Ratio analysis is used to evaluate the financial performance and health of a business. Ratios show the mathematical relationship between two related figures and can be used for trend analysis and comparisons between firms. There are several types of ratios including liquidity ratios that measure short-term financial strength, activity/turnover ratios that measure efficiency, and profitability ratios. Current ratio, quick ratio, and inventory turnover ratio are some examples discussed. Ratios should be interpreted both individually and in comparison to past ratios and industry standards to evaluate performance over time.
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 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: It is the quantitative relation between two amounts showing the number of times one value contains or is contained within the other.
Accounting Ratio: It means ratio calculated on the basis of accounting information.
Ratio analysis: A ratio analysis is a quantitative analysis of information contained in a company's financial statements. Ratio analysis is used to evaluate various aspects of a company's operating and financial performance such as its efficiency, liquidity, profitability and solvency.
Ratios are categorized into following basic categories:
1. Liquidity Ratios
2. Solvency Ratios
3. Activity or Turnover Ratios
4. Profitability Ratios
Original article from the Flevy business blog can be found here:
http://flevy.com/blog/whats-the-impact-of-ratios-in-financial-analysis/
Financial statement analysis can be referred as a process of understanding the risk and profitability of a company by analyzing reported financial info, especially annual and quarterly reports. In other words, financial statement analysis is a study about accounting ratios among various items included in the balance sheet.
Advantages of Financial Statement Analysis
The different advantages of financial statement analysis are listed below:
The most important benefit if financial statement analysis is that it provides an idea to the investors about deciding on investing their funds in a particular company.
Another advantage of financial statement analysis is that regulatory authorities can ensure the company following the required accounting standards.
Financial statement analysis is helpful to the government agencies in analyzing the taxation owed to the firm.
Above all, the company is able to analyze its own performance over a specific time period.
From the above, it is obvious that only way for financial analysis is ratio analysis.
What is Ratio analysis?
What is the role/Importance of ratio analysis in financial analysis?
What are its advantages?
How it helps out in decision making?
How it helps the auditor in assessment of the risk of material misstatement?
These are some questions the answer of each must be known by every professional, business man and by user of financial statement. Some of you may already know about these. The answer of these questions must be part of professional’s life and business man must know to keep check on the management progress.
In simple words, we can say that ratio analysis is “quantitative analysis of information contained in a company’s financial statements.” In fact, it is critical quantitative analysis.
Meaning of Ratios
Objective of ratio analysis
Advantage or uses of Accounting Ratios
Limitations of Accounting Ratios
Classification of ratios :
i). Liquidity Ratio
ii). Solvency Ratio
iii). Activity/Turnover Ratio
iv). Profitability/Income Ratio
Investment Valuation Ratios are used by investors to estimate the attractiveness of a potential or existing investment and get an idea of its valuation. Investment valuation ratios compare relevant data that help users gain an estimate of valuation.
Investment Valuation Ratios: Per Share Ratios, Dividend Per Share (DPS), Earnings Per Share (EPS), Dividend Payout Ratio (DPR),
Dividend Yield Ratio, Price / Earnings ratio (PER), Price to Cash Flow, Price to Book Value, Price to Earnings Growth (PEG), Enterprise Value (EV) multiple
Routing in « Delay Tolerant Networks » (DTN) Improved Routing With Prophet an...CSCJournals
In this paper, we address the problem of routing in “delay tolerant networks” (DTN). In such networks there is no guarantee of finding a complete communication path connecting the source and the destination at any time, especially when the destination is not in the same region of the source, what makes the traditional routing protocols inefficient in that transmission of the messages between nodes. We propose to combine the routing protocol Prophet and the model of \"transfer by delegation\" (custody transfer) to improve the routing in DTN network and to exploit the nodes as a common carriers of messages between the network partitioned. To implement this approach and assess those improvements and changes we developed a DTN simulator. Simulation examples are illustrated in the article.
Ratio: It is the quantitative relation between two amounts showing the number of times one value contains or is contained within the other.
Accounting Ratio: It means ratio calculated on the basis of accounting information.
Ratio analysis: A ratio analysis is a quantitative analysis of information contained in a company's financial statements. Ratio analysis is used to evaluate various aspects of a company's operating and financial performance such as its efficiency, liquidity, profitability and solvency.
Ratios are categorized into following basic categories:
1. Liquidity Ratios
2. Solvency Ratios
3. Activity or Turnover Ratios
4. Profitability Ratios
Original article from the Flevy business blog can be found here:
http://flevy.com/blog/whats-the-impact-of-ratios-in-financial-analysis/
Financial statement analysis can be referred as a process of understanding the risk and profitability of a company by analyzing reported financial info, especially annual and quarterly reports. In other words, financial statement analysis is a study about accounting ratios among various items included in the balance sheet.
Advantages of Financial Statement Analysis
The different advantages of financial statement analysis are listed below:
The most important benefit if financial statement analysis is that it provides an idea to the investors about deciding on investing their funds in a particular company.
Another advantage of financial statement analysis is that regulatory authorities can ensure the company following the required accounting standards.
Financial statement analysis is helpful to the government agencies in analyzing the taxation owed to the firm.
Above all, the company is able to analyze its own performance over a specific time period.
From the above, it is obvious that only way for financial analysis is ratio analysis.
What is Ratio analysis?
What is the role/Importance of ratio analysis in financial analysis?
What are its advantages?
How it helps out in decision making?
How it helps the auditor in assessment of the risk of material misstatement?
These are some questions the answer of each must be known by every professional, business man and by user of financial statement. Some of you may already know about these. The answer of these questions must be part of professional’s life and business man must know to keep check on the management progress.
In simple words, we can say that ratio analysis is “quantitative analysis of information contained in a company’s financial statements.” In fact, it is critical quantitative analysis.
Meaning of Ratios
Objective of ratio analysis
Advantage or uses of Accounting Ratios
Limitations of Accounting Ratios
Classification of ratios :
i). Liquidity Ratio
ii). Solvency Ratio
iii). Activity/Turnover Ratio
iv). Profitability/Income Ratio
Investment Valuation Ratios are used by investors to estimate the attractiveness of a potential or existing investment and get an idea of its valuation. Investment valuation ratios compare relevant data that help users gain an estimate of valuation.
Investment Valuation Ratios: Per Share Ratios, Dividend Per Share (DPS), Earnings Per Share (EPS), Dividend Payout Ratio (DPR),
Dividend Yield Ratio, Price / Earnings ratio (PER), Price to Cash Flow, Price to Book Value, Price to Earnings Growth (PEG), Enterprise Value (EV) multiple
Routing in « Delay Tolerant Networks » (DTN) Improved Routing With Prophet an...CSCJournals
In this paper, we address the problem of routing in “delay tolerant networks” (DTN). In such networks there is no guarantee of finding a complete communication path connecting the source and the destination at any time, especially when the destination is not in the same region of the source, what makes the traditional routing protocols inefficient in that transmission of the messages between nodes. We propose to combine the routing protocol Prophet and the model of \"transfer by delegation\" (custody transfer) to improve the routing in DTN network and to exploit the nodes as a common carriers of messages between the network partitioned. To implement this approach and assess those improvements and changes we developed a DTN simulator. Simulation examples are illustrated in the article.
Identity Based Secure Routing For Wireless Ad-Hoc NetworksIDES Editor
In this paper, we propose an Identity (ID)-
based Secure Routing Scheme for secure routing in
wireless ad-hoc networks. It make use of Identity based
Signature scheme and hash chains to secure the AODV
(Ad-hoc on demand distance vector routing) messages.
We have used ID based Signature scheme for the
immutable fields, that is the fields that remain same
throughout the journey of the routing packet and Hash
Chains for the mutable fields (fields which changes from
node to node) e.g. Hop Count. This system has the
following advantages as compared to the previous
solutions, most of which uses RSA based Public Key
Cryptographic solutions. Firstly, it makes use of Identity
based signature scheme which is certificateless thus saving
overhead costs of communication and storage. Secondly,
in ID based schemes we can use our identity, like our IP
address or email ID as our public key, which leads to
smaller key size as compared to other cryptographic
techniques. Also this system does not require
establishment of any third party like PKI (Public-key
Infrastructure) at the initial stages of network
establishment
Opportunistic Networking: Extending Internet Communications Through Spontaneo...Waldir Moreira
The increasing number of personal devices with wireless communication capabilities makes it possible the creation of spontaneous networks in which devices communicate occasionally depending on contact opportunities. This intermittent communication may be due to mobility and power-limitations of devices, physical obstacles and distance, resulting in the possible nonexistence of end-to-end paths toward a destination. In summary, spontaneous networks are characterized by being highly dynamic, composed of mobile and static nodes that are able to take advantage of opportunistic time-varying contacts.
This tutorial aims to give an introduction to the challenges and research issues behind the development of
opportunistic networking solutions able to boost the deployment of spontaneous networks. Special attention will be
given to the fundamental building block: routing over opportunistic networks. Since the effciency of spontaneous
networks depends upon the way contacts occur between carriers of communication devices, special attention will
also be given to the analysis of method to detect social structures based on opportunistic contacts. To emphasize
the impact that opportunistic networking technology may have, this tutorial ends up with the description of major
aspects of future forwarding schemes: interest-based and information-centric forwardings.
This presentation was given as a tutorial in the IEEE 3rd Latin-American Conference on Communications (LATINCOM), on Oct 26th, 2011, in Belém/PA, Brazil.
http://www.ieee-latincom.ufpa.br/
Energy Behavior in Ad Hoc Network Minimizing the Number of Hops and Maintaini...CSCJournals
Wireless ad-hoc mesh network is a special kind of network, where all of the nodes move in time. The topology of the network changes as the nodes are in the proximity of each other. Ad-hoc networks are generally self-configuring no stable infrastructure takes a place. In this network, each node should help relaying packets of neighboring nodes using multi-hop routing mechanism. This mechanism is needed to reach far destination nodes to solve problem of dead communication. This multiple traffic "hops" within a wireless mesh network caused dilemma. Wireless mesh network that contain multiple hops become increasingly vulnerable to problems such as energy degradation and rapid increasing of overhead packets. This paper provides a generic routing framework that balances energy efficient broadcast schemes in Wireless (Ad-Hoc) Mesh Network and maintaining connectivity of nodes (mobile terminals). Typically, each node’s activities will consume energy, either for sending packets, receiving or preparing/processing packets. Number of hops, distance of nodes, and size of packet will determine the consumption of energy. The framework is based on the principle that additional relay nodes with appropriate energy and routing metric between source and final destination significantly reduces the energy consumption necessary to deliver packets in Wireless (Ad-Hoc) Mesh Network while keep the connectivity of dynamic nodes. Using the framework, the average network connectivity is kept 18% higher and the lifetime of network lasting more than 2.38% compared with network with Link State Routing mechanism. The simulation notes that the end-to-end delay may increase rapidly if relay nodes are more than five.
These days, the interests in challenged networks are increasing and many researches are performed to seek a reliable end-to-end connectivity under harsh environments, which have a long propagation delay, high error rates, low data rate, and intermittent connectivity. Delay Tolerant Network was introduced to provide challenged networks with reliable transmission and interoperability with an overlay network concept. In this paper, we present comprehensive overview of Delay Tolerant Network and introduce a study case about the implementation of this network. This paper is designed to encourage the exploration of this field by giving basic concept and also motivate to investigate this area by presenting a study case at the end section.
---
Please contact to lailiaidi@gmail.com for download request
These days, the interests in challenged networks are increasing and many researches are performed to seek a reliable end-to-end connectivity under harsh environments, which have a long propagation delay, high error rates, low data rate, and intermittent connectivity. Delay Tolerant Network was introduced to provide challenged networks with reliable transmission and interoperability with an overlay network concept. In this paper, we present comprehensive overview of Delay Tolerant Network and introduce a study case about the implementation of this network. This paper is designed to encourage the exploration of this field by giving basic concept and also motivate to investigate this area by presenting a study case at the end section.
---
Please contact to lailiaidi@gmail.com for download request
CONGESTION AWARE SPRAY AND WAIT PROTOCOL: A CONGESTION CONTROL MECHANISM FOR ...ijcsit
In the last few years, the Vehicular Ad-hoc Network (VANET) has come to be an important area of research. Significant research has been conducted to improve the performance of VANETS. One output of further research conducted on VANET is the Vehicular Delay Tolerant Network (VDTN). It is an
application of the mobile DTN where nodes relay messages in the network using a store-carry-forward approach. Due to its high mobility, it suffers frequent disconnections and also congestions at nodes which leads to message drops. To minimize the rate of message drops and so optimize the probability of message delivery so that drivers are increasingly aware of the situation of the road, we propose a congestion
control mechanism: Congestion Aware Spray and Wait (CASaW) protocol in this work so as to optimize the
rate of message delivery to its destination and so increase the awareness of drivers in the vehicular environment thereby improve road safety. The results have shown that our proposition performed better than other classical VDTN protocols in terms of message delivery probability and rate of packet drops performance measures. We used the Opportunistic Networking Environment (ONE) simulator to implement the classical VDTN protocols: the PROPHET protocol, the Epidemic protocol, the MaxProp protocol and
the Spray and Wait Protocol. The simulation scenarios shows a better performance for the congestion control mechanism we propose as it maintains a good message delivery rate as well as minimize the rate of packet losses thereby optimizing the chances of messages getting to their destinations and so improve road safety.
Ratio AnalysisFinancial ratios can be used to examine various as.docxcatheryncouper
Ratio Analysis
Financial ratios can be used to examine various aspects of the financial position and performance of a business and are widely used for planning and control purposes.
They can be used to evaluate the financial health of a business and can be utilised by management in a wide variety of decisions involving such areas as profit planning, pricing, working-capital management, financial structure and dividend policy.
Ratio analysis provides a fairly simplistic method of examining the financial condition of a business.
A ratio expresses the relation of one figure appearing in the financial statements to some other figure appearing there.
Ratios enable comparison between businesses.
Differences may exist between businesses in the scale of operations making comparison via the profits generated unreliable.
Ratios can eliminate this uncertainty.
Other than comparison with other businesses, it is also a valuable tool in analysing the performance of one business over time.
However useful ratios are not without their problems.
Figures calculated through ratio analysis can highlight the financial strengths and weaknesses of a business but they cannot, by themselves, explain why certain strengths or weaknesses exist or why certain changes have occurred.
Only detailed investigation will reveal these underlying reasons. Ratios must, therefore, be seen as a ‘starting point’.
Financial ratio classification
The following ratios are considered the more important for decision-making purposes:
Ratios can be grouped into certain categories, each of which reflects a particular aspect of financial performance or position.
The following broad categories provide a useful basis for explaining the nature of the financial ratios to be dealt with.
Profitability.Businesses come into being with the primary purpose of creating wealth for the owners. Profitability ratios provide an insight to the degree of success in achieving this purpose. They express the profits made in relation to other key figures in the financial statements or to some business resource.
Efficiency.Ratios may be used to measure the efficiency with which certain resource have been utilised within the business. These ratios are also referred to as active ratios.
Liquidity.It is vital to the survival of a business that there be sufficient liquid resources available to meet maturing obligations. Certain ratios may be calculated that examines the relationship between liquid resources held and creditors due for payment in the near future.
Gearing.This is the relationship between the amount financed by the owners of the business and the amount contributed by outsiders, which has an important effect on the degree of risk associated with a business. Gearing is then something that managers must consider when making financing decisions.
Investment.Certain ratios are concerned with assessing the returns and performance of shares held in a particular business.
Profitabi ...
Let's dive deeper into the world of ODC! Ricardo Alves (OutSystems) will join us to tell all about the new Data Fabric. After that, Sezen de Bruijn (OutSystems) will get into the details on how to best design a sturdy architecture within ODC.
UiPath Test Automation using UiPath Test Suite series, part 4DianaGray10
Welcome to UiPath Test Automation using UiPath Test Suite series part 4. In this session, we will cover Test Manager overview along with SAP heatmap.
The UiPath Test Manager overview with SAP heatmap webinar offers a concise yet comprehensive exploration of the role of a Test Manager within SAP environments, coupled with the utilization of heatmaps for effective testing strategies.
Participants will gain insights into the responsibilities, challenges, and best practices associated with test management in SAP projects. Additionally, the webinar delves into the significance of heatmaps as a visual aid for identifying testing priorities, areas of risk, and resource allocation within SAP landscapes. Through this session, attendees can expect to enhance their understanding of test management principles while learning practical approaches to optimize testing processes in SAP environments using heatmap visualization techniques
What will you get from this session?
1. Insights into SAP testing best practices
2. Heatmap utilization for testing
3. Optimization of testing processes
4. Demo
Topics covered:
Execution from the test manager
Orchestrator execution result
Defect reporting
SAP heatmap example with demo
Speaker:
Deepak Rai, Automation Practice Lead, Boundaryless Group and UiPath MVP
Builder.ai Founder Sachin Dev Duggal's Strategic Approach to Create an Innova...Ramesh Iyer
In today's fast-changing business world, Companies that adapt and embrace new ideas often need help to keep up with the competition. However, fostering a culture of innovation takes much work. It takes vision, leadership and willingness to take risks in the right proportion. Sachin Dev Duggal, co-founder of Builder.ai, has perfected the art of this balance, creating a company culture where creativity and growth are nurtured at each stage.
Search and Society: Reimagining Information Access for Radical FuturesBhaskar Mitra
The field of Information retrieval (IR) is currently undergoing a transformative shift, at least partly due to the emerging applications of generative AI to information access. In this talk, we will deliberate on the sociotechnical implications of generative AI for information access. We will argue that there is both a critical necessity and an exciting opportunity for the IR community to re-center our research agendas on societal needs while dismantling the artificial separation between the work on fairness, accountability, transparency, and ethics in IR and the rest of IR research. Instead of adopting a reactionary strategy of trying to mitigate potential social harms from emerging technologies, the community should aim to proactively set the research agenda for the kinds of systems we should build inspired by diverse explicitly stated sociotechnical imaginaries. The sociotechnical imaginaries that underpin the design and development of information access technologies needs to be explicitly articulated, and we need to develop theories of change in context of these diverse perspectives. Our guiding future imaginaries must be informed by other academic fields, such as democratic theory and critical theory, and should be co-developed with social science scholars, legal scholars, civil rights and social justice activists, and artists, among others.
PHP Frameworks: I want to break free (IPC Berlin 2024)Ralf Eggert
In this presentation, we examine the challenges and limitations of relying too heavily on PHP frameworks in web development. We discuss the history of PHP and its frameworks to understand how this dependence has evolved. The focus will be on providing concrete tips and strategies to reduce reliance on these frameworks, based on real-world examples and practical considerations. The goal is to equip developers with the skills and knowledge to create more flexible and future-proof web applications. We'll explore the importance of maintaining autonomy in a rapidly changing tech landscape and how to make informed decisions in PHP development.
This talk is aimed at encouraging a more independent approach to using PHP frameworks, moving towards a more flexible and future-proof approach to PHP development.
Neuro-symbolic is not enough, we need neuro-*semantic*Frank van Harmelen
Neuro-symbolic (NeSy) AI is on the rise. However, simply machine learning on just any symbolic structure is not sufficient to really harvest the gains of NeSy. These will only be gained when the symbolic structures have an actual semantics. I give an operational definition of semantics as “predictable inference”.
All of this illustrated with link prediction over knowledge graphs, but the argument is general.
DevOps and Testing slides at DASA ConnectKari Kakkonen
My and Rik Marselis slides at 30.5.2024 DASA Connect conference. We discuss about what is testing, then what is agile testing and finally what is Testing in DevOps. Finally we had lovely workshop with the participants trying to find out different ways to think about quality and testing in different parts of the DevOps infinity loop.
Slack (or Teams) Automation for Bonterra Impact Management (fka Social Soluti...Jeffrey Haguewood
Sidekick Solutions uses Bonterra Impact Management (fka Social Solutions Apricot) and automation solutions to integrate data for business workflows.
We believe integration and automation are essential to user experience and the promise of efficient work through technology. Automation is the critical ingredient to realizing that full vision. We develop integration products and services for Bonterra Case Management software to support the deployment of automations for a variety of use cases.
This video focuses on the notifications, alerts, and approval requests using Slack for Bonterra Impact Management. The solutions covered in this webinar can also be deployed for Microsoft Teams.
Interested in deploying notification automations for Bonterra Impact Management? Contact us at sales@sidekicksolutionsllc.com to discuss next steps.
Accelerate your Kubernetes clusters with Varnish CachingThijs Feryn
A presentation about the usage and availability of Varnish on Kubernetes. This talk explores the capabilities of Varnish caching and shows how to use the Varnish Helm chart to deploy it to Kubernetes.
This presentation was delivered at K8SUG Singapore. See https://feryn.eu/presentations/accelerate-your-kubernetes-clusters-with-varnish-caching-k8sug-singapore-28-2024 for more details.
To Graph or Not to Graph Knowledge Graph Architectures and LLMs
Financial management
1. Meaning of Ratio and Ratio analysis.
Ratio is mathematical yardsticks that measure the relationships between two
figures, which are related to each other and mutually inter-dependent. A ratio is simply
one number expressed in terms of another number. In other words, a ratio expressed
mathematical relationship between one number and another. Ratio analysis is attempted
to derive quantitative measures or guides concerning the financial health and profitability
of a business enterprise. Ratio analysis can be used both in trend and static analysis.
There are several ratios at the disposal of an analyst but the group of ratio he would
prefer depends on the purpose and objective of analysis. In simple words a ratio is one
figure expressed in terms of another figure. For example the ratio of 200 to 100 is
expressed as 2:1 or as 2. Thus a ratio is calculated one figure into another.
Example: Gross Profit = Rs. 20,000
Sales = Rs. 1,00,000
Ratio of Gross profit to sales = Gross Profit 20,000
Sales 1,00,000 0.2: 1 or simply as 0.2
Certain ratio between two numbers coveri8ng a definite period of time are
expressed as a rate e.g. stock turnover is five times a year.
An accounting ratio shows the mathematical relationship between two figure
which have meaningful relation with each other e.g. gross profit and sales, net profit and
sales, current asset and current liability etc. No useful purpose is served if ration are
calculated between two figure, which are not, related at all to each other e.g. purchase
and premiums on the issue of the share.
There are three forms of ratio-
1) Pure Ratio-This is a simple form of ratio. In this case numerator is divided by
denominator. Pure ratio is expressed inform of relationship. For e.g. Ideal current
ratio is 2:1.
2) Percentage form- In this case numerator is divided by denominator and multiplied
by 100. For e.g. G.P. Ratio is 41%.
3) Rate Form- In this case numerator is divided by denominator; it is followed by the
word times. For e.g. Debtors Turnover 4 times.
Ratio analysis is the methods or process by which the relationship of items or
group of items in financial statements are computed, determined and presented.
Ratio analysis is the best-known and most widely used tool of financial analysis.
In financial analysis a ratio is used as an index or yardstick for evaluating the financial
performance of a firm. The absolute accounting figure contained in the financial
statement may not be very meaningful. For example, a profit of Rs. 5,00,000 may look
impressive. But the performance of the firm cannot be judged without the comparing this
net profit figure with the total amount invested to earn this profit. If this profit of Rs. 5
lakhs has been earned on an investments of Rs/. 1 corer, then the ratio of the net profit to
total capital is only 5 lakhs20 lakhs multiply by 100 = 5%, which is not reasonable return
on capital employed.
Interpretation of RatioInterpretation of Ratio
Broadly speaking, ratio may be interpreted in four different ways to follows:
An individual's ratio may have significance of its own. For example a
ratio of 25% of net profit on capital employed shows a satisfactory returns.
DJ Help.ani
2. Ratio may be interpreted by making comparisons over time. For example,
ratio of net profit on capital employed is 25%. This ratio may be compared with the
similar ratios of a number of past years. Such comparison will indicate the trend of
rise, decline or stability of the ratio.
Ratios of any one firm may be compared with the ratio of others firms in
the same industry. This is known as inter-firm comparison. Such comparison shows
the efficiency of a firm as compared to other firms.
Ratio may be interpreted by considering a group of several selected ratios.
For example, the utility of current ratio is enhanced if it used along with other related
ratio like quick ratio or acid test ratio, stock turnover ratio, etc. Similarly various
profitability ratios may be considered in relations to each other.
CLASSIFICATION OF RATIOCLASSIFICATION OF RATIO
Ratio may be classified in a variety of ways. Some of the possible methods are given
below:
1) Balance sheet ratio These ratio deals with the relationship between two items
appearing in the balance sheet e.g. current ratio, liquid ratio, debt equity ratio etc.,
2) Profit and loss ratio: This type of ratio show the relationship between two items
which are in the profit and loss account itself, e.g. gross profit ratio, net profit
ratio, operating ratio etc.
3) Combined and composite ratio: These ratios show the relationship between
items one of which is taken from profit and loss account and the other from the
balance sheet e.g. Rate of return on capital employed, debtor turnover ratio, stock
turnover ratio etc.
Meaning of Current Assets. Current assets includes: a) Cash in Hand and at bank.
(b) Readily marketable securities (c) Bill Receivable (d) Debtor less provision for bad
and doubtful debts (e) Stock in trade (f) Prepaid Expenses (g) Any other asset, which
in the normal courses of business, will be converted in cash in year's time.
Meaning of Current liability. These include all obligations maturing within a year
such as: (a) Sundry creditors (b) Bills payable (c) Bank overdraft (d) Income Tax
Payable (e) Dividend Payable (f) Outstanding expenses (g) Provision for taxation
Significance and objectives: Current ration throws good light on the short-term
financial positions and policy. It is an indicator of a firm's ability to promptly meet
its short-term liabilities. On the other hand a relatively low current ratio indicates that
the firm will find it difficult to pays its bills.
Normally a current ratio of 2:1 is considered satisfactory In other words current assets
should be twice the amount of current liabilities If the current ratio is 1:1 it means that
the funds yielded by current assets are just sufficient to pay the amount due to various
creditors and there will be nothing left to meet the expenses which are being currently
incurred. Thus the ratio should always be more than 1:1 A very high current ratio is
also not desirable because it indicates idleness of funds which is not a sign of efficient
financial management.
(A) BALANCE SHEET / FINANCIAL POSITION RATIOS
1) Current Ratio-
3. Current ratio is also known as “working capital ratio’ or “solvency ratio” or
“2:1” Ratio. This ratio expresses the relationship between current assets and current
liabilities.
Current Ratio = Current Assets
Current Liabilities
Purpose: The main purpose of this ratio is to determine a short-term financial
strength of the company.
2) Liquid Ratio / Near Money Ratio-
Liquid ratio is also known as “Quick Ratio” or “Acid Test Ratio” or “1:1”
Ratio. This indicates the liquid financial position of an organization. This ratio shows
the ability to meet its immediate liabilities. It measures the relationship between quick
assets and quick liabilities.
Quick / Liquid Ratio = Quick Assets
Quick liabilities
• Quick Assets = Current Assets – Stock – Prepaid Expenses –
Advances
• Quick Liabilities = Current Liabilities – Bank Overdraft
Meaning of quick assets and quick liabilities
The quick assets include cash, debtors (excluding bad debts) and securities, which
can be realized without difficulty. Stock is not included in quick assets for the purpose of
this ratio. Similarly prepaid expenses are also
Excluded, as they cannot be converted into cash. Liquid or quick liabilities refer to all
current liabilities except bank overdraft.
Significance and objective.
Quick ratio is a more rigorous test of liquidity of a firm than the current ratio.
When quick ratio is used along with current ratio, it gives a better picture of the firm’s
ability to meet its short-term liabilities out of its short-term assets. This ratio is of great
importance for banks and financial institutions. Generally a quick ratio of 1:1 is
considered to represent a satisfactory current financial position.
Purpose: The purpose of liquid ratio is to measure the immediate solvency of the
business and indicate the availability of cash to meet its immediate liabilities.
3) Proprietary Ratio-
Proprietary Ratio is a test of the financial and credit strength of the business. It is related
with shareholders funds and total assets. This ratio determines the long term or ultimate
solvency of the business. It is also called “Net Worth to Total Assets Ratio” or “Equity
Ratio” or “Assets Backing Ratio” or “Net Worth Ratio"
4. Shareholders funds comprise of ordinary share capital, preference share capital and all
items of reserves and surplus. Total assets include all tangible assets and only those
intangible assets which have a definite realizable value.
Proprietary Ratio = Proprietors Funds
x 100
Total Assets
Proprietors Fund = Equity Share Capital + Pref. Capital + Capital Reserve +
Rev. Res. – Fictitious Assets
Total Assets = All Fixed Assets + All Current Assets + Investments.
OR
PROPRIETARY RATIO = Proprietors’ Funds
x 100
Total Funds
Total Funds = Owned Funds + borrowed Funds
Significance and Objectives
Proprietary ratio shows the extent to which shareholders own the
business and thus indicates the general financial strength of the business. The higher
the proprietary ratio, the greater the long term stability of the company and
consequently greater protection to creditors. However, a very high proprietary ratio
may not necessarily be good because if funds of outsiders are not used for long term
financing, a firm may not be able to take advantage of trading equity.
4) Stock- Working Capital Ratio-
Stock Working Capital Ratio brings out the relationship between stock and working
capital. It is also known as “Inventory Net Current Assets Ratio”.
Stock Working Capital Ratio = Stock
x 100
Working Capital
This ratio is calculated in percentage form. The standard ratio is “Less than 100%”.
The purpose of this ratio is to show the extend to which working capital is blocked in
inventories.
• Working Capital = Current Assets – Current Liabilities
5) Capital Gearing Ratio-
5. Capital Gearing Ratio brings out the relationship between two types of capital, which
are capital carry fixed rate of interest, & capital that does not carry fixed rate of
interest. This ratio is also known as “Leverage Ratio” or “Capital Structure Ratio”.
Capital Gearing Ratio = Capital Carrying Fixed Rate of Interest / Dividend
Capital Not carrying Fixed Rate Of Interest / Dividend
• Capital carrying fixed rate of interest includes preference
share capital + debentures + bank loan + Bonds.
A company is said to low geared when its fixed assets bearing securities are lesser than
equity shareholders funds. Te purpose of this ratio is to see the capital structure of the
company effectively.
6) Debt – Equity Ratio –
It expresses the relationship between long-term debt and total funds. This ratio shows
long-term capital structure.
Debt Equity Ratio = Long Term Debts OR Long Term Debts
Total Funds Eq. Share Funds
Note – Long-term debts include redeemable preference shares also.
• Total Funds = Shareholders’ Funds + long Term Liability
Sometimes this ratio is expressed in percentage form.
(B) OPERATING / REVENUE STATEMENTRATIO/ PROFITABILITY
1) Gross Profit Ratio-
Gross profit ratio brings out the relationship between gross profit and net sales. It is
also know as “Turnover Ratio” or “Gross Margin Ratio” It is expressed as a
percentage of net sales. Gross Profit Ratio indicates the basic profitability of the
business.
Gross Profit Ratio = Gross Profit x 100
Net Sales
Equations-
1) Gross Profit = Net Sales – Cost of goods sold
2) Net Sales = Gross Sales + Credit Sales
3) Gross Sales = Cash Sales = Credit Sales
4) Cost of Goods Sold = Opening Stock = Purchase = Direct Expenses – Purchases
Returns – Closing Stock.
6. A low gross profit ratio indicates inefficiency of purchase department, increased
expenses or inability to increase sales. A high gross profit ratio indicates the
efficiency of sales department, purchase department and effective control over
expenses.
Significance: Gross profit ratio indicates the average margin on the goods sold. It
shows whether the selling prices are adequate or not. It also indicate the extent to
which selling price may be reduced without resulting in losses. A low gross profit
ratio may indicate a higher cost of goods sold due to higher cost of production. It
may also be due to low selling price.
2) Operating Ratio- operating ratio brings out the relationship between total
operating cost and net sales. This is expressed as percentage.
Operating Ratio = Operating cost
x 100
Net Sales
Operating Cost = Cost of goods Sold + Office Administrative Expenses + Selling &
Distribution Expenses + Finance Expenses + Amortisation.
The purpose of operating ratio is to ascertain the efficiency of the management with
regard to the business operations.
A low operating ratio shows the better operating efficiency of the business.
A high operating ratio shows the lower profits, which is not favorable for business.
Hence, inefficiency of the management.
3) Expenses Ratio:-
The ratio of each items expense to net sales is known as an "Expenses Ratio" and such
ratio are collectively known as "Expenses Ratios" These are as under-
1) Cost of goods sold ratio= Cost of goods sold
x 100
Net sales
2) Office & Administrative Exp. Ratio= Office & Admn. Exp.
x 100
Net Sales
3) Selling & Distribution Exp. Ratio= Selling & Dist. Exp.
x 100
Net sales
4) Finance Expenses Ratio= Finance Expenses
x 100
Net Sales
7. Expenses ratio brings out the relationship between various elements of operating cost
and net sales.
Significance & Objectives- The operating ratio is the yardstick to measure the efficiency
with which a business is operated. It shows the percentage of net sales that is absorbed
by cost of goods sold and operating expenses. A high operating ratio is considered
unfavorable because it leaves a smaller margin of profit to meet non-operating expenses.
On the other hand a lower operating ratio is considered a good sign.
4) Net Profit Ratio: -
Net profit ratio indicates the relationship between net profit and net sales. Net profit
can be either operating net profit or net profit before tax or net profit after tax. This
ratio is also known as "Net margin on sales ratio"
Net Profit Before Tax ratio = Net Profit Before Tax
x 100
Net sales
Net Profit after Tax Ratio= Net profit After Tax
x 100
Net Sales
Significance & Objective: The net profit ratio is the overall measure of a firm's
ability turns each rupee of sale into profit. It indicates the efficiency with which a
business is managed. A firm with a high net profit ratio is in as advantageous
position to survive in the face of rising cost of production and falling selling price.
5) Net operating Profit Ratio: Net operating profit ratio is also known as
"Operating profit ratio" This ratio established the relationship between net
operating profit and net sales, which is expressed in percentage.
Net Operating Profit Ratio = Net Operating Profit
x 100
Net Sales
6) Stock -Turnover Ratio
Stock turnover ratio is also known as "Inventory Turnover Ratio" or Stock Velocity
Ratio" This ratio Measure the number of times stock rotate or turns or flows in an
accounting year.
Stock-Turnover Ratio = Cost of Goods Sold
Average Stock
8. The ratio indicates the relationship between inventory and cost of goods sold. It is
expressed in number of times in a year.
Average Stock = Opening Stock + Closing Stock
2
Significance and Objectives
Inventory or Stock Turnover Ratio indicates the efficiency of a firm’s inventory
management. This ratio gives the rate at which stocks are converted into sales and
then into cash. A low inventory turnover ratio is an indicator of dull business,
accumulation of inventory, over investment in inventory or unsaleable goods etc.
generally speaking, a high stock turnover ratio is considered better as it indicates that
more sales are being produced by each rupee of investment in stock but a higher stock
turnover ratio may not always be an indicator of favorable results. It may be the result
of a very low level of stock which results in frequent out of stock positions. Such a
situations prevents a company from meeting customer’s demands and the company
cannot earn maximum profits.
Thus too high and too low inventory turnover ratio may not be good and should be
investigated further. A company should have a proper inventory turnover ratio so that
it is able to earn a reasonable margin of profit.
Note: If in the problem Opening Stock is not given then closing stock figure is
considered as Average stock.