratio measures the ratio of long-term or total
debt to shareholders equity.
If the D/E ratio is high, the owners are putting up relatively less
money of their own. It is danger signal for the lenders and
creditors. If the project should fail financially, the
creditors would lose heavily.
A low D/E ratio has just the opposite implications. To the creditors, a
relatively high stake of the owners implies sufficient safety
margin and substantial protection against
shrinkage in assets.
11
14-09-2017
Trading on Equity
Trading on equity (leverage) is the use of borrowed funds in
expectation of higher return to equity-holders.
12
14-09-2017
Total debt
Debt to total capital ratio =
Permanent capital
Proprietary funds
Proprietary ratio = X 100
Total assets
13
14-09-2017
Coverage Ratio
Interest Coverage Ratio
Interest Coverage Ratio measures the firms ability to make
contractual interest payments.
Profitability Ratio
Profitability ratios can be computed either from
sales or investment.
14
14-09-2017
Profit Margin
15
14-09-2017
Rs 100
(1) Gross profit margin = = 50 per cent
Rs 200
Rs 50
(2) Net profit margin = = 25 per cent
Rs 200
Expenses Ratio
Cost of goods sold
i. Cost of goods sold = X 100
Net sales
Administrative exp. + Selling exp.
ii. Operating expenses = X 100
Net sales
Administrative expenses
iii. Administrative expenses = X 100
Net sales
Selling expenses
iv. Selling expenses ratio = X 100
Net sales
Cost of goods sold + Operating expenses
v. Operating ratio = X 100
Net sales
Financial expenses
vi. Financial expenses = X 100
Net sales
16
14-09-2017
Return on Investment
Return on Investments measures the overall effectiveness
of management in generating profits with
its available assets.
17
14-09-2017
Efficiency Ratio
Activity ratios measure the speed with which various
accounts/assets are converted into sales or cash.
Inventory turnover measures the efficiency of various types
of inventories.
i. Credit sales
i. Inventory Turnover
Debtors turnover = measures the activity/liquidity of inventory of
a firm; the speed with
Average
whichdebtors
inventory
+ Average
is sold bills receivable (B/R)
Months (days)
i. Inventory Turnover in a year
measures (x) (Average Debtors
the activity/liquidity + Average
of inventory of a(B/R)
Alternatively =
Total credit
firm; the speed with which inventory is sold sales
18
14-09-2017
19