The document discusses various financial ratios used to analyze companies, including liquidity ratios, activity ratios, debt ratios, and profitability ratios. It provides formulas and calculations for metrics like the current ratio, quick ratio, inventory turnover, debt-to-equity ratio, and return on equity. The document also explains DuPont analysis, which breaks down return on equity into profit margin, total asset turnover, and financial leverage.

2. LIQUIDITY RATIO
used to measure
the firm’s ability to
pay is short- term
debts as they fall
due.

3. ACTIVITY RATIO
used to measure
the ease or speed of
converting various
accounts into cash
or sales.

4. DEBT RATIO
used to measure
the degree of
indebtedness of the
firm ands its ability
to service its debts.

5. PROFITABILITY RATIO
used to show the
combined effects of
liquidity, asset
management, and
debt management
on operating
results.

6. PROFITABILITY RATIO
The firm’s
earnings are
evaluated in
relation to assets
sales, owner’s
investment or share
value.

7. Liquidity RATIO
Current Ratio
Quick/Acid Test Ratio
Cash Ratio

8. Current Ratio
2, 800,000
Current Asset
Current Ratio=
1,500,000
Current Liabilities
= 1.87

9. Quick or acid test Ratio
2, 800,000 -
Quick or Acid Current Asset -
800,000
Inventories
Test Ratio =
1,500,000
Current Liabilities
= 1.93

10. Quick or acid test Ratio
300,000+1,000,000
Quick or Acid cash + Receivables+
+ 700,000
marketable securities
Test Ratio =
1,500,000
Current Liabilities
= 1.93

11. Cash Ratio
300,000 +
Cash + Marketable
700,000
Securities
Cash Ratio =
1,500,000
Current Liabilities
= 0.67

12. Activity RATIO
Inventory Turnover
Average Collection
Period
Average Payment
Period
Total Asset Turnover

13. Inventory turnover
Inventory 2, 000,000
Cost of Good Sold
Turnover =
Inventory
800,000
= 2.5

14. Inventory turnover
No. of days in a
Average 360 days
year
Inventory =
Age 2.5
Inventory
Turnover
= 144 days

15. Average collection period
Accounts
Average 1, 000,000
Receivable
Collection=
Sales/day
3,700,000/
Annual Sales
Period divided by 360
average
360 days
days
= 97.3 days

16. Average payment period
Accounts
Average 700,000
Payable
Payment = Annual
(0.70x 2,000)/
Average
Period Purchases
Purchases/day
360 days
divided by 360
days
= 180 days

17. Total asset turnover
3,700,000
Sales
Total Asset =
Turnover 4,800,000
Total Assets
= 0.77

18. Fixed asset turnover
3,700,000
Sales
Fixed Asset =
Turnover Net Fixed
2,000,000
Assets
= 1.85

19. Debt/ debt management RATIO
Debt Ratio
Debt-to-Equity Ratio
Time Interest Earned
Ratio

20. Debt ratio
2,700,000
Total Liabilities
Debt Ratio=
Total Assets
4,800,000
= 0.56

21. Debt-to-equity ratio
Debt-to- 1,200,000
Long term debt
Equity =
Stockholders’ Equity
Ratio 2,100,000
= 0.57

22. Time interest earned ratio
1,150,000
Time EBIT (Operating
Profits)
Interest =
Earned 150,000
Interest
Interest
Ratio expense
= 7.67

23. Profitability RATIO
Net Profit Margin
Gross Profit Margin
Operating Profit
Margin
Return on Asset(ROA)

24. Profitability RATIO
Return on Equity(ROE)
Earning Per
Share(EPS)
Price/Earnings(PE)
Ratio

25. Net profit margin
680,000
Net Profit margin
Net Profit after taxes
Margin =
Net sales
3,700,000
= 0.18

26. Gross profit margin
1,700,000
Net Profit margin
Gross Profit after taxes
Margin =
Net sales
3,700,000
= 0.46

27. operating profit margin
1,150,000
Operating Profits
Operating
Profit
Net sales
3,700,000
Margin =
= 0.31

28. Return on asset(ROA)/
Return on Investment(ROI)
680,000
Net Profit after
Return on taxes
Asset =
Total Assets
4,800,000
= 0.14

29. Return on Equity (Roe)
680,000
Net Profit after
Return on taxes
Equity =
2,100,000
Shareholders’
Equity
= 0.32

30. Earnings per share(EPS)
660,000
Earnings available
for common
Time stockholders
Interest =
Earned 100,000
No. Of shares of
common stock
Ratio outstanding
= 6.6 per share

31. PRICE/Earnings (PE) ratio
33 (@ market
Price per Share(@
Price price)
market Price)
Earning =
Earnings per
6.6 per
Ratio
share
share
= 5 times

32. DuPont SYSTEM of analysis
What Does DuPont Identity Mean?
An expression that
breaks return on equity (ROE)
down into three parts: profit
margin, total asset turnover and
financial leverage. It is also known
as "DuPont Analysis".

33. DuPont SYSTEM of analysis
DuPont identity tells us that ROE is
affected by three things:
Operating efficiency, which is measured
by profit margin
Asset use efficiency, which is measured
by total asset turnover
Financial leverage, which is measured by
the equity multiplier
ROE = Profit Margin (Profit/Sales) * Total
Asset Turnover (Sales/Assets) * Equity
Multiplier (Assets/Equity)

34. DuPont SYSTEM of analysis
ROA = Net Profit Margin
(Profit/Sales) * Total Asset
Turnover (Sales/Assets)

35. DuPont SYSTEM of analysis
ROE = Profit Margin
(Profit/Sales) * Total Asset
Turnover (Sales/Assets) *
Equity Multiplier
(Assets/Equity)

36. DuPont SYSTEM of analysis
680,000
Net Profit
after Taxes 3,700,00
Sales
ROA = x
3,700,000
Sales 4,800,000
Total asset
680,000
=
4,800,000
= 0.14

37. Financial Leverage
Multiplier
 The degree to which an investor or business
is utilizing borrowed money. Companies that
are highly leveraged may be at risk of
bankruptcy if they are unable to make
payments on their debt; they may also be
unable to find new lenders in the future.
Financial leverage is not always bad, however;
it can increase the shareholders' return on
investment and often there are tax
advantages associated with borrowing. also
called leverage.

38. DuPont SYSTEM of analysis
680,000
Net Profit
after Taxes 4,800,00
Total Assets
ROE = x
4,800,000
Total Assets Stockholders’
2,100,000
Equity
680,000
=
2,100,000
= 0.32

39. Thank you for
listening!!!
^^