This document provides a tutorial on financial ratios used to analyze companies. It discusses several types of ratios:
1. Liquidity ratios like the current ratio, quick ratio, and cash ratio which measure a company's ability to meet short-term obligations. The cash conversion cycle is also introduced which measures the time between expenditure for inventory and collection from customers.
2. Profitability, debt, operating performance, cash flow, and investment valuation ratios are also outlined.
3. Examples are provided for each ratio using financial data from Zimmer Holdings, with the current ratio, quick ratio, and cash ratio being explained in more detail to illustrate how they are calculated and interpreted.
Liquidity Ratios are an integral part of financial statement analysis. These are various measures to find or to ascertain the firm’s ability to meet the short term expenses or liabilities and convertibility to liquid assets (for further reading click the link) into cash on requirement. Copy the link given below and paste it in new browser window to get more information on Liquidity Ratio:- http://www.transtutors.com/homework-help/accounting/financial-statement-analysis-liquidity-ratios/
CVA Capital Charge under Basel III standardized approachGRATeam
Since the 2007 – 2009, Counterparty Credit Risk (CCR) has become one of the biggest issues and challenges for financial institutions.
As the crisis revealed shortcomings and loopholes in managing CCR, and more specifically CVA risk, new regulations have been issued in the sole intent of capturing this risk and building an extra cushion of capital to absorb losses and consequently to strengthen the resilience of the banking industry.
Basel III framework proposes two ways for measuring CVA Risk: a standardized approach and an advanced approach.
In this paper, the standardized approach will be analyzed and studied. At first, an analysis will be provided to better understand why CCR became so important, what are its characteristics, etc... Then a discussion around the CVA definition from the regulator’s perspective will be presented. Finally, a paragraph will be dedicated to better understand what the standardized formula refers to, what is being computed, and for what purpose.
Our decision to focus on the treatment of counterparty risk in Basel III - standard method only - can be explained by three major observations:
1) A lot of literature already exists, and a certain number of very good specialists refer to the subject. We do not pretend to add other new elements, in all cases not herein;
2) Few banks actually are able to assess their counter party risk under some advanced and internal methodologies. The application of the standard method is highly widespread among financial institutions subject to Basel III;
3) Few people, when they need to assess their risk using the standard approach, really take the time to analyze choices and specific assumptions according to this method.
Our main objective here is to help financial institutions better understand how their regulatory capital levels evolve under this approach and the impact on their day to day business.
In November 2009, we published a white paper on the endowment model of
investing (The Yale Endowment Model of Investing is Not Dead) that argued that the
melt down at certain endowments had nothing to do with purported flaws in
modern portfolio theory. Now that the financial crisis has receded, we thought it
would be instructive to take a fresh look at some of these same endowments to see
what lessons they learned and what, if any, changes they made to the constructions
of their portfolios.
Operating Ratios asPerformanceMeasure s 11C H A P T E RTHE.docxhopeaustin33688
Operating Ratios as
Performance
Measure s 11
C H A P T E R
THE IMPORTANCE OF RATIOS
Ratios are convenient and uniform measures that are
widely adopted in healthcare financial management.
They are important because they are so widely used, especially
because they are used for credit analysis. But a
ratio is only a number. It has to be considered within the
context of the operation. There is another caveat: ratio
analysis should be conducted as a comparative analysis. In
other words, one ratio standing alone with nothing to
compare it with does not mean very much. When interpreting
ratios, the differences between periods must be
considered, and the reasons for such differences should
be sought. It is a good practice to compare results with
equivalent computations from outside the organization—
regional figures from similar institutions would be a good
example of such outside sources. Caution and good managerial
judgment must always be exercised when working
with ratios.
Financial ratios basically pull together two elements of
the financial statements: one expressed as the numerator
and one as the denominator. To calculate a ratio, divide
the bottom number (the denominator) into the top
number (the numerator). The Case Study in Appendix
25-A entitled “Using Financial Ratios and Benchmarking:
A Case Study in Comparative Analysis” uses financial
ratios as indicators of financial position. We highly recommend
that you spend time with this Case Study, as it
will add depth and background to the contents of this
chapter.
In this chapter we examine liquidity, solvency, and
profitability ratios. Exhibit 11-1 sets out eight basic ratios
After completing this chapter,
you should be able to
1. Understand four types of
liquidity ratios.
2. Understand two types of
solvency ratios.
3. Understand two types of
profitability ratios.
4. Successfully compute ratios
CHAPTER 11 Financial and Operating Ratios as Performance Measures
Exhibit 11–1 Eight Basic Ratios Used in Health Care
Liquidity Ratios
1. Current Ratio
Current Assets
Current Liabilities
2. Quick Ratio
Cash and Cash Equivalents + Net Receivables
Current Liabilities
3. Days Cash on Hand (DCOH)
Unrestricted Cash and Cash Equivalents
Cash Operation Expenses ÷ No. of Days in Period (365)
4. Days Receivables
Net Receivables
Net Credit Revenues ÷ No. of Days in Period (365)
Solvency Ratios
5. Debt Service Coverage Ratio (DSCR)
Change in Unrestricted Net Assets (net income)
+ Interest, Depreciation, Amortization
Maximum Annual Debt Service
6. Liabilities to Fund Balance
Total Liabilities
Unrestricted Fund Balances
Profitability Ratios
7. Operating Margin (%)
Operating Income (Loss)
Total Operating Revenues
8. Return on Total Assets (%)
EBIT (Earnings before Interest and Taxes)
Total Assets
Courtesy of Resource Group, Ltd., Dallas, Texas.
that are widely used in healthcare organizations: four liquidity types, two solvency types, and
two profitability types. All are discussed later.
LIQUIDITY RATIOS
Liquidity r.
Liquidity Ratios are an integral part of financial statement analysis. These are various measures to find or to ascertain the firm’s ability to meet the short term expenses or liabilities and convertibility to liquid assets (for further reading click the link) into cash on requirement. Copy the link given below and paste it in new browser window to get more information on Liquidity Ratio:- http://www.transtutors.com/homework-help/accounting/financial-statement-analysis-liquidity-ratios/
CVA Capital Charge under Basel III standardized approachGRATeam
Since the 2007 – 2009, Counterparty Credit Risk (CCR) has become one of the biggest issues and challenges for financial institutions.
As the crisis revealed shortcomings and loopholes in managing CCR, and more specifically CVA risk, new regulations have been issued in the sole intent of capturing this risk and building an extra cushion of capital to absorb losses and consequently to strengthen the resilience of the banking industry.
Basel III framework proposes two ways for measuring CVA Risk: a standardized approach and an advanced approach.
In this paper, the standardized approach will be analyzed and studied. At first, an analysis will be provided to better understand why CCR became so important, what are its characteristics, etc... Then a discussion around the CVA definition from the regulator’s perspective will be presented. Finally, a paragraph will be dedicated to better understand what the standardized formula refers to, what is being computed, and for what purpose.
Our decision to focus on the treatment of counterparty risk in Basel III - standard method only - can be explained by three major observations:
1) A lot of literature already exists, and a certain number of very good specialists refer to the subject. We do not pretend to add other new elements, in all cases not herein;
2) Few banks actually are able to assess their counter party risk under some advanced and internal methodologies. The application of the standard method is highly widespread among financial institutions subject to Basel III;
3) Few people, when they need to assess their risk using the standard approach, really take the time to analyze choices and specific assumptions according to this method.
Our main objective here is to help financial institutions better understand how their regulatory capital levels evolve under this approach and the impact on their day to day business.
In November 2009, we published a white paper on the endowment model of
investing (The Yale Endowment Model of Investing is Not Dead) that argued that the
melt down at certain endowments had nothing to do with purported flaws in
modern portfolio theory. Now that the financial crisis has receded, we thought it
would be instructive to take a fresh look at some of these same endowments to see
what lessons they learned and what, if any, changes they made to the constructions
of their portfolios.
Operating Ratios asPerformanceMeasure s 11C H A P T E RTHE.docxhopeaustin33688
Operating Ratios as
Performance
Measure s 11
C H A P T E R
THE IMPORTANCE OF RATIOS
Ratios are convenient and uniform measures that are
widely adopted in healthcare financial management.
They are important because they are so widely used, especially
because they are used for credit analysis. But a
ratio is only a number. It has to be considered within the
context of the operation. There is another caveat: ratio
analysis should be conducted as a comparative analysis. In
other words, one ratio standing alone with nothing to
compare it with does not mean very much. When interpreting
ratios, the differences between periods must be
considered, and the reasons for such differences should
be sought. It is a good practice to compare results with
equivalent computations from outside the organization—
regional figures from similar institutions would be a good
example of such outside sources. Caution and good managerial
judgment must always be exercised when working
with ratios.
Financial ratios basically pull together two elements of
the financial statements: one expressed as the numerator
and one as the denominator. To calculate a ratio, divide
the bottom number (the denominator) into the top
number (the numerator). The Case Study in Appendix
25-A entitled “Using Financial Ratios and Benchmarking:
A Case Study in Comparative Analysis” uses financial
ratios as indicators of financial position. We highly recommend
that you spend time with this Case Study, as it
will add depth and background to the contents of this
chapter.
In this chapter we examine liquidity, solvency, and
profitability ratios. Exhibit 11-1 sets out eight basic ratios
After completing this chapter,
you should be able to
1. Understand four types of
liquidity ratios.
2. Understand two types of
solvency ratios.
3. Understand two types of
profitability ratios.
4. Successfully compute ratios
CHAPTER 11 Financial and Operating Ratios as Performance Measures
Exhibit 11–1 Eight Basic Ratios Used in Health Care
Liquidity Ratios
1. Current Ratio
Current Assets
Current Liabilities
2. Quick Ratio
Cash and Cash Equivalents + Net Receivables
Current Liabilities
3. Days Cash on Hand (DCOH)
Unrestricted Cash and Cash Equivalents
Cash Operation Expenses ÷ No. of Days in Period (365)
4. Days Receivables
Net Receivables
Net Credit Revenues ÷ No. of Days in Period (365)
Solvency Ratios
5. Debt Service Coverage Ratio (DSCR)
Change in Unrestricted Net Assets (net income)
+ Interest, Depreciation, Amortization
Maximum Annual Debt Service
6. Liabilities to Fund Balance
Total Liabilities
Unrestricted Fund Balances
Profitability Ratios
7. Operating Margin (%)
Operating Income (Loss)
Total Operating Revenues
8. Return on Total Assets (%)
EBIT (Earnings before Interest and Taxes)
Total Assets
Courtesy of Resource Group, Ltd., Dallas, Texas.
that are widely used in healthcare organizations: four liquidity types, two solvency types, and
two profitability types. All are discussed later.
LIQUIDITY RATIOS
Liquidity r.
BackgroundAnne Schippel, business banker, is analyzing Dry Supply.pdfpearlcoburnsanche303
Background:
Anne Schippel, business banker, is analyzing Dry Supply\'s financial statements. When
calclating ratios, many commercial lenders use a ratio summary. Figure 8.5 summarizes the key
ratios as they might appear on her spreadsheet.
In reviewing the Ratio Summary and Comparative Data for Dry Supply for 12/31/20xx through
12/31/20xz, Anne Schippel has developed some questions and observations regarding the ratios.
It is now your turn to do the same.
Figure 8.5 Ratio Summary: Dry Supply
12/31/20xx
12/31/20xy
12/31/20xz
Liquidity
Current Ratio
Quick Ratio
Working Capital
1.3x
0.8x
$47,000
1.5x
1.0x
$66,000
1.5x
1.0x
$92,000
Leverage
Debt to net worth
Tangible leverage
Tangible effective leverage
3.3x
3.3x
1.3x
2.7x
2.7x
1.0x
1.9x
1.9x
0.7x
Profitability
Gross profit margin
Operating profit margin
Pretax profit margin
Net Profit margin
Return-on-assets
Return-on-equity
27.9%
2.3%
2.2%
1.0%
8.2%
35.1%
28.8%
3.0%
2.8%
1.5%
10.0%
36.6%
31.3%
5.0%
4.4%
2.5%
14.8%
42.6%
Efficiency
Accounts receivable turnover
Inventory turnover
Accounts payable turnover
Sales to total assets
44.5d
41.3d
17.9d
3.4x
44.0d
39.4d
17.9d
3.4x
44.5d
38.8d
17.9d
3.4x
Coverage
Tradition cash flow coverage
Interest Coverage
Fixed charge coverage
Dividend payout ratio
n/a
4.3x
4.5x
0.0%
n/a
4.7x
4.7x
0.0%
n/a
4.6x
4.3x
0.0%
Figure 8.6 Wholesale Dry-Cleaning Equipment Industry Quartiles 20xz
Ration
Higher
Median
Lower
Current
Quick
Tangible Leverage
Pretax profit margin
Return-on-assets
Interest coverage
2.4x
1.2x
0.9x
n/a
10.7x
5.5x
1.5x
0.8x
2.5x
2.1x
3.2x
2.1x
1.2x
0.5x
5.1x
n/a
(0.3x)
1.0x
Part 1
For each of the ratios listed below, perform your own ratio analysis by stating your observation
and develop any necessary questions you would ask Dry Supply to complete your analysis.
A. Liquidity Ratios
B. Financial Leverage Ratios
C. Profitability Ratios
D. Efficiency Ratios
E. Coverage Ratios
Part 2
Using the commercial lending decision tree, Schippel deteremined that Dry Supply, as a
wholesaler, would likely show certain financial characteristics when she began to analyze the
financial statements. What are some examples of these characteristics within the ratios for 20xx
through 20 xz?
Figure 8.5 Ratio Summary: Dry Supply
12/31/20xx
12/31/20xy
12/31/20xz
Liquidity
Current Ratio
Quick Ratio
Working Capital
1.3x
0.8x
$47,000
1.5x
1.0x
$66,000
1.5x
1.0x
$92,000
Leverage
Debt to net worth
Tangible leverage
Tangible effective leverage
3.3x
3.3x
1.3x
2.7x
2.7x
1.0x
1.9x
1.9x
0.7x
Profitability
Gross profit margin
Operating profit margin
Pretax profit margin
Net Profit margin
Return-on-assets
Return-on-equity
27.9%
2.3%
2.2%
1.0%
8.2%
35.1%
28.8%
3.0%
2.8%
1.5%
10.0%
36.6%
31.3%
5.0%
4.4%
2.5%
14.8%
42.6%
Efficiency
Accounts receivable turnover
Inventory turnover
Accounts payable turnover
Sales to total assets
44.5d
41.3d
17.9d
3.4x
44.0d
39.4d
17.9d
3.4x
44.5d
38.8d
17.9d
3.4x
Coverage
Tradition cash flow coverage
Interest Coverage
Fixed charge coverage
Dividend payout ratio
n/.
PROJECT ON WORKING CAPITAL MANAGEMENT
Efficient management of working Capital is one of the pre-conditions for the success of an enterprise. To reach optimal working capital management firm manager should control the trade-off between profitability and liquidity accurately. The purpose of this study is to investigate the relationship between working capital management and firm’s profitability.
In this study, we have selected a sample of 5 top notch Electricals firms and taken their financial data for a period of 6 years from 2008 – 2013 and studied the effect of different variables of working capital management including the Cash conversion cycle and Current ratio on the profitability of the firms.
The study shows that there is a negative significant relationship between cash conversion cycle & firm’s profitability and positive relationship between Current Ratio & profitability of firms. This reveals that reducing cash conversion period and increasing the current ratio results into profitability increase. Thus, in purpose to create shareholder value, firm manager should concern on shorten of cash conversion cycle till accomplish optimal level.
Optimization Of Capital Structure Of Firm To Improve Profitability Complete DeckSlideTeam
This template will help the organization in optimizing debt ratio to maximize firm value and reducing cost of capital. The current scenario of firm depicts various sources of capital funding such as debt, equity capital, etc. The firms capital structure is analyzed on the basis of debt equity ratio, WACC, cost of equity and debt, present debt and equity pattern, etc. The debt equity ratio of the firm determines that firm is aggressively financed through debt which puts the firm in potential risk of financial distress or bankruptcy. The Chief Financial Officer will present this template to higher level management. The over levered firm will search different ways to shift to optimal debt ratio at minimum cost of capital by estimating optimal debt ratio on different rates with respect to cost of capital and firm value. The firm can alter its financial mix through ways such as equity recapitalization, divestiture and use of proceeds, new investment financing. The firm will raise capital funding through equity by initial public offerings process and leveraged buyout process. The alteration of financial mix will impact debt and equity pattern by reducing debt and increasing equity resulting lower debt equity ratio at minimum cost of capital. https://bit.ly/38bJcPg
Prepare a witten financial analysis. .This should include calculation.pdfarrowit1
Prepare a witten financial analysis. .This should include calculations and discussion related to
the Chapter 5 appendix (Appendix 5A). See illustration 5A-1 for a summary of financial ratios.
Be sure to include (1) these ratios, (2) what they mean and (3) how you interpret them: o Current
ratio o Accounts receivable turnover o Inventory turnover o Profit margin on sales o Return on
assets o Return on stockholders\' equity o Debt to assets ratio Submit a WORD document via
D2L- Assessments - Assignments
Solution
Ans ) The ratios are not meant for a particular person or firm.People in various fields of life are
interested in ratio analysis from their own angles.The parties attached with business or firm are
creditors i.e. mony lenders, shareholders.Management uses the toolof Ratio analysisto
interpretate the information from their own angles.For example creditors are interested in
liquidity and solvency for which they will make use of current ratio , liquidity ratio,
proprietaryRatio, debt equity Ratio,capital gearing Ratio.Shareholders are interested in
profitability and long term solvency.They want to know the rate of return on their capital
employed for which they willmake use of Gross Profit Ratio, Operating Ratio, Dividend ratio
and Price Earning Ratio.Management is interested in overall efficiency of business which can be
better jud ged through Ratios like turnover to fixed assets, turnover to capital employed, stock
turnover ratio etc.So, from the above discussion it is clear that different prties uses the tool of
Ratio analysis for taking their own decisions
The particular purpose of a user is determining the particular Ratios that might be used ofr
financial analysis.Here we will discuss and calculate various ratios to do fianacial analysis.
Current Ratio = Current Assests/Current Liabilities
Current Assests= Cash + Bank+ Prepaid Insurance+Inventory+ Accounts Recievables
Current Assests=44746.5 +510+500+5000+29000=79756.5
Current Laibilites =Accounts payable
Current Laibilites= 30064.83
Current Ratio = 79756.5/30064.83= 2.7
Interpretation : Generally a current ratio of 2 times or 2:1 is cosidered to be satisfactory.Here the
current ratio of greater than 2 denotes the good liquidity position but it also indicates assest
liabilty mis match.But current ratio greater than 2 is generally preferred as compared to less than
2.
2.Account receivables turnover :It represents the number of times the cash is collected from
debtors.Lower turnover denotes poor collection and means that funds are blocked ofr longer
period of tiem and vice-versa.It also measure the liquidity of the firm.It shows how quickly
debtors (receivables) are converted into sales.The Account receivables turnover shows the
relationship between sales and debtors of the firm.
Account receivables turnover= Net Credit Annual Sales/Average trade debtors
3. Inventory turnover :This ratio indicates the number of times inventory or stock is replaced
during the year.The turnover of invent.
Abhay Bhutada Leads Poonawalla Fincorp To Record Low NPA And Unprecedented Gr...Vighnesh Shashtri
Under the leadership of Abhay Bhutada, Poonawalla Fincorp has achieved record-low Non-Performing Assets (NPA) and witnessed unprecedented growth. Bhutada's strategic vision and effective management have significantly enhanced the company's financial health, showcasing a robust performance in the financial sector. This achievement underscores the company's resilience and ability to thrive in a competitive market, setting a new benchmark for operational excellence in the industry.
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Lecture slide titled Fraud Risk Mitigation, Webinar Lecture Delivered at the Society for West African Internal Audit Practitioners (SWAIAP) on Wednesday, November 8, 2023.
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The Evolution of Non-Banking Financial Companies (NBFCs) in India: Challenges...beulahfernandes8
Role in Financial System
NBFCs are critical in bridging the financial inclusion gap.
They provide specialized financial services that cater to segments often neglected by traditional banks.
Economic Impact
NBFCs contribute significantly to India's GDP.
They support sectors like micro, small, and medium enterprises (MSMEs), housing finance, and personal loans.
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