13. LIQUIDITY RATIOS
• CURRENT RATIO
=CURRENT ASSETS/CURRENT LIABILITIES
• QUICK RATIO/ACID TEST RATIO
= (CURRENT ASSETS – INVENTORIES)/ CURRENT
LIABILITIES
• CASH RATIO
= (CASH + MARKETEABLE
SECURITIES)/CURRENT LIABILITIES
14. LIQUIDITY RATIOS
• INTERVAL MEASURE
=(CURRENT ASSETS – INVENTORY)/AVG DAILY
OPERATING EXPENSES
• NET WORKING CAPITAL RATIO
= NET WORKING CAPITAL/ NET ASSETS
15. LEVERAGE OR CAPITAL STRUCTURE
RATIOS
• DEBT RATIO
= TOTAL DEBT/(TOTAL DEBT+ NET WORTH)
• DEBT- EQUITY RATIO
= TOTAL DEBT/ NET WORTH
CAPITAL EMPLOYED TO NET WORTH RATIO
=CAPITAL EMPLOYED/NET WORTH
=NET ASSET/NET WORTH
• OTHER DEBT RATIOS
– TOTAL LIABILITIES/TOTAL ASSETS
– LONG TERM DEBT/(LONG TERM DEBT+NET WORTH)
16. LEVERAGE OR CAPITAL STRUCTURE RATIOS
• COVERAGE RATIOS
– INTEREST COVERAGE RATIO OR TIMES INTEREST
EARNED
= EBITDA/INTEREST
– FIXED CHARGES COVERAGE
=EBITDA/(INTEREST+(LOAN REPAYMENT/(1-TAX RATE))
17. ACTIVITY RATIOS
• INVENTORY TURNOVER
– COST OF GOOD SOLD/AVERAGE INVENTORY
– SALES/INVENTORY
– DAYS OF INVENTORY HOLDINGS = 360/INVENTORY
TURNOVER
– RAW MATERIAL INVENTORY TURNOVER
= MATERIAL CONSUMED/ AVG RM INVENTORY
– WORK IN PROCESS INVENTORY TURNOVER
= COST OF PRODUCTION/ AVG WIP INVENTORY
18. ACTIVITY RATIOS
• DEBTORS (ACCOUNTS RECEIVABLE)
TURNOVER
– CREDIT SALES/AVERAGE DEBTORS
– SALES/AVERAGE DEBTORS
– AVERAGE COLLECTION PERIOD = 360/DT
• ASSET TURNOVER
– NET ASSET OR C E TURNOVER = SALES/ NA
– TOTAL ASSET TURNOVER = SALES / TA
– FIXED AND CURRENT ASSET TURNOVER
20. PROFITABILITY RATIOS
• GROSS PROFIT MARGIN
– (SALES-COGS)/SALES
• NET PROFIT MARGIN
– PROFIT AFTER TAX/SALES
• NET MARGIN BASED ON NOPAT
– EBIT(1-T)/SALES
• OPERATING EXPENSE RATIO
– OPERATING EXPENSES/SALES
– COGS RATIO= COGS/SALES
• ROI
– ROTA=EBIT(1-T)/TA
– RONA=EBIT(1-T)/NA
21. PROFITABILITY RATIOS
• ROE
– PAT/NW
• EPS
– PAT/NUMBER OF SHARES OUTSTANDING
• DPS
– EARNINGS PAID TO SHAREHOLDERS/NUMBER OF
ORDINARY SHARES OUTSTANDING
• DIVIDEND PAYOUT RATIO
– DPS/EPS
– GROWTH IN EQUITY = (1-DPS/EPS)ROE
22. PROFITABILITY RATIOS
• DIVIDENDS AND EARNINGS YEILDS
– DIVIDEND YEILD= DPS/MVPS
– EARNING YEILD=EPS/MVPS
• PRICE- EARNINGS RATIO
• MARKET TO BOOK VALUE RATIO
• TOBIN’S Q
– MARKET VALUE OF ASSETS/REPLACEMENT COST
OF ASSETS
24. UTILITY OF RATIO ANALYSIS
• PERFORMANCE ANALYSIS
• CREDIT ANALYSIS
• SECURITY ANALYSIS
• COMPETITIVE ANALYSIS
• TREND ANALYSIS
25. CAUTIONS IN RATIO ANALYSIS
• STANDARDS FOR COMPARISION
• COMPANY DIFFERENCES
• PRICE LEVEL CHANGES
• DIFFERENT DEFINITIONS OF VARIABLES
• CHANGING SITUATIONS
• HISTORICAL DATA
26. PREDICTORS OF FAILURE
• NON PARAMETRIC ANALYSIS
• MULTIPLE DISCRIMINANT ANALYSIS
Z= 0.012X1+0.014X2+0.033X3+0.066X4+0.010X5
Z= DISCRIMINANT FUNCTION SCORE
X1=NWC/TA
X2=RE/TA(%)
X3=EBIT/TA(%)
X4=MVE/BVD(%)
X5=SALES/TA