Ratio analysis b.v.raghunandan

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Ratio analysis b.v.raghunandan

  1. 1. Ratio Analysis<br />B.V.Raghunandan,<br />SVS College,<br />Bantwal<br />
  2. 2. Definition<br />Ratio Analysis is a financial technique of measuring the strength and weakness of an organisation out of information available from financial reports specifically from the Balance Sheet and Income Statement<br />
  3. 3. Advantages<br />Measuring the efficiency of organisations<br />Measuring the liquidity position of the companies<br />Measuring the capacity of companies to borrow in the future<br />Understanding the overall financial position of organisations<br />Estimating the solvency of the companies<br />Helping in forecasting<br />
  4. 4. Disadvantages<br />Only quantitative tools<br />Manipulation of accounting figures<br />Too many analytical tools lead to varied interpretation<br />Based on past data<br />Same data may be interpreted in different ways<br />Vested interests<br />Measuring the changes in price levels<br />Accounting policies have the impact<br />Only symptoms and not cure<br />
  5. 5. Different Ratios<br />A] Liquidity Ratios<br />B] Solvency Ratios<br />C] Activity Ratios<br />D] Profitability Ratios<br />E] Shareholders’ Ratios<br />
  6. 6. A] Liquidity Ratio<br />Current Ratio = <br />Acid Test Ratio= <br />Working Capital Turnover Ratio = <br />
  7. 7. B] Solvency Ratios<br /> 1) Debt-Equity Ratio = <br /> 2) Capital Gearing Ratio = <br /> 3) Proprietary Ratio = <br /> 4) Interest Coverage Ratio = <br />
  8. 8. C] Activity Ratio (Turnover Ratios)<br />Capital Turnover Ratio<br />Fixed Assets Turnover Ratio<br />3. Current Assets Turnover Ratio<br />4. Total Assets Turnover Ratio<br />5. Stock Turnover Ratio<br />6. Debtor Turnover Ratio<br />
  9. 9. Some of the Activity Ratios<br /> 1) Capital Turnover Ratio<br /> =<br />where Capital Employed is long-term funds<br />
  10. 10. Activity Ratios..contd<br />2) Fixed Assets Turnover Ratio =<br /> 3) Current Assets Turnover Ratio=<br /> 4) Total Assets Turnover Ratio = <br />
  11. 11. Activity Ratio….contd<br />5) Stock Turnover Ratio =<br />6) Operating Ratio = <br />
  12. 12. D] Profitability Ratios<br />Gross Profit Ratio<br />Net Profit Ratio<br />Return on Total Assets<br />Return on Equity <br />
  13. 13. Formulae for Profitability Ratios<br />Gross Profit Ratio =<br />2) Net Profit Ratio = <br />
  14. 14. Formulae contd…..<br />3) Return on Total Assets =<br />4) Return on Equity = <br />
  15. 15. E] Shareholders’ Ratios<br />1) EPS=<br />2) Price-Earning Ratio =<br />3) Dividend Yield Ratio=<br />4) Dividend Payout Ratio= <br />
  16. 16. THANK YOU<br />

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