This document provides an overview of financial ratio analysis. It discusses the different types of ratios that can be used, including liquidity ratios, profitability ratios, activity ratios, leverage ratios, and shareholder ratios. Liquidity ratios measure a company's ability to meet short-term obligations, and include the current ratio, quick ratio, and net working capital to sales ratio. The document uses Microsoft's 2004 financial statements to calculate examples of liquidity ratios. It also discusses the importance of considering a company's operating cycle when analyzing liquidity ratios.
Ratio analysis advantages and limitations (Complete Chapter)Syed Mahmood Ali
The aim of this PPT's to provide complete knowledge of Ratio Analysis chapter covering all the formula's for any university student of B.com, M.com, BBA and MBA.
Ratio Analysis is a part of Financial Statement Analysis that is used to obtain a quick indication of a firm's financial performance in several key areas.
Liquidity ratios
Activity ratios
Solvency ratios
Profitability ratios
To calculate a company's average tax rate an analyst would
The accumulated benefit obligation measures
The major difference between accounting for pensions and the accounting for other postretirement benefits is that firms
Ratio analysis advantages and limitations (Complete Chapter)Syed Mahmood Ali
The aim of this PPT's to provide complete knowledge of Ratio Analysis chapter covering all the formula's for any university student of B.com, M.com, BBA and MBA.
Ratio Analysis is a part of Financial Statement Analysis that is used to obtain a quick indication of a firm's financial performance in several key areas.
Liquidity ratios
Activity ratios
Solvency ratios
Profitability ratios
To calculate a company's average tax rate an analyst would
The accumulated benefit obligation measures
The major difference between accounting for pensions and the accounting for other postretirement benefits is that firms
Definition of terms
"Micro business customers" means customers having less investable asset, trading transaction and return from business. They represent the lower class of wholesale banking customer segments of the Bank.
"Wholesale banking" means banking service availed to individual and non- individual business customers, public & institutional customers.
“Agent” means a person contracted by the Bank to facilitate provision of agency banking business service in the name and on behalf of the bank.
“Board” means the supervisory Board of the Bank formed in accordance with Article 10 (2) and 12 of Public Enterprises Proclamation No 25/1992.
“CBEBirr” means a mobile money service owned by CBE that provides services like mobile payment, mobile transfer, and agency banking.
“Credit History” a history of all the pieces of financial information that relates to customer’s life.
“Credit policy” means a general framework approved by the board that spells out and guides the bank’s credit/financing strategic directions and credit /financing decisions.
“Credit Scoring” means judging/evaluating the creditworthiness of a customer based on basic characteristics and past performance in credit and other relationships with Bank.
“Credit” means an arrangement to receive financial services now and pay later.
“Customer” means a person who uses Micro Saving and Lending services.
“Digital Micro Credit” means micro loans that are requested, received and repaid all through mobile phones (or any other appropriate tools) via interaction with a computer system.
“Digital MSL Policy” means a policy document that governs the management of digital micro saving and credit services.
“Financial Transaction” mean an event which involves money or payment, such as deposit money into a bank account, borrow money to customers.
“Fixed Account” means a saving account locked for a certain period, a minimum of three months, based on the preference of the customers to fulfil their designated plan.
“Know Your Customer(KYC)” means performing a set of due diligence measures undertaken by the Bank to identify a user and the motivation behind the financial activities of customers.
“Lending officials” means any person involved in MSL business of customer acquisition, Credit Worthiness evaluation, Credit operation, Collection, monitoring and decision-making as well as write off and post write off follow up process.
“Level Three agents” means agent hierarchically created as agents in CBE Birr System.
“Level Two agent” means an agent hierarchically created as sole agent in CBE Birr System and cannot create an agent. And managing the cash and balance on CBE Birr account liquidity requirements of its own.
“Loan Pricing” means setting the interest rate, fees, commission, and others to be charged by the Bank on loans, advances, and guarantees extended to customers.
“Merchant” means an entity that contract with an acquirer to originate transactions and accepts cards for payment and displaying b
Ratios and Formulas in Customer Financial AnalysisFinancial stat.docxcatheryncouper
Ratios and Formulas in Customer Financial Analysis
Financial statement analysis is a judgmental process. One of the primary objectives is identification of major changes in trends, and relationships and the investigation of the reasons underlying those changes. The judgment process can be improved by experience and the use of analytical tools. Probably the most widely used financial analysis technique is ratio analysis, the analysis of relationships between two or more line items on the financial statement. Financial ratios are usually expressed in percentage or times. Generally, financial ratios are calculated for the purpose of evaluating aspects of a company's operations and fall into the following categories:
· Liquidity ratios measure a firm's ability to meet its current obligations.
· Profitability ratios measure management's ability to control expenses and to earn a return on the resources committed to the business.
· Leverage ratios measure the degree of protection of suppliers of long-term funds and can also aid in judging a firm's ability to raise additional debt and its capacity to pay its liabilities on time.
· Efficiency, activity or turnover ratios provide information about management's ability to control expenses and to earn a return on the resources committed to the business.
A ratio can be computed from any pair of numbers. Given the large quantity of variables included in financial statements, a very long list of meaningful ratios can be derived. A standard list of ratios or standard computation of them does not exist. The following ratio presentation includes ratios that are most often used when evaluating the credit worthiness of a customer. Ratio analysis becomes a very personal or company driven procedure. Analysts are drawn to and use the ones they are comfortable with and understand.
1. Liquidity Ratios
Working Capital
Working capital compares current assets to current liabilities, and serves as the liquid reserve available to satisfy contingencies and uncertainties. A high working capital balance is mandated if the entity is unable to borrow on short notice. The ratio indicates the short-term solvency of a business and in determining if a firm can pay its current liabilities when due.
Formula
Current Assets - Current Liabilities
Acid Test or Quick Ratio
A measurement of the liquidity position of the business. The quick ratio compares the cash plus cash equivalents and accounts receivable to the current liabilities. The primary difference between the current ratio and the quick ratio is the quick ratio does not include inventory and prepaid expenses in the calculation. Consequently, a business's quick ratio will be lower than its current ratio. It is a stringent test of liquidity.
Formula
Cash + Marketable Securities + Accounts Receivable
Current Liabilities
Current Ratio
provides an indication of the liquidity of the business by comparing the amount of current assets to current liabilities. A business's curren ...
Explain the various categories of ratio analysis and provide example.pdfarchanenterprises
Explain the various categories of ratio analysis and provide examples of at least two ratios in
each category. If you were an investor, which category would you be most interested in? Why?
Solution
Part-1
Ratios are used by lenders and business analysts to determine a company\'s financial stability and
standing.It\'s important to understand that financial ratios are time sensitive; they can only show
a picture of a business at a given time. There are five catagories of Financial ratios and those are
as follows :
Part-2 :
There are a large variety of ratios out there, but for an investor using financial ratios which are
broken up into four major categories: profitability ratios, liquidity ratios, solvency ratios and
valuation ratios. As an investor he should consider Profitability ratio because Profitability ratio is
a key piece of information that should be analyzed when you\'re considering investing in a
company. This is because high revenues alone don\'t necessarily translate into dividends for
investors unless a company is able to clear all of its expenses and costs. In general, the higher a
company\'s profit margin, the better, but as with most ratios, it is not enough to look at it in
isolation. It is important to compare it to the company\'s past levels, to the market average and to
its competitors.
Profitability Ratios : The profitability ratios are just what the name implies. They focus on the
firm\'s ability to generate a profit and an adequate return on assets and equity. They measure how
efficiently the firm uses its assets and how effectively it manages its operations and answers
questions like how efficiency his business and it helps to compare with other competitor.
Examples of Proftitablity ratios are Gross profit ratio, Net profit ratio, Operating profit ratio and
Return on investment ratio.
Market Value Ratios : The market value ratios can be calculated for publicly traded companies
only as they relate to stock price. There are many market value ratios, but a few of the most
commonly used are price/earnings (P/E), book value to share value and dividend yield .
LEVERAGE RATIO /Capital Structure ration : The term capital structure refers to the
relationship between various long term forms of financing such as debentures (long term),
preference share capital and equity share capital including reserves and surpluses. Leverage or
capital structure ratios are calculated to test the long term financial position of a firm. Generally
capital gearing ratio is mainly calculated to analyse the leverage or capital structure of the firm.
Example of ratios are total debt ratios, the debt/equity ratio, the long-term debt ratio, the times
interest earned ratio, the fixed charge coverage ratio, and the cash coverage ratio.
Asset Efficiency or Turnover Ratios : The asset efficiency or turnover ratios measure the
efficiency with which the firm uses its assets to produce sales. As a result, it focuses on both the
income statement (sales) and the .
This is to certify that the main project report entitled A Study on “FINANCIAL
ANALYSIS” with reference to NAGA HANUMAN SOLVENT OIL, PVT.LYD, BHIMADOL.”
submitted to Jawaharlal Nehru University in partial fulfillment of the requirement for the award
of the degree of Master of Business Administration (MBA), is a original work carried out by me
and that it has not been submitted to any other university/institute for the award of any degree or
diploma.
What price will pi network be listed on exchangesDOT TECH
The rate at which pi will be listed is practically unknown. But due to speculations surrounding it the predicted rate is tends to be from 30$ — 50$.
So if you are interested in selling your pi network coins at a high rate tho. Or you can't wait till the mainnet launch in 2026. You can easily trade your pi coins with a merchant.
A merchant is someone who buys pi coins from miners and resell them to Investors looking forward to hold massive quantities till mainnet launch.
I will leave the telegram contact of my personal pi vendor to trade with.
@Pi_vendor_247
Turin Startup Ecosystem 2024 - Ricerca sulle Startup e il Sistema dell'Innov...Quotidiano Piemontese
Turin Startup Ecosystem 2024
Una ricerca de il Club degli Investitori, in collaborazione con ToTeM Torino Tech Map e con il supporto della ESCP Business School e di Growth Capital
how to sell pi coins effectively (from 50 - 100k pi)DOT TECH
Anywhere in the world, including Africa, America, and Europe, you can sell Pi Network Coins online and receive cash through online payment options.
Pi has not yet been launched on any exchange because we are currently using the confined Mainnet. The planned launch date for Pi is June 28, 2026.
Reselling to investors who want to hold until the mainnet launch in 2026 is currently the sole way to sell.
Consequently, right now. All you need to do is select the right pi network provider.
Who is a pi merchant?
An individual who buys coins from miners on the pi network and resells them to investors hoping to hang onto them until the mainnet is launched is known as a pi merchant.
debuts.
I'll provide you the Telegram username
@Pi_vendor_247
how can i use my minded pi coins I need some funds.DOT TECH
If you are interested in selling your pi coins, i have a verified pi merchant, who buys pi coins and resell them to exchanges looking forward to hold till mainnet launch.
Because the core team has announced that pi network will not be doing any pre-sale. The only way exchanges like huobi, bitmart and hotbit can get pi is by buying from miners.
Now a merchant stands in between these exchanges and the miners. As a link to make transactions smooth. Because right now in the enclosed mainnet you can't sell pi coins your self. You need the help of a merchant,
i will leave the telegram contact of my personal pi merchant below. 👇 I and my friends has traded more than 3000pi coins with him successfully.
@Pi_vendor_247
what is the best method to sell pi coins in 2024DOT TECH
The best way to sell your pi coins safely is trading with an exchange..but since pi is not launched in any exchange, and second option is through a VERIFIED pi merchant.
Who is a pi merchant?
A pi merchant is someone who buys pi coins from miners and pioneers and resell them to Investors looking forward to hold massive amounts before mainnet launch in 2026.
I will leave the telegram contact of my personal pi merchant to trade pi coins with.
@Pi_vendor_247
where can I find a legit pi merchant onlineDOT TECH
Yes. This is very easy what you need is a recommendation from someone who has successfully traded pi coins before with a merchant.
Who is a pi merchant?
A pi merchant is someone who buys pi network coins and resell them to Investors looking forward to hold thousands of pi coins before the open mainnet.
I will leave the telegram contact of my personal pi merchant to trade with
@Pi_vendor_247
how to sell pi coins in South Korea profitably.DOT TECH
Yes. You can sell your pi network coins in South Korea or any other country, by finding a verified pi merchant
What is a verified pi merchant?
Since pi network is not launched yet on any exchange, the only way you can sell pi coins is by selling to a verified pi merchant, and this is because pi network is not launched yet on any exchange and no pre-sale or ico offerings Is done on pi.
Since there is no pre-sale, the only way exchanges can get pi is by buying from miners. So a pi merchant facilitates these transactions by acting as a bridge for both transactions.
How can i find a pi vendor/merchant?
Well for those who haven't traded with a pi merchant or who don't already have one. I will leave the telegram id of my personal pi merchant who i trade pi with.
Tele gram: @Pi_vendor_247
#pi #sell #nigeria #pinetwork #picoins #sellpi #Nigerian #tradepi #pinetworkcoins #sellmypi
BYD SWOT Analysis and In-Depth Insights 2024.pptxmikemetalprod
Indepth analysis of the BYD 2024
BYD (Build Your Dreams) is a Chinese automaker and battery manufacturer that has snowballed over the past two decades to become a significant player in electric vehicles and global clean energy technology.
This SWOT analysis examines BYD's strengths, weaknesses, opportunities, and threats as it competes in the fast-changing automotive and energy storage industries.
Founded in 1995 and headquartered in Shenzhen, BYD started as a battery company before expanding into automobiles in the early 2000s.
Initially manufacturing gasoline-powered vehicles, BYD focused on plug-in hybrid and fully electric vehicles, leveraging its expertise in battery technology.
Today, BYD is the world’s largest electric vehicle manufacturer, delivering over 1.2 million electric cars globally. The company also produces electric buses, trucks, forklifts, and rail transit.
On the energy side, BYD is a major supplier of rechargeable batteries for cell phones, laptops, electric vehicles, and energy storage systems.
What website can I sell pi coins securely.DOT TECH
Currently there are no website or exchange that allow buying or selling of pi coins..
But you can still easily sell pi coins, by reselling it to exchanges/crypto whales interested in holding thousands of pi coins before the mainnet launch.
Who is a pi merchant?
A pi merchant is someone who buys pi coins from miners and resell to these crypto whales and holders of pi..
This is because pi network is not doing any pre-sale. The only way exchanges can get pi is by buying from miners and pi merchants stands in between the miners and the exchanges.
How can I sell my pi coins?
Selling pi coins is really easy, but first you need to migrate to mainnet wallet before you can do that. I will leave the telegram contact of my personal pi merchant to trade with.
Tele-gram.
@Pi_vendor_247
how to sell pi coins on Bitmart crypto exchangeDOT TECH
Yes. Pi network coins can be exchanged but not on bitmart exchange. Because pi network is still in the enclosed mainnet. The only way pioneers are able to trade pi coins is by reselling the pi coins to pi verified merchants.
A verified merchant is someone who buys pi network coins and resell it to exchanges looking forward to hold till mainnet launch.
I will leave the telegram contact of my personal pi merchant to trade with.
@Pi_vendor_247
Falcon stands out as a top-tier P2P Invoice Discounting platform in India, bridging esteemed blue-chip companies and eager investors. Our goal is to transform the investment landscape in India by establishing a comprehensive destination for borrowers and investors with diverse profiles and needs, all while minimizing risk. What sets Falcon apart is the elimination of intermediaries such as commercial banks and depository institutions, allowing investors to enjoy higher yields.
how can I sell pi coins after successfully completing KYCDOT TECH
Pi coins is not launched yet in any exchange 💱 this means it's not swappable, the current pi displaying on coin market cap is the iou version of pi. And you can learn all about that on my previous post.
RIGHT NOW THE ONLY WAY you can sell pi coins is through verified pi merchants. A pi merchant is someone who buys pi coins and resell them to exchanges and crypto whales. Looking forward to hold massive quantities of pi coins before the mainnet launch.
This is because pi network is not doing any pre-sale or ico offerings, the only way to get my coins is from buying from miners. So a merchant facilitates the transactions between the miners and these exchanges holding pi.
I and my friends has sold more than 6000 pi coins successfully with this method. I will be happy to share the contact of my personal pi merchant. The one i trade with, if you have your own merchant you can trade with them. For those who are new.
Message: @Pi_vendor_247 on telegram.
I wouldn't advise you selling all percentage of the pi coins. Leave at least a before so its a win win during open mainnet. Have a nice day pioneers ♥️
#kyc #mainnet #picoins #pi #sellpi #piwallet
#pinetwork
Exploring Abhay Bhutada’s Views After Poonawalla Fincorp’s Collaboration With...beulahfernandes8
The financial landscape in India has witnessed a significant development with the recent collaboration between Poonawalla Fincorp and IndusInd Bank.
The launch of the co-branded credit card, the IndusInd Bank Poonawalla Fincorp eLITE RuPay Platinum Credit Card, marks a major milestone for both entities.
This strategic move aims to redefine and elevate the banking experience for customers.
USDA Loans in California: A Comprehensive Overview.pptxmarketing367770
USDA Loans in California: A Comprehensive Overview
If you're dreaming of owning a home in California's rural or suburban areas, a USDA loan might be the perfect solution. The U.S. Department of Agriculture (USDA) offers these loans to help low-to-moderate-income individuals and families achieve homeownership.
Key Features of USDA Loans:
Zero Down Payment: USDA loans require no down payment, making homeownership more accessible.
Competitive Interest Rates: These loans often come with lower interest rates compared to conventional loans.
Flexible Credit Requirements: USDA loans have more lenient credit score requirements, helping those with less-than-perfect credit.
Guaranteed Loan Program: The USDA guarantees a portion of the loan, reducing risk for lenders and expanding borrowing options.
Eligibility Criteria:
Location: The property must be located in a USDA-designated rural or suburban area. Many areas in California qualify.
Income Limits: Applicants must meet income guidelines, which vary by region and household size.
Primary Residence: The home must be used as the borrower's primary residence.
Application Process:
Find a USDA-Approved Lender: Not all lenders offer USDA loans, so it's essential to choose one approved by the USDA.
Pre-Qualification: Determine your eligibility and the amount you can borrow.
Property Search: Look for properties in eligible rural or suburban areas.
Loan Application: Submit your application, including financial and personal information.
Processing and Approval: The lender and USDA will review your application. If approved, you can proceed to closing.
USDA loans are an excellent option for those looking to buy a home in California's rural and suburban areas. With no down payment and flexible requirements, these loans make homeownership more attainable for many families. Explore your eligibility today and take the first step toward owning your dream home.
what is the future of Pi Network currency.DOT TECH
The future of the Pi cryptocurrency is uncertain, and its success will depend on several factors. Pi is a relatively new cryptocurrency that aims to be user-friendly and accessible to a wide audience. Here are a few key considerations for its future:
Message: @Pi_vendor_247 on telegram if u want to sell PI COINS.
1. Mainnet Launch: As of my last knowledge update in January 2022, Pi was still in the testnet phase. Its success will depend on a successful transition to a mainnet, where actual transactions can take place.
2. User Adoption: Pi's success will be closely tied to user adoption. The more users who join the network and actively participate, the stronger the ecosystem can become.
3. Utility and Use Cases: For a cryptocurrency to thrive, it must offer utility and practical use cases. The Pi team has talked about various applications, including peer-to-peer transactions, smart contracts, and more. The development and implementation of these features will be essential.
4. Regulatory Environment: The regulatory environment for cryptocurrencies is evolving globally. How Pi navigates and complies with regulations in various jurisdictions will significantly impact its future.
5. Technology Development: The Pi network must continue to develop and improve its technology, security, and scalability to compete with established cryptocurrencies.
6. Community Engagement: The Pi community plays a critical role in its future. Engaged users can help build trust and grow the network.
7. Monetization and Sustainability: The Pi team's monetization strategy, such as fees, partnerships, or other revenue sources, will affect its long-term sustainability.
It's essential to approach Pi or any new cryptocurrency with caution and conduct due diligence. Cryptocurrency investments involve risks, and potential rewards can be uncertain. The success and future of Pi will depend on the collective efforts of its team, community, and the broader cryptocurrency market dynamics. It's advisable to stay updated on Pi's development and follow any updates from the official Pi Network website or announcements from the team.
Webinar Exploring DORA for Fintechs - Simont Braun
accounting212
1. Financial ratio analysis
A reading prepared by Pamela Peterson Drake
OUTLINE
1.
2.
3.
4.
5.
1.
Introduction
Liquidity ratios
Profitability ratios and activity ratios
Financial leverage ratios
Shareholder ratios
Introduction
As a manager, you may want to reward employees based on their performance. How do you know
how well they have done? How can you determine what departments or divisions have performed
well? As a lender, how do decide the borrower will be able to pay back as promised? As a manager of
a corporation how do you know when existing capacity will be exceeded and enlarged capacity will be
needed? As an investor, how do you predict how well the securities of one company will perform
relative to that of another? How can you tell whether one security is riskier than another? We can
address all of these questions through financial analysis.
Financial analysis is the selection, evaluation, and interpretation of financial data, along with other
pertinent information, to assist in investment and financial decision-making. Financial analysis may be
used internally to evaluate issues such as employee performance, the efficiency of operations, and
credit policies, and externally to evaluate potential investments and the credit-worthiness of
borrowers, among other things.
The analyst draws the financial data needed in financial analysis from many sources. The primary
source is the data provided by the company itself in its annual report and required disclosures. The
annual report comprises the income statement, the balance sheet, and the statement of cash flows,
as well as footnotes to these statements. Certain businesses are required by securities laws to
disclose additional information.
Besides information that companies are required to disclose through financial statements, other
information is readily available for financial analysis. For example, information such as the market
prices of securities of publicly-traded corporations can be found in the financial press and the
electronic media daily. Similarly, information on stock price indices for industries and for the market
as a whole is available in the financial press.
Another source of information is economic data, such as the Gross Domestic Product and Consumer
Price Index, which may be useful in assessing the recent performance or future prospects of a
company or industry. Suppose you are evaluating a company that owns a chain of retail outlets.
What information do you need to judge the company's performance and financial condition? You
need financial data, but it doesn't tell the whole story. You also need information on consumer
Financial ratios, a reading prepared by Pamela Peterson Drake
1
2. spending, producer prices, consumer prices, and the competition. This is economic data that is
readily available from government and private sources.
Besides financial statement data, market data, and economic data, in financial analysis you also need
to examine events that may help explain the company's present condition and may have a bearing on
its future prospects. For example, did the company recently incur some extraordinary losses? Is the
company developing a new product? Or acquiring another company? Is the company regulated?
Current events can provide information that may be incorporated in financial analysis.
The financial analyst must select the pertinent information, analyze it, and interpret the analysis,
enabling judgments on the current and future financial condition and operating performance of the
company. In this reading, we introduce you to financial ratios -- the tool of financial analysis. In
financial ratio analysis we select the relevant information -- primarily the financial statement data -and evaluate it. We show how to incorporate market data and economic data in the analysis and
interpretation of financial ratios. And we show how to interpret financial ratio analysis, warning you
of the pitfalls that occur when it's not used properly.
We use Microsoft Corporation's 2004 financial statements for illustration purposes throughout this
reading. You can obtain the 2004 and any other year's statements directly from Microsoft. Be sure to
save these statements for future reference.
Classification of ratios
A ratio is a mathematical relation between one quantity and another. Suppose you have 200 apples
and 100 oranges. The ratio of apples to oranges is 200 / 100, which we can more conveniently
express as 2:1 or 2. A financial ratio is a comparison between one bit of financial information and
another. Consider the ratio of current assets to current liabilities, which we refer to as the current
ratio. This ratio is a comparison between assets that can be readily turned into cash -- current assets
-- and the obligations that are due in the near future -- current liabilities. A current ratio of 2:1 or 2
means that we have twice as much in current assets as we need to satisfy obligations due in the near
future.
Ratios can be classified according to the way they are constructed and their general characteristics.
By construction, ratios can be classified as a coverage ratio, a return ratio, a turnover ratio, or a
component percentage:
1. A coverage ratio is a measure of a company's ability to satisfy (meet) particular obligations.
2. A return ratio is a measure of the net benefit, relative to the resources expended.
3. A turnover ratio is a measure of the gross benefit, relative to the resources expended.
4. A component percentage is the ratio of a component of an item to the item.
When we assess a company's operating performance, we want to know if it is applying its assets in
an efficient and profitable manner. When we assess a company's financial condition, we want to
know if it is able to meet its financial obligations.
There are six aspects of operating performance and financial condition we can evaluate from financial
ratios:
1. A liquidity ratio provides information on a company's ability to meet its short−term,
immediate obligations.
2. A profitability ratio provides information on the amount of income from each dollar of
sales.
Financial ratios, a reading prepared by Pamela Peterson Drake
2
3. 3. An activity ratio relates information on a company's ability to manage its resources (that is,
its assets) efficiently.
4. A financial leverage ratio provides information on the degree of a company's fixed
financing obligations and its ability to satisfy these financing obligations.
5. A shareholder ratio describes the company's financial condition in terms of amounts per
share of stock.
6. A return on investment ratio provides information on the amount of profit, relative to the
assets employed to produce that profit.
We cover each type of ratio, providing examples of ratios that fall into each of these classifications.
2.
Liquidity Ratios
Liquidity reflects the ability of a company to meet its short-term obligations using assets that are
most readily converted into cash. Assets that may be converted into cash in a short period of time
are referred to as liquid assets; they are listed in financial statements as current assets. Current
assets are often referred to as working capital because these assets represent the resources needed
for the day-to-day operations of the company's long-term, capital investments. Current assets are
used to satisfy short-term obligations, or current liabilities. The amount by which current assets
exceed current liabilities is referred to as the net working capital. 1
The role of the operating cycle
How much liquidity a company needs depends on its operating cycle. The operating cycle is the
duration between the time cash is invested in goods and services to the time that investment
produces cash. For example, a company that produces and sells goods has an operating cycle
comprising four phases:
(1)
purchase raw material and produce goods, investing in inventory;
(2)
sell goods, generating sales, which may or may not be for cash;
(3)
extend credit, creating accounts receivables, and
(4)
collect accounts receivables, generating cash.
The operating cycle is the length of time it takes to convert an investment of cash in inventory
back into cash (through collections of sales). The net operating cycle is the length of time it takes to
convert an investment of cash in inventory and back into cash considering that some purchases are
made on credit.
The number of days a company ties up funds in inventory is determine by:
(1) the total amount of money represented in inventory, and
(2) the average day's cost of goods sold.
The current investment in inventory -- that is, the money "tied up" in inventory -- is the ending
balance of inventory on the balance sheet. The average day's cost of goods sold is the cost of goods
1
You will see reference to the net working capital (i.e., current assets – current liabilities) as simply working
capital, which may be confusing. Always check the definition for the particular usage because both are common
uses of the term working capital.
Financial ratios, a reading prepared by Pamela Peterson Drake
3
4. sold on an average day in the year, which can be estimated by dividing the cost of goods sold found
on the income statement by the number of days in the year.
We compute the number of days of inventory by calculating the ratio of the amount of inventory on
hand (in dollars) to the average day's Cost of Goods Sold (in dollars per day):
Number of days inventory =
Inventory
Inventory
=
Average day' s cost of goods sold Cost of goods sold / 365
If the ending inventory is representative of the inventory throughout the year, the number of days
inventory tells us the time it takes to convert the investment in inventory into sold goods. Why worry
about whether the year-end inventory is representative of inventory at any day throughout the year?
Well, if inventory at the end of the fiscal year-end is lower than on any other day of the year, we
have
understated
the
Try it!
number
of
days
of
inventory.
Wal-Mart Stores, Inc., had cost of revenue of $219,793 million for the fiscal
Indeed, in practice most
companies try to choose
fiscal
year-ends
that
coincide with the slow
period of their business.
That means the ending
balance of inventory would
be lower than the typical
daily inventory of the year.
We could, for example,
look at quarterly financial
statements
and
take
averages
of
quarterly
inventory balances to get
a better idea of the typical
inventory. However, here
for simplicity in this and
other ratios, we will make
a note of this problem and
deal with it later in the
discussion
of
financial
ratios.
year ended January 31, 2005. It had an inventory balance of $29,447 million
at the end of this fiscal year. Using the quarterly information, Wal-Mart’s
average inventory balance during the fiscal year is $29,769.25:
Inventory balance, in millions
$33,347
$34,000
$32,000
$30,000
$29,447
$28,320
$27,963
April
July
$28,000
$26,000
$24,000
October
January
Source: Wal-Mart Stores 10-K and 10-Q filings
Based on this information, what is Wal-Mart’s inventory turnover for fiscal year
2004 (ending January 31, 2005)?
Solution:
Using the fiscal year end balance of inventory:
We can extend the same
$29,447
$29, 447
Number of days inventory =
=
= 48.9 days
logic for calculating the
$219,793/365 $602.173
number of days between a
Using the average of the quarterly balances:
sale -- when an account
receivable is created -- to
$29,769.25
$29, 769.25
Number of days inventory =
=
= 49.436 days
the time it is collected in
$219,793/365
$602.173
cash.
If
the
ending
balance of receivables at
In other words, it takes Wal-Mart approximately 50 days to sell its
the end of the year is
merchandise from the time it acquires it.
representative
of
the
receivables on any day throughout the year, then it takes, on average, approximately the "number of
days credit" to collect the accounts receivable, or the number of days receivables:
Number of days receivables =
Accounts receivable
Accounts receivable
=
Average day's sales on credit Sales on credit / 365
Financial ratios, a reading prepared by Pamela Peterson Drake
4
5. What does the operating cycle have to do with liquidity? The longer the operating cycle, the more
current assets needed (relative to current liabilities) because it takes longer to convert inventories
and receivables into cash. In other words, the longer the operating cycle, the more net working
capital required.
We also need to look at the liabilities on the balance sheet to see how long it takes a company to pay
its short-term obligations. We can apply the same logic to accounts payable as we did to accounts
receivable and inventories. How long does it take a company, on average, to go from creating a
payable (buying on credit) to paying for it in cash?
Number of days payables =
Accounts payable
Accounts payable
=
Average day's purchases
Purchases / 365
First, we need to determine the amount of an average day's purchases on credit. If we assume all
purchases are made on credit, then the total purchases for the year would be the Cost of Goods Sold,
less any amounts included in this Cost of Goods Sold that are not purchases. 2
The operating cycle tells us how long it takes to convert an investment in cash back into cash (by
way of inventory and accounts receivable):
Operating cycle =
Number of days Number of days
+
of inventory
of receivables
The number of days of purchases tells us how long it takes use to pay on purchases made to create
the inventory. If we put these two pieces of information together, we can see how long, on net, we
tie up cash. The difference between the operating cycle and the number of days of payables is the
net operating cycle:
Net operating cycle = Operating Cycle - Number of days of purchases
or, substituting for the operating cycle,
Net operating cycle =
Number of days
of inventory
+
Number of days Number of days
−
of receivables
of purchases
The net
operating cycle
Microsoft's Number of Days Receivables
therefore tells
2004:
us how long it
takes for the
Average day's receivables = $36,835 million / 365 = $100.9178 million
company to get
Number of days receivables = $5,890 million / $100.9178 million = 58.3643 days
cash back from
its investment
Now try it for 2005 using the 2005 data from Microsoft’s financial statements.
in inventory
Answer: 65.9400 days
and accounts
receivable,
Source of data: Income Statement and Balance Sheet, Microsoft Corporation Annual Report 2005
considering that
purchases may be made on credit. By not paying for purchases immediately (that is, using trade
credit), the company reduces its liquidity needs. Therefore, the longer the net operating cycle, the
greater the company’s need for liquidity.
2
For example, depreciation is included in the Cost of Goods Sold, yet it not a purchase. However, as a quite
proxy for purchases, we can use the accounting relationship: beginning inventory + purchases = COGS + ending
inventory.
Financial ratios, a reading prepared by Pamela Peterson Drake
5
6. Measures of liquidity
Liquidity ratios provide a measure of a company’s ability to generate cash to meet its immediate
needs. There are three commonly used liquidity ratios:
1.
The current ratio is the ratio of current assets to current liabilities; Indicates a company's
ability to satisfy its current liabilities with its current assets:
Current ratio =
2.
The quick ratio is the ratio of quick assets (generally current assets less inventory) to
current liabilities; Indicates a company's ability to satisfy current liabilities with its most
liquid assets
Quick ratio =
3.
Current assets
Current liabilitie s
Current assets - Inventory
Current liabilitie s
The net working capital to sales ratio is the ratio of net working capital (current assets
minus current liabilities) to sales; Indicates a company's liquid assets (after meeting
short−term obligations) relative to its need for liquidity (represented by sales)
Net working capital to sales ratio =
Current assets - Current liabilitie s
Sales
Generally, the larger these liquidity ratios, the better the ability of the company to satisfy its
immediate obligations. Is there a magic number that defines good or bad? Not really.
Consider the current ratio. A large amount of current assets relative to current liabilities provides
assurance that the company will be able to satisfy its immediate obligations. However, if there are
more current assets than the company needs to provide this assurance, the company may be
investing too heavily in these non- or low-earning assets and therefore not putting the assets to the
most productive use.
Microsoft Liquidity Ratios -- 2004
Current ratio = $70,566 million / $14,696 million = 4.8017
Quick ratio = ($70,566-421) / $14,696 = 4.7731
Net working capital-to-sales = ($70,566-14,969) / $36,835 = 1.5515
Source of data: Balance Sheet and Income Statement, Microsoft Corporation Annual
Report 2005
tied up in inventory (and then receivables) for a longer length of time.
Financial ratios, a reading prepared by Pamela Peterson Drake
Another consideration is the
operating cycle. A company
with a long operating cycle
may have more need to
liquid
assets
than
a
company with a short
operating
cycle.
That’s
because a long operating
cycle indicate that money is
6
7. 3.
Profitability ratios
Profitability ratios (also referred to as profit margin ratios) compare components of income with sales.
They give us an idea of what makes up a company's income and are usually expressed as a portion
of each dollar of sales. The profit margin ratios we discuss here differ only by the numerator. It's in
the numerator that we reflect and thus evaluate performance for different aspects of the business:
The gross profit margin is the ratio of gross income or profit to sales. This ratio indicates how
much of every dollar of sales is left after costs of goods sold:
Gross profit margin =
Gross income
Sales
Microsoft's 1998 Profit Margins
Gross profit margin = ($14,484 - 1,197)/$14,484 = 91.736%
Operating profit margin = $6,414 / $14,484 = 44.283%
Net profit margin = $4,490 / $14,484 = 31%
Source of data: Microsoft Corporation Annual Report 1998
___
The operating profit margin is the
ratio of operating profit (a.k.a. EBIT,
operating income, income before
interest and taxes) to sales. This is a
ratio that indicates how much of each
dollar of sales is left over after operating
expenses:
Operating profit margin =
Microsoft's 2004 Profit Margins
Gross profit margin = ($36,835 – 6,716)/$36,835 = 81.767%
Operating profit margin = $9,034 / $36,835 = 24.526%
Net profit margin = $8,168 / $36,835 = 22.175%
The net profit margin is the ratio of
net income (a.k.a. net profit) to sales,
and indicates how much of each dollar
of sales is left over after all expenses:
Source of data: Income Statement, Microsoft Corporation Annual Report
2005
4.
Operating income
Sales
Net profit margin =
Net income
.
Sales
Activity ratios
Activity ratios are measures of how well assets are used. Activity ratios -- which are, for the most
part, turnover ratios -- can be used to evaluate the benefits produced by specific assets, such as
inventory or accounts receivable. Or they can be use to evaluate the benefits produced by all a
company's assets collectively.
These measures help us gauge how effectively the company is at putting its investment to work. A
company will invest in assets – e.g., inventory or plant and equipment – and then use these assets to
generate revenues. The greater the turnover, the more effectively the company is at producing a
benefit from its investment in assets.
The most common turnover ratios are the following:
1. Inventory turnover is the ratio of cost of goods sold to inventory. This ratio indicates how
many times inventory is created and sold during the period:
Inventory turnover =
Cost of goods sold
Inventory
2. Accounts receivable turnover is the ratio of net credit sales to accounts receivable. This
ratio indicates how many times in the period credit sales have been created and collected on:
Financial ratios, a reading prepared by Pamela Peterson Drake
7
8. Accounts receivable turnover =
Sales on credit
Accounts receivable
3. Total asset turnover is the ratio of sales to total assets. This ratio indicates the extent that
the investment in total assets results in sales.
Total asset turnover =
Sales
Total assets
4. Fixed asset turnover is the ratio of sales to fixed assets. This ratio indicates the ability of
the company’s management to put the fixed assets to work to generate sales:
Fixed asset turnover =
Sales
Fixed assets
Microsoft’s Activity Ratios – 2004
Accounts receivable turnover = $36,835 / $5,890 = 6.2538 times
Total asset turnover = $36,835 / $92,389 = 0.3987 times
Source of data: Income Statement and Balance Sheet, Microsoft Corporation Annual
Report 2005
Turnovers and numbers of days
You may have noticed that there is a relation between the measures of the operating cycle and
activity ratios. This is because they use the same information and look at this information from
different angles. Consider the number of days inventory and the inventory turnover:
Number of days inventory =
Inventory
Average day's cost of goods sold
Inventory turnover =
Cost of goods sold
Inventory
The number of days inventory is how long the inventory stays with the company, whereas the
inventory turnover is the number of times that the inventory comes and leaves – the complete cycle
– within a period. So if the number of days inventory is 30 days, this means that the turnover within
the year is 365 / 30 = 12.167 times. In other words,
Inventory turnover =
365
=
Number of days inventory
365
Cost of goods sold
=
Inventory
Inventory
Cost of goods sold / 365
Financial ratios, a reading prepared by Pamela Peterson Drake
8
9. Try it!
Wal-Mart Stores, Inc., had cost of revenue of $219,793 million for the fiscal year ended January 31, 2005. It
had an inventory balance of $29,447 million at the end of this fiscal year.
Source: Wal-Mart Stores 10-K
Wal-Mart’s number of days inventory for fiscal year 2004 (ending January 31, 2005) is
Number of days inventory =
$29,447
$219,793/365
=
$29, 447
$602.173
= 48.9 days
Wal-Mart’s inventory turnover is:
Inventory turnover =
$219,793
= 7.464 times
$29,447
And the number of days and turnover are related as follows:
Inventory turnover = 365 / 48.9 = 7.464 times
Number of days inventory = 365 / 7.464 = 48.9 days
5.
Financial leverage ratios
A company can finance its assets either with equity or debt. Financing through debt involves risk
because debt legally obligates the company to pay interest and to repay the principal as promised.
Equity financing does not obligate the company to pay anything -- dividends are paid at the
discretion of the board of directors. There is always some risk, which we refer to as business risk,
inherent in any operating segment of a business. But how a company chooses to finance its
operations -- the particular mix of debt and equity -- may add financial risk on top of business risk
Financial risk is the extent that debt financing is used relative to equity.
Financial leverage ratios are used to assess how much financial risk the company has taken on. There
are two types of financial leverage ratios: component percentages and coverage ratios. Component
percentages compare a company's debt with either its total capital (debt plus equity) or its equity
capital. Coverage ratios reflect a company's ability to satisfy fixed obligations, such as interest,
principal repayment, or lease payments.
Component-percentage financial leverage ratios
The component-percentage financial leverage ratios convey how reliant a company is on debt
financing. These ratios compare the amount of debt to either the total capital of the company or to
the equity capital.
1.
The total debt to assets ratio indicates the proportion of assets that are financed with
debt (both short−term and long−term debt):
Total debt to assets ratio =
Total debt
Total assets
Remember from your study of accounting that total assets are equal to the sum of total debt
and equity. This is the familiar accounting identity: assets = liabilities + equity.
2.
The long−term debt to assets ratio indicates the proportion of the company's assets that
are financed with long−term debt.
Long - term debt to assets ratio =
Long - term debt
Total assets
Financial ratios, a reading prepared by Pamela Peterson Drake
9
10. The debt to equity ratio (a.k.a. debt-equity ratio) indicates the relative uses of debt and
equity as sources of capital to finance the company's assets, evaluated using book values of
the capital sources:
3.
Total debt to equity ratio =
One problem (as we shall see)
with looking at risk through a
financial ratio that uses the book
value of equity (the stock) is that
most often there is little relation
between the book value and its
market value. The book value of
equity consists of:
•
•
the proceeds to the
company of all the stock
issued since it was first
incorporated, less any
treasury
stock
(stock
repurchased
by
the
company); and
the accumulation of all
the earnings of the
company,
less
any
dividends, since it was
first incorporated.
Total debt
Total shareholders' equity
Note that the debt-equity ratio is related to the debt-to-total assets
ratio because they are both measures of the company’s capital
structure. The capital structure is the mix of debt and equity that
the company uses to finance its assets.
Let’s use short-hand notation to demonstrate this relationship. Let D
represent total debt and E represent equity. Therefore, total assets
are equal to D+E.
If a company has a debt-equity ratio of 0.25, this means that is debtto-asset ratio is 0.2. We calculate it by using the ratio relationships
and Algebra:
D/E = 0.25
D = 0.25 E
Substituting 0.25 E for D in the debt-to-assets ratio D/(D+E):
D/(D+E) = 0.25 E / (0.25 E + E) = 0.25 E / 1.25 E = 0.2
In other words, a debt-equity ratio of 0.25 is equivalent to a debt-toassets ratio of 0.2
This is a handy device: if you are given a debt-equity ratio and need
the debt-assets ratio, simply:
D/(D+E) = (D/E) / (1 + D/E)
Let's look at an example of the
Why do we bother to show this? Because many financial analysts
book value vs. market value of
discuss or report a company’s debt-equity ratio and you are left on
equity. IBM was incorporated in your own to determine what this means in terms of the proportion of
1911. So its book value of equity
debt in the company’s capital structure.
represents the sum of all its stock
issued and all its earnings, less all dividends paid since 1911. As of the end of 2003, IBM's book value
of equity was approximately $28 billion and its market value of equity was approximately $162 billion.
The book value understates its market value by over $130 billion. The book value generally does not
give a true picture of the investment of shareholders in the company because:
•
earnings are recorded according to accounting principles, which may not reflect the true
economics of transactions, and
•
due to inflation, the dollars from earnings and proceeds from stock issued in the past do not
reflect today's values.
The market value, on the other hand, is the value of equity as perceived by investors. It is what
investors are willing to pay, its worth. So why bother with the book value of equity? For two reasons:
first, it is easier to obtain the book value than the market value of a company's securities, and
second, many financial services report ratios using the book value, rather than the market value.
We may use the market value of equity in the denominator, replacing the book value of equity. To do
this, we need to know the current number of shares outstanding and the current market price per
share of stock and multiply to get the market value of equity.
Financial ratios, a reading prepared by Pamela Peterson Drake
10
11. Coverage financial leverage ratios
In addition to the leverage ratios that use information about how debt is related to either assets or
equity, there are a number of financial leverage ratios that capture the ability of the company to
satisfy its debt obligations. There are many ratios that accomplish this, but the two most common
ratios are the times interest coverage ratio and the fixed charge coverage ratio.
The times-interest-coverage ratio, also referred to as the interest coverage ratio, compares the
earnings available to meet the interest obligation with the interest obligation:
Times - interest - coverage ratio =
Earnings before interest and taxes
Interest
The fixed charge coverage ratio expands on the obligations covered and can be specified to include
any fixed charges, such as lease payments and preferred dividends. For example, to gauge a
company’s ability to cover its interest and lease payments, you could use the following ratio:
Fixed - charge coverage ratio =
Earnings before interest and taxes + Lease payment
Interest + Lease payment
Coverage ratios are often used in debt covenants to help protect the creditors.
Microsoft’s Financial Leverage Ratios – 2004
Total debt to total assets = ($94,368 - 74,825) / $94,368 = 0.20709 or 20.709%
Debt to equity ratio = ($94,368 - 74,825) / $74,825 = 0.26118 or 26.118%
Source of data: Balance sheet, Microsoft Corporation Annual Report 2005
6.
Shareholder ratios
The ratios we have explained to this point deal with the performance and financial condition of the
company. These ratios provide information for managers (who are interested in evaluating the
performance of the company) and for creditors (who are interested in the company's ability to pay its
obligations). We will now take a look at ratios that focus on the interests of the owners -- shareholder
ratios. These ratios translate the overall results of operations so that they can be compared in terms
of a share of stock:
Earnings per share (EPS) is the amount of income earned during a period per share of common
stock.
Earnings per share =
Net income available to shareholders
Number of shares outstanding
As we learned earlier in the study of Financial Statement Information, two numbers of earnings per
share are currently disclosed in financial reports: basic and diluted. These numbers differ with respect
to the definition of available net income and the number of shares outstanding. Basic earnings per
share are computed using reported earnings and the average number of shares outstanding.
Diluted earnings per share are computed assuming that all potentially dilutive securities are
issued. That means we look at a “worst case” scenario in terms of the dilution of earnings from
factors such as executive stock options, convertible bonds, convertible preferred stock, and warrants.
Suppose a company has convertible securities outstanding, such as convertible bonds. In calculating
diluted earnings per share, we consider what would happen to both earnings and the number of
Financial ratios, a reading prepared by Pamela Peterson Drake
11
12. shares outstanding if these bonds were converted into common shares. This is a “What if?” scenario:
what if all the bonds are converted into stock this period. To carry out this “What if?” we calculate
earnings considering that the company does not have to pay the interest on the bonds that period
(which increases the numerator of earnings per share), but we also add to the denominator the
number of shares that would be issued if
these bonds were converted into shares. 3
What’s a convertible security?
Another source of dilution is executive
stock options. Suppose a company has 1
million shares of stock outstanding, but
has also given its executives stock options
that would result in 0.5 million new shares
issued if they chose to exercise these
options.
This would not affect the
numerator of the earnings per share, but
would change the denominator to 1.5
million shares.
If the company had
earnings of $5 million, its basic earnings
per share would be $5 million / 1 million
shares = $5.00 per share and its diluted
earnings per share would be $5 million /
1.5 million shares = $3.33 per share.
A convertible security is a security – debt or equity – that
gives the investor the option to convert—that is, exchange –
the security into another security (typically, common stock).
Convertible bonds and convertible preferred stocks are
common.
Suppose you buy a convertible bond with a face value of
$1,000 that is convertible into 100 shares of stock. This
means that you own the bond and receive interest, but you
have the option to exchange it for 100 shares of stock. You
can hold the bond until it matures, collecting interest
meanwhile and then receiving the face value at maturity, or
you can exchange it for the 100 shares of stock at any time.
Your choice. Once you convert your bond into stock,
however, you no longer receive any interest on the bond.
Some issuers will limit conversion such that the bond cannot
be converted for a fixed number of years from issuance.
As an example, consider Yahoo!'s earnings per share reported in their 2004 annual report:
Item
2003 2004
Basic EPS
$0.19 $0.62
Diluted EPS $0.18 $0.58
The difference between the basic and diluted earnings per share in Yahoo!'s case is attributable to its
extensive use of stock options in compensation programs.
Book value equity per share is the amount of the book value (a.k.a. carrying value) of common
equity per share of common stock, calculated by dividing the book value of shareholders’ equity by
the number of shares of stock outstanding. As we discussed earlier, the book value of equity may
differ from the market value of equity. The market value per share, if available, is a much better
indicator of the investment of shareholders in the company.
The price−earnings ratio (P/E or PE ratio) is the ratio of the price per share of common stock to
the earnings per share of common stock:
Price-earnings ratio =
Market price per share
Earnings per share
Though earnings per share are reported in the income statement, the market price per share of stock
is not reported in the financial statements and must be obtained from financial news sources. The
3
A “catch” is that diluted earnings per share can never be reported to be greater than basic earnings per share.
In some cases (when a company has many convertible securities outstanding), we may calculate a diluted
earnings per share greater than basic earnings per share, but in this case we cannot report diluted earnings per
share because it would be anti-dilutive.
Financial ratios, a reading prepared by Pamela Peterson Drake
12
13. P/E ratio is sometimes used as a proxy for investors' assessment of the company's ability to generate
cash flows in the future. Historically, P/E ratios for U.S. companies tend to fall in the 10-25 range, but
in recent periods (e.g., 2000-2001) P/E ratios have reached much higher. Examples of P/E ratios (P/E
ratios at the end of 2004): 4
Ticker
P/E ratio
symbol
Company
Amazon.com
AMZN
57
Time Warner Inc.
TWX
29
IBM
IBM
21
Coca-Cola
KO
22
Microsoft
MSFT
36
Yahoo!
YHOO
98
3M Co.
MMM
23
GE
24
General Electric
We are often interested in the returns to shareholders in the form of cash dividends. Cash
dividends are payments made by the company directly to its owners. There is no requirement that
a company pay dividends to its shareholders, but many companies pay regular quarterly or annual
dividends to the owners. The decision to pay a dividend is made by the company’s board of
directors. Note that not all companies pay dividends.
Dividends per share (DPS) is the dollar amount of cash dividends paid during a period, per share
of common stock:
Dividends per share =
Dividends paid to shareholders
Number of shares outstanding
The dividend payout ratio is the ratio of cash dividends paid to earnings for a period:
Dividend payout ratio =
Dividends
Earnings
The complement to the dividend payout ratio is the retention ratio or the plowback ratio:
Retention ratio =
Earnings - Dividends
Earnings
We can also convey information about dividends in the form of a yield, in which we compare the
dividends per share with the market price per share:
Dividend yield =
Dividends per share
Market price per share
The dividend yield is the return to shareholders measured in terms of the dividends paid during the
period.
We often describe a company's dividend policy in terms of its dividend per share, its dividend payout
ratio, or its dividend yield. Some companies' dividends appear to follow a pattern of constant or
4
Source: Yahoo! Finance
Financial ratios, a reading prepared by Pamela Peterson Drake
13
14. constantly growing dividends per share. And some companies' dividends appear to be a constant
percentage of earnings.
Summary
You’ve been introduced to a few of the financial ratios that a financial analyst has in his or her toolkit.
There are hundreds of ratios that can be formed using available financial statement data. The ratios
selected for analysis depend on the type of analysis (e.g., credit worthiness) and the type of
company. You’ll see in the next reading how to use these ratios to get an understanding of a
company’s condition and performance.
Financial ratios, a reading prepared by Pamela Peterson Drake
14