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# Ratio analysis @ bec doms

## on Jan 27, 2012

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Ratio analysis @ bec doms

Ratio analysis @ bec doms

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## Ratio analysis @ bec domsPresentation Transcript

• Chapter 5 Ratio Analysis
• Competencies for Ratio Analysis
• Identify standards against which the results of ratio analysis may be compared.
• Explain the function and purposes of ratio analysis.
• Identify common classes of ratios and describe the general purpose of each.
• Calculate common liquidity ratios and describe how creditors, owners, and managers view them.
• Calculate common solvency ratios and describe how creditors, owners, and managers view them.
(continued)
• Competencies for Ratio Analysis
• Calculate common activity ratios and describe how creditors, owners, and managers view them.
• Calculate common profitability ratios and describe how creditors, owners, and managers view them.
• Calculate common operating ratios and explain how managers use them to evaluate operational results.
• Summarize the limitations of ratio analysis, describe the usefulness of financial ratios, and explain how computers can be used in ratio analysis.
(continued)
• Potential Ratio Standards
• Ratios from a past period
• Industry averages
• Budgeted or planned ratios
• Purposes of Ratio Analysis
• Managers use ratios to monitor operating performance and evaluate their success in meeting goals.
• Creditors use ratios to evaluate the solvency of a business and to assess the risk of future loans.
• Investors and potential investors use ratios to evaluate the performance of a business and the business’s ability to meet the investors’ specific goals.
• Ratios reveal important information that may not be obvious or apparent in the financial statements.
• Five Common Ratio Classes
• Liquidity
• Solvency
• Activity
• Profitability
• Operating
• Common Liquidity Ratios
• Current ratio
• Acid-test ratio
• Operating cash flows to current liabilities ratio
• Accounts receivable turnover
• Average collection period
• Working capital turnover
• Common Solvency Ratios
• Solvency ratio
• Debt-equity ratio
• Long-term debt to total capitalization ratio
• Number of times interest earned ratio
• Fixed charge coverage ratio
• Debt service coverage ratio
• Operating cash flows to total liabilities ratio
• Common Activity Ratios
• Inventory turnover
• Property and equipment (fixed asset) turnover
• Asset turnover
• Paid occupancy percentage
• Complimentary occupancy
• Average occupancy per room
• Multiple occupancy
• Seat turnover
• Common Profitability Ratios
• Profit margin
• Operating efficiency ratio
• Return on assets
• Gross return on assets
• Return on owners’ equity
• Return on common stockholders’ equity
• Earnings per share
• Price/earnings ratio
• Common Operating Ratios
• Mix of sales