Ratio Analysis<br />Group Leader	: Ng Mei Jin<br />Member		: Kok Yee Won<br />				  Ng Mun Yi<br />				  Tang Yi Ru<br />G...
Profitability (Return)<br />
Gross Profit Margin  <br />Gross profit margin =     Gross profit_  x 100%<br />     Net Sales<br />profit - cover operati...
Expense ratio<br />Selling Expense = <br />Individual expense  x 100%                             	Net sales<br />2003 - 2...
Net profit margin <br />Net profit margin = <br />Net profit x  100%     <br />	Net Sales<br />amount of profit generated ...
Return on equity & Return on total assets <br />Return on total assets = <br />Net profit + interest expense x100%<br />  ...
Financial Stability<br />
Liquidity <br />Working capital ratio = <br />Current Assets__<br />        Current liabilities<br />Generally ratio - 2:1...
Solvency<br />Total debt/total assets =                            liability         x100%<br />              total assets...
Management Effectiveness &Procedure<br />
Management effectiveness & procedure<br />Stock turnover = cost of goods sold<br />                                       ...
Ways to Improve the Performance of the Business <br />
Stock Turnover<br />Comparison with turnover in previous reporting period<br />Consideration of the type of inventory sold...
Debtors Turnover<br />Compare the ratio with actual credit terms<br />Consider about setting a target for such ratios<br /...
THANK    <br />Y     U  <br />
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Ratio analysis final

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Ratio analysis final

  1. 1. Ratio Analysis<br />Group Leader : Ng Mei Jin<br />Member : Kok Yee Won<br /> Ng Mun Yi<br /> Tang Yi Ru<br />Group : M2<br />Date : 23th August 2010<br />Lecturer : Ms Yong<br />
  2. 2. Profitability (Return)<br />
  3. 3. Gross Profit Margin <br />Gross profit margin = Gross profit_ x 100%<br /> Net Sales<br />profit - cover operating expenses<br />2003 - 40.0%<br />2004 - 45.0% <br />2005 - 42.5%. <br />2003 to 2004 5.0%<br />2004 to 2005 2.5%<br />
  4. 4. Expense ratio<br />Selling Expense = <br />Individual expense x 100% Net sales<br />2003 - 23.9%, 2004 - 25.5% <br />2005 - 27.7%. <br />Admin expense = <br />Individual expense x 100%<br /> Net sales<br />2003 – 8.20% ,2004 – 7.10%<br />2005 -8.00%.<br />Finance expense =<br />Individual expense x 100%<br /> Net sales<br />2003 – 2.70%, 2004 – 2.00% <br />2005 - 16%<br />
  5. 5. Net profit margin <br />Net profit margin = <br />Net profit x 100% <br /> Net Sales<br />amount of profit generated from each dollar of sales<br />2003 - 5.2%<br />2004 - 10.3%<br />2005 - 5.3% <br />2003 to 2004 5.1% <br />2004 to 2005 5%<br /> net profit margin - net profit / net sales<br />
  6. 6. Return on equity & Return on total assets <br />Return on total assets = <br />Net profit + interest expense x100%<br /> Total assets<br />2003 - 4.7%, 2004 - 7.7% <br />2005 - 4.2%. <br />2003 to 2004 3%<br />2004 to 2005 3.5% <br />Overall 0.5%<br />Return on equity = <br /> Net Profit___ x 100%<br /> Owner’s equity<br />The higher the return on OE - better<br />2003 - 4.1% , 2004 - 8.2%<br />2005 - 4.2%. <br />Overall trend 0.1%. <br />
  7. 7. Financial Stability<br />
  8. 8. Liquidity <br />Working capital ratio = <br />Current Assets__<br /> Current liabilities<br />Generally ratio - 2:1<br />2003 - 2.75:1 , 2004-4.33:1 <br />2005 - 2.60:1<br />2003 - 2004 1.58 <br />2004 - 2005 1.73<br />Quick assets ratio /acid test = <br />current assets-stock<br /> current liabilities-overdraft<br />2003 - 1:1 <br />2004 - 2:1 <br />2005 - 1:1<br />
  9. 9. Solvency<br />Total debt/total assets = liability x100%<br /> total assets<br />2003 - 25.5%, 2004 - 21.5% <br />2005 - 23.2%<br />2003~ 2004 4% <br />2004~ 2005 1.7%<br />Debt/equity ratio = liabilities . <br /> Owner’s equity<br />> than 100%-highly geared<br />2003 - 34.2% , 2004 - 27.4% <br />2005 - 30.3%<br />2003 – 2004 6.8% <br />2004 – 2005 2.9%<br />
  10. 10. Management Effectiveness &Procedure<br />
  11. 11. Management effectiveness & procedure<br />Stock turnover = cost of goods sold<br /> inventory<br />2003 & 2004 (4 times)<br />2005 (3times). <br />Debtor’s turnover =<br />cost of goods sold<br />Inventory<br />18times(2003) to 12times(2004 & 2005) <br />positive outcome <br />Time interest earned = <br />Net profit +Interest expense<br /> Interest expense<br />2003- 3 , 2004-6 , 2005- 4 (times)<br />2003-2004~ double <br />2005 to 4time<br />
  12. 12. Ways to Improve the Performance of the Business <br />
  13. 13. Stock Turnover<br />Comparison with turnover in previous reporting period<br />Consideration of the type of inventory sold<br /> -reduce price, promotions<br />Owner could sell more stocks - targeting customers via phone sales, advertising , changing price policy<br />
  14. 14. Debtors Turnover<br />Compare the ratio with actual credit terms<br />Consider about setting a target for such ratios<br />Tightening credit policy and communicating to debtors<br />
  15. 15. THANK <br />Y U <br />

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