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Ratio Analysis
• Financial ratios are relationships determined from
a firm’s financial information.
• Used to compare and ...
Categories of Financial Ratios
• Liquidity—measures the firm’s short-term solvency.
• Capital structure—measures the firm’...
Liquidity Ratios
overdraftBanksliabilitieCurrent
InventoryassetsCurrent
ratioQuick
sliabilitieCurrent
assetsCurrent
ratioC...
Capital Structure Ratios
onamortisationdepreciatiafter taxprofitNet
debtbearing-Interest
flowcashgrossDebt to
chargesfinan...
Turnover Ratios
receivableAccounts
Sales
turnoversReceivable
turnoverInventory
days365
inventoryinsalesDays'
Inventory
sol...
Turnover Ratios (continued)
assetsTotal
Sales
overasset turnTotal
assetscurrent-Non
Sales
overasset turnFixed
turnoversRec...
Profitability Ratios
%100
equityTotal
profitNet
(ROE)equityonReturn
%100
assetsTotal
EBIT
investmentonReturn
100%
assetsTo...
Market Value Ratios
shareperBook value
shareperueMarket val
ratiobook-to-Market
shareperEarnings
shareperPrice
ratioingPri...
The Du Pont Identity
• Breaks ROE into three parts:
– operating efficiency
– asset use efficiency
– financial leverage
mul...
Uses for Financial Statement
Information
• Internal uses:
– performance evaluation
– planning for the future
• External us...
Benchmarks for Comparison
• Ratios are most useful when compared to a
benchmark.
• Time-trend analysis—examine how a parti...
Problems with Ratio Analysis
• No underlying theory to identify correct ratios to
use or appropriate benchmarks.
• Benchma...
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Bus class 3 5 ratios

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Ratio Analysis

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Transcript of "Bus class 3 5 ratios"

  1. 1. Ratio Analysis • Financial ratios are relationships determined from a firm’s financial information. • Used to compare and investigate relationships between different pieces of financial information, either over time or between companies. • Ratios eliminate the size problem.
  2. 2. Categories of Financial Ratios • Liquidity—measures the firm’s short-term solvency. • Capital structure—measures the firm’s ability to meet long-run obligations (financial leverage). • Asset management (turnover)—measures the efficiency of asset usage to generate sales. • Profitability—measures the firm’s ability to control expenses. • Market value—per-share ratios.
  3. 3. Liquidity Ratios overdraftBanksliabilitieCurrent InventoryassetsCurrent ratioQuick sliabilitieCurrent assetsCurrent ratioCurrent    
  4. 4. Capital Structure Ratios onamortisationdepreciatiafter taxprofitNet debtbearing-Interest flowcashgrossDebt to chargesfinanceInterest EBIT coverinterestNet equityTotal assetsTotal multiplierEquity equityTotal debtTotal ratioyDebt/equit sIntangibleequityTotal CashdebtfinancialTotal ratioydebt/equitNet         
  5. 5. Turnover Ratios receivableAccounts Sales turnoversReceivable turnoverInventory days365 inventoryinsalesDays' Inventory soldgoodsofCost turnoverInventory   
  6. 6. Turnover Ratios (continued) assetsTotal Sales overasset turnTotal assetscurrent-Non Sales overasset turnFixed turnoversReceivable days365 sreceivableinsalesDays'   
  7. 7. Profitability Ratios %100 equityTotal profitNet (ROE)equityonReturn %100 assetsTotal EBIT investmentonReturn 100% assetsTotal profitNet (ROA)assetsonReturn Sales profitNet marginProfit    
  8. 8. Market Value Ratios shareperBook value shareperueMarket val ratiobook-to-Market shareperEarnings shareperPrice ratioingPrice/earn  
  9. 9. The Du Pont Identity • Breaks ROE into three parts: – operating efficiency – asset use efficiency – financial leverage multiplierEquityROA multiplierEquityoverasset turnTotalmarginProfit Equity Assets Assets Sales Sales profitNet ROE   
  10. 10. Uses for Financial Statement Information • Internal uses: – performance evaluation – planning for the future • External uses: – evaluation by outside parties – evaluation of main competitors – identifying potential takeover targets
  11. 11. Benchmarks for Comparison • Ratios are most useful when compared to a benchmark. • Time-trend analysis—examine how a particular ratio(s) has performed historically. • Peer group analysis—using similar firms (competitors) for comparison of results. • Global Industry Classification Standard (GICS) used by ASX is a useful way to find a peer company.
  12. 12. Problems with Ratio Analysis • No underlying theory to identify correct ratios to use or appropriate benchmarks. • Benchmarking is difficult for diversified firms. • Firms may use different accounting procedures. • Firms may have different recording periods. • One-off events can severely affect financial performance.
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