This document discusses various types of financial ratios used to analyze the financial performance and position of a company. It defines key ratios such as current ratio, debt-equity ratio, inventory turnover ratio, gross profit margin ratio, and return on investment. It provides formulas to calculate these ratios and explains how they are used and what they indicate about the company's liquidity, leverage, asset efficiency, profitability, and overall returns. The document uses financial data from the balance sheet and income statement of a sample company, ABC Company, to demonstrate calculation of sample ratios.
The document provides information on various types of financial ratios used to analyze the financial performance and position of a company. It discusses liquidity ratios like current ratio and quick ratio, leverage ratios like debt-equity ratio and debt-total fund ratio, activity ratios like inventory turnover ratio and average collection period, profitability ratios like gross profit margin ratio and net profit margin ratio, and valuation ratios like earnings per share. Formulas to calculate these ratios are given along with an example company's ratios. The document emphasizes the importance of ratio analysis for comparing performance over time, between companies, and against industry standards.
Ratio analysis is used to interpret financial statements and determine the strengths, weaknesses, historical performance, and current condition of a firm. It uses ratios categorized into five types: liquidity, investment, gearing, profitability, and financial ratios. Liquidity ratios measure a firm's ability to meet short-term obligations, such as current and quick ratios. Profitability ratios indicate how efficiently a firm generates profits relative to sales and assets, including gross and net profit margins and return on capital employed.
This document discusses various financial ratios that can be used to analyze the financial performance and health of a company. It provides definitions and formulas for key liquidity ratios like current ratio and quick ratio, leverage ratios like debt-equity ratio, activity ratios like inventory turnover ratio and average collection period, and profitability ratios like gross profit margin ratio. Specific calculations are shown for a company to illustrate how to compute various ratios from the company's financial statements. The document emphasizes the importance of ratio analysis for evaluating a company's performance over time and in comparison to other companies.
1. Ratio analysis involves calculating and analyzing relationships between financial data to assess a company's performance and financial position.
2. Key financial ratios include current ratio, quick ratio, debt-to-equity ratio, gross profit ratio, return on capital employed, and dividend payout ratio.
3. Ratio analysis is used by various stakeholders like investors, managers, and creditors to evaluate aspects like profitability, liquidity, operational efficiency, and financial leverage.
Ratio analysis involves calculating and comparing various financial ratios to evaluate a company's profitability, liquidity, asset use efficiency, and financial stability. Key ratios include return on investment, return on equity, debt-to-equity, and current ratio. Calculating ratios from multiple periods or against industry benchmarks provides insights into a company's performance over time and relative to its peers.
This document discusses various financial ratios used to analyze the liquidity, solvency, profitability, and efficiency of Patanjali. It provides the formulas and calculations for key ratios like current ratio, quick ratio, debt-equity ratio, gross profit ratio, operating ratio, return on investment, return on assets, and return on shareholders' funds. For each ratio calculated for Patanjali, it evaluates whether the ratio meets industry ideals. Overall, the ratios indicate Patanjali has good liquidity, solvency, and profitability.
The document discusses ratio analysis and provides definitions and formulas for various types of ratios used to analyze company financial statements. It covers 18 different ratios organized into categories of liquidity/short term solvency ratios, capital structure/long term solvency ratios, asset management ratios, and profitability ratios. The ratios are used to evaluate a company's financial health, performance, and efficiency in areas such as liquidity, leverage, asset utilization, and profit generation.
This document discusses various leverage ratios that can be used to measure how leveraged or indebted a company is. It defines leverage ratios as ratios that measure how much debt a company is using compared to its equity. It then lists some common leverage ratios including debt-equity ratio, interest coverage ratio, debt service coverage ratio, and debt ratio. For each ratio, it provides the formula and an example calculation to illustrate how to use the ratio. The document emphasizes that leverage ratios indicate a company's ability to repay its long-term debts and service the interest on its debt. Too much debt can make a company riskier and more vulnerable to changes in interest rates.
The document provides information on various types of financial ratios used to analyze the financial performance and position of a company. It discusses liquidity ratios like current ratio and quick ratio, leverage ratios like debt-equity ratio and debt-total fund ratio, activity ratios like inventory turnover ratio and average collection period, profitability ratios like gross profit margin ratio and net profit margin ratio, and valuation ratios like earnings per share. Formulas to calculate these ratios are given along with an example company's ratios. The document emphasizes the importance of ratio analysis for comparing performance over time, between companies, and against industry standards.
Ratio analysis is used to interpret financial statements and determine the strengths, weaknesses, historical performance, and current condition of a firm. It uses ratios categorized into five types: liquidity, investment, gearing, profitability, and financial ratios. Liquidity ratios measure a firm's ability to meet short-term obligations, such as current and quick ratios. Profitability ratios indicate how efficiently a firm generates profits relative to sales and assets, including gross and net profit margins and return on capital employed.
This document discusses various financial ratios that can be used to analyze the financial performance and health of a company. It provides definitions and formulas for key liquidity ratios like current ratio and quick ratio, leverage ratios like debt-equity ratio, activity ratios like inventory turnover ratio and average collection period, and profitability ratios like gross profit margin ratio. Specific calculations are shown for a company to illustrate how to compute various ratios from the company's financial statements. The document emphasizes the importance of ratio analysis for evaluating a company's performance over time and in comparison to other companies.
1. Ratio analysis involves calculating and analyzing relationships between financial data to assess a company's performance and financial position.
2. Key financial ratios include current ratio, quick ratio, debt-to-equity ratio, gross profit ratio, return on capital employed, and dividend payout ratio.
3. Ratio analysis is used by various stakeholders like investors, managers, and creditors to evaluate aspects like profitability, liquidity, operational efficiency, and financial leverage.
Ratio analysis involves calculating and comparing various financial ratios to evaluate a company's profitability, liquidity, asset use efficiency, and financial stability. Key ratios include return on investment, return on equity, debt-to-equity, and current ratio. Calculating ratios from multiple periods or against industry benchmarks provides insights into a company's performance over time and relative to its peers.
This document discusses various financial ratios used to analyze the liquidity, solvency, profitability, and efficiency of Patanjali. It provides the formulas and calculations for key ratios like current ratio, quick ratio, debt-equity ratio, gross profit ratio, operating ratio, return on investment, return on assets, and return on shareholders' funds. For each ratio calculated for Patanjali, it evaluates whether the ratio meets industry ideals. Overall, the ratios indicate Patanjali has good liquidity, solvency, and profitability.
The document discusses ratio analysis and provides definitions and formulas for various types of ratios used to analyze company financial statements. It covers 18 different ratios organized into categories of liquidity/short term solvency ratios, capital structure/long term solvency ratios, asset management ratios, and profitability ratios. The ratios are used to evaluate a company's financial health, performance, and efficiency in areas such as liquidity, leverage, asset utilization, and profit generation.
This document discusses various leverage ratios that can be used to measure how leveraged or indebted a company is. It defines leverage ratios as ratios that measure how much debt a company is using compared to its equity. It then lists some common leverage ratios including debt-equity ratio, interest coverage ratio, debt service coverage ratio, and debt ratio. For each ratio, it provides the formula and an example calculation to illustrate how to use the ratio. The document emphasizes that leverage ratios indicate a company's ability to repay its long-term debts and service the interest on its debt. Too much debt can make a company riskier and more vulnerable to changes in interest rates.
This document provides an overview of various ratio analysis techniques used to evaluate the financial health and performance of a business. It discusses liquidity ratios, profitability ratios, financial leverage ratios, operating performance ratios, and investment valuation ratios. For each type of ratio, it provides examples of specific ratios calculated along with their formulas and what they measure. The ratios are used to analyze a company's ability to meet short-term obligations, manage costs and expenses, utilize assets, leverage debt, generate revenue, and determine stock valuation.
Ratio analysis is a method of expressing the relationships between financial statement elements. It is used to evaluate a firm's performance, strengths, weaknesses, and ability to meet obligations. Ratios can be classified into liquidity, capital structure, turnover/activity, and profitability. Liquidity ratios measure short-term debt paying ability, capital structure ratios measure financial risk, turnover ratios measure asset use efficiency, and profitability ratios measure profit generation. Ratio analysis allows stakeholders to assess the firm's performance, financial condition, and risk.
The document defines debt, equity, and the debt-to-equity ratio. It states that the debt-to-equity ratio compares the proportion of shareholders' equity and debt used to finance a company's assets, and is calculated by dividing total debt by total shareholders' equity. The document provides an example calculation using the information for a sample Company XYZ, showing its debt-to-equity ratio is 1.5 or 150%.
This document discusses various financial ratios used to evaluate a company's liquidity and debt obligations. It defines current ratio, quick ratio, and cash ratio as measures of liquidity, calculated by dividing different levels of current assets by current liabilities. A higher ratio indicates greater ability to meet short-term debts. Debt ratio is defined as total debt divided by total assets to indicate the percentage of assets financed by debt. The document then provides an example company's current assets, liabilities, and calculates its quick and current ratios to demonstrate its liquidity.
This document discusses ratio analysis and provides a comparison of ratio analyses between two prominent Bangladeshi banks, AB Bank Limited and Eastern Bank Limited, from 2012 to 2016. Ratio analysis involves calculating and presenting relationships between financial statement items to analyze a company's financial position and performance over time and compared to other companies. The document analyzes several key ratios for the two banks, including the advances to deposits ratio, non-performing loan ratio, capital adequacy ratio, cost to income ratio, return on equity, return on assets, earnings per share, and book value per share. It finds that Eastern Bank Limited generally demonstrated better performance and financial stability based on these ratios over the period analyzed.
1) Ratio analysis involves calculating and analyzing various financial ratios to evaluate a company's liquidity, capital structure, asset management efficiency, profitability, and market performance.
2) Key ratios include the current ratio and quick ratio to measure liquidity, debt-to-equity ratio to analyze capital structure, inventory and fixed asset turnover ratios for efficiency, and profit margins, return on equity, and earnings per share for profitability.
3) Calculating and comparing ratios over time and against industry benchmarks provides insights into a company's financial health and operating trends.
This document provides definitions and formulas for various types of financial ratios used to analyze a company's liquidity, capital structure, coverage, turnover/activity, and profitability.
It includes liquidity ratios like current ratio, quick ratio, and cash ratio to assess short-term solvency. Capital structure ratios like debt-equity ratio and capital gearing ratio indicate financing techniques and long-term solvency. Coverage ratios assess ability to serve fixed liabilities. Turnover/activity ratios measure efficiency of asset usage. Profitability ratios evaluate overall performance based on sales, assets, equity, and investment. Illustrations demonstrate computing ratios from financial statements.
Assessing risk in a business has a lot to do with understanding the business' gearing (or leverage) ratio. This presentation takes highlights what you need to look for when analysing the ratio and some of the adjustments that sometimes have to be made.
This document discusses the concepts of debt, equity, and debt-to-equity ratio. It explains debt as fees paid to teachers for their knowledge and guidance, similar to the debts companies take from banks. Equity is compared to the contributions of parents, who do not charge fees but see their children's success as their returns, just as company investors' returns come from profits. The debt-to-equity ratio measures a company's debt obligations relative to equity investments, with higher ratios indicating more debt and risk.
Ratio analysis ppt @ bec doms bagalkot mbaBabasab Patil
Ratio analysis involves calculating financial ratios to evaluate key aspects of a business's performance, including liquidity, investment potential, financial leverage, profitability, and asset efficiency. The ratios are grouped into five main areas and can identify strengths and weaknesses to aid decision making. Common ratios include the current ratio and acid test for liquidity, return on capital employed for profitability, and stock and debtor turnover for asset efficiency.
The document discusses various types of ratios used in ratio analysis for evaluating the financial performance and position of a business. It provides definitions and interpretations for liquidity ratios like current ratio and quick ratio, solvency ratios like debt-equity ratio and proprietary ratio, activity ratios like stock turnover ratio and debtor turnover ratio, and profitability ratios like gross profit ratio, net profit ratio, and return on capital employed. Formulas and ideal ratios are given for each type of financial ratio.
Types of Ratio analyis and their significanceFred Mmbololo
Ratio analysis is used to analyze financial statements and determine key metrics and relationships between items. It can help management with forecasting, planning, control, and decision making. There are various types of ratios that provide different insights. Liquidity ratios like current and quick ratios measure a company's ability to meet short-term obligations. Leverage or capital structure ratios like debt-to-equity examine how the company is financing its assets and level of financial risk. Activity/turnover ratios review how efficiently a company uses its assets. Profitability ratios assess return on sales, assets, and equity. Ratio analysis provides both opportunities to understand a business better but also has some limitations to consider.
Accounting ratios can be used to:
1) Compare a company's performance over different years, against budgets, and other similar companies.
2) Provide information on a company's liquidity, profitability, asset use, and capital structure.
3) Appraise a company's performance, make predictions, and assist with planning.
The document discusses various types of financial ratios used to analyze a company's financial statements. It introduces ratio analysis and defines five categories of ratios: liquidity ratios, leverage ratios, repayment capacity ratios, efficiency ratios, and profitability ratios. Specific ratios are then defined within each category. Liquidity ratios like the current ratio and quick ratio measure a company's ability to meet short-term obligations. Leverage ratios like the debt ratio and debt-to-equity ratio indicate the relative proportion of debt and equity used to finance assets. Repayment capacity ratios examine income statement relationships to measure the ability to repay fixed obligations. Efficiency ratios assess how well a company manages its assets, and profitability ratios gauge the ability to generate profits
The document discusses various financial ratios used to analyze the financial position of a business. It defines financial ratios as relationships between accounting figures expressed mathematically. Financial ratio analysis is used to study information in financial statements, ascertain a business's overall financial position, and interpret key information. The document then discusses various types of ratios including liquidity ratios, solvency ratios, activity ratios, and profitability ratios. It provides examples of specific ratios like the current ratio, quick ratio, debt-to-equity ratio, and return on assets ratio and how they are calculated and interpreted.
Ratio analysis is an important tool for financial analysis that involves calculating and analyzing relationships between key financial data points from statements. It helps assess a company's liquidity, profitability, solvency, financial stability, and risk. When using ratios, it is important to compare the same company over multiple years, against industry benchmarks, and be aware of factors like accounting differences that could distort comparisons. Key ratios include current ratio, acid test ratio, debt-equity ratio, proprietary ratio, and gross profit ratio.
Financial Analysis tool containing all four types of ratios (liquidity ratio, capital structure or leverage ratio, turnover or activity ratio and profitability ratio)
This document discusses various types of financial ratios used to analyze the financial performance and position of a company. It provides definitions and formulas for key liquidity ratios like current ratio and quick ratio, leverage ratios like debt-equity ratio, activity ratios like inventory turnover ratio, and profitability ratios like gross profit margin and return on investment. Sample calculations are shown for a company using its balance sheet and income statement figures to illustrate how different ratios are computed. The document emphasizes the importance of ratio analysis for evaluating a company's performance over time, compared to other firms, and against industry benchmarks.
The document discusses various types of financial ratios used to analyze the financial performance and position of a company. It defines ratios and provides examples to calculate liquidity ratios like current ratio and acid test ratio, leverage ratios like debt-equity ratio, activity ratios like inventory turnover ratio, and profitability ratios like gross profit margin ratio and return on investment. The document emphasizes the importance of ratio analysis for comparing a company's performance over time, against industry benchmarks, and between peer companies.
This document provides an overview of various ratio analysis techniques used to evaluate the financial health and performance of a business. It discusses liquidity ratios, profitability ratios, financial leverage ratios, operating performance ratios, and investment valuation ratios. For each type of ratio, it provides examples of specific ratios calculated along with their formulas and what they measure. The ratios are used to analyze a company's ability to meet short-term obligations, manage costs and expenses, utilize assets, leverage debt, generate revenue, and determine stock valuation.
Ratio analysis is a method of expressing the relationships between financial statement elements. It is used to evaluate a firm's performance, strengths, weaknesses, and ability to meet obligations. Ratios can be classified into liquidity, capital structure, turnover/activity, and profitability. Liquidity ratios measure short-term debt paying ability, capital structure ratios measure financial risk, turnover ratios measure asset use efficiency, and profitability ratios measure profit generation. Ratio analysis allows stakeholders to assess the firm's performance, financial condition, and risk.
The document defines debt, equity, and the debt-to-equity ratio. It states that the debt-to-equity ratio compares the proportion of shareholders' equity and debt used to finance a company's assets, and is calculated by dividing total debt by total shareholders' equity. The document provides an example calculation using the information for a sample Company XYZ, showing its debt-to-equity ratio is 1.5 or 150%.
This document discusses various financial ratios used to evaluate a company's liquidity and debt obligations. It defines current ratio, quick ratio, and cash ratio as measures of liquidity, calculated by dividing different levels of current assets by current liabilities. A higher ratio indicates greater ability to meet short-term debts. Debt ratio is defined as total debt divided by total assets to indicate the percentage of assets financed by debt. The document then provides an example company's current assets, liabilities, and calculates its quick and current ratios to demonstrate its liquidity.
This document discusses ratio analysis and provides a comparison of ratio analyses between two prominent Bangladeshi banks, AB Bank Limited and Eastern Bank Limited, from 2012 to 2016. Ratio analysis involves calculating and presenting relationships between financial statement items to analyze a company's financial position and performance over time and compared to other companies. The document analyzes several key ratios for the two banks, including the advances to deposits ratio, non-performing loan ratio, capital adequacy ratio, cost to income ratio, return on equity, return on assets, earnings per share, and book value per share. It finds that Eastern Bank Limited generally demonstrated better performance and financial stability based on these ratios over the period analyzed.
1) Ratio analysis involves calculating and analyzing various financial ratios to evaluate a company's liquidity, capital structure, asset management efficiency, profitability, and market performance.
2) Key ratios include the current ratio and quick ratio to measure liquidity, debt-to-equity ratio to analyze capital structure, inventory and fixed asset turnover ratios for efficiency, and profit margins, return on equity, and earnings per share for profitability.
3) Calculating and comparing ratios over time and against industry benchmarks provides insights into a company's financial health and operating trends.
This document provides definitions and formulas for various types of financial ratios used to analyze a company's liquidity, capital structure, coverage, turnover/activity, and profitability.
It includes liquidity ratios like current ratio, quick ratio, and cash ratio to assess short-term solvency. Capital structure ratios like debt-equity ratio and capital gearing ratio indicate financing techniques and long-term solvency. Coverage ratios assess ability to serve fixed liabilities. Turnover/activity ratios measure efficiency of asset usage. Profitability ratios evaluate overall performance based on sales, assets, equity, and investment. Illustrations demonstrate computing ratios from financial statements.
Assessing risk in a business has a lot to do with understanding the business' gearing (or leverage) ratio. This presentation takes highlights what you need to look for when analysing the ratio and some of the adjustments that sometimes have to be made.
This document discusses the concepts of debt, equity, and debt-to-equity ratio. It explains debt as fees paid to teachers for their knowledge and guidance, similar to the debts companies take from banks. Equity is compared to the contributions of parents, who do not charge fees but see their children's success as their returns, just as company investors' returns come from profits. The debt-to-equity ratio measures a company's debt obligations relative to equity investments, with higher ratios indicating more debt and risk.
Ratio analysis ppt @ bec doms bagalkot mbaBabasab Patil
Ratio analysis involves calculating financial ratios to evaluate key aspects of a business's performance, including liquidity, investment potential, financial leverage, profitability, and asset efficiency. The ratios are grouped into five main areas and can identify strengths and weaknesses to aid decision making. Common ratios include the current ratio and acid test for liquidity, return on capital employed for profitability, and stock and debtor turnover for asset efficiency.
The document discusses various types of ratios used in ratio analysis for evaluating the financial performance and position of a business. It provides definitions and interpretations for liquidity ratios like current ratio and quick ratio, solvency ratios like debt-equity ratio and proprietary ratio, activity ratios like stock turnover ratio and debtor turnover ratio, and profitability ratios like gross profit ratio, net profit ratio, and return on capital employed. Formulas and ideal ratios are given for each type of financial ratio.
Types of Ratio analyis and their significanceFred Mmbololo
Ratio analysis is used to analyze financial statements and determine key metrics and relationships between items. It can help management with forecasting, planning, control, and decision making. There are various types of ratios that provide different insights. Liquidity ratios like current and quick ratios measure a company's ability to meet short-term obligations. Leverage or capital structure ratios like debt-to-equity examine how the company is financing its assets and level of financial risk. Activity/turnover ratios review how efficiently a company uses its assets. Profitability ratios assess return on sales, assets, and equity. Ratio analysis provides both opportunities to understand a business better but also has some limitations to consider.
Accounting ratios can be used to:
1) Compare a company's performance over different years, against budgets, and other similar companies.
2) Provide information on a company's liquidity, profitability, asset use, and capital structure.
3) Appraise a company's performance, make predictions, and assist with planning.
The document discusses various types of financial ratios used to analyze a company's financial statements. It introduces ratio analysis and defines five categories of ratios: liquidity ratios, leverage ratios, repayment capacity ratios, efficiency ratios, and profitability ratios. Specific ratios are then defined within each category. Liquidity ratios like the current ratio and quick ratio measure a company's ability to meet short-term obligations. Leverage ratios like the debt ratio and debt-to-equity ratio indicate the relative proportion of debt and equity used to finance assets. Repayment capacity ratios examine income statement relationships to measure the ability to repay fixed obligations. Efficiency ratios assess how well a company manages its assets, and profitability ratios gauge the ability to generate profits
The document discusses various financial ratios used to analyze the financial position of a business. It defines financial ratios as relationships between accounting figures expressed mathematically. Financial ratio analysis is used to study information in financial statements, ascertain a business's overall financial position, and interpret key information. The document then discusses various types of ratios including liquidity ratios, solvency ratios, activity ratios, and profitability ratios. It provides examples of specific ratios like the current ratio, quick ratio, debt-to-equity ratio, and return on assets ratio and how they are calculated and interpreted.
Ratio analysis is an important tool for financial analysis that involves calculating and analyzing relationships between key financial data points from statements. It helps assess a company's liquidity, profitability, solvency, financial stability, and risk. When using ratios, it is important to compare the same company over multiple years, against industry benchmarks, and be aware of factors like accounting differences that could distort comparisons. Key ratios include current ratio, acid test ratio, debt-equity ratio, proprietary ratio, and gross profit ratio.
Financial Analysis tool containing all four types of ratios (liquidity ratio, capital structure or leverage ratio, turnover or activity ratio and profitability ratio)
This document discusses various types of financial ratios used to analyze the financial performance and position of a company. It provides definitions and formulas for key liquidity ratios like current ratio and quick ratio, leverage ratios like debt-equity ratio, activity ratios like inventory turnover ratio, and profitability ratios like gross profit margin and return on investment. Sample calculations are shown for a company using its balance sheet and income statement figures to illustrate how different ratios are computed. The document emphasizes the importance of ratio analysis for evaluating a company's performance over time, compared to other firms, and against industry benchmarks.
The document discusses various types of financial ratios used to analyze the financial performance and position of a company. It defines ratios and provides examples to calculate liquidity ratios like current ratio and acid test ratio, leverage ratios like debt-equity ratio, activity ratios like inventory turnover ratio, and profitability ratios like gross profit margin ratio and return on investment. The document emphasizes the importance of ratio analysis for comparing a company's performance over time, against industry benchmarks, and between peer companies.
This document provides an overview of financial ratio analysis and key financial ratios used to analyze a company's performance and financial position. It defines ratios as statistical yardsticks that measure the relationship between two variables or figures. It then classifies common ratios into categories such as liquidity, leverage, turnover, profitability, and valuation ratios. For each ratio type, one or two example ratios are described in detail such as current ratio, debt-equity ratio, inventory turnover ratio, net profit margin ratio, and price-earnings ratio.
FIN 534 – FINANCIAL MANAGEMENTwithDr. charity ezenwa.docxcharlottej5
FIN 534 – FINANCIAL MANAGEMENT
with
Dr. charity ezenwa
WELCOME
1
Chapter 3:
ANALYSIS OF FINANCIAL STATEMENTS
WEEK 2
2
Course Learning Outcome(s)
Analyze financial statements for key ratios, cash flow positions, and taxation effects.
3
Topics
Ratio analysis
DuPont equation
Effects of improving ratios
Limitations of ratio analysis
Qualitative factors
4
Why Financial Statement Analysis?
To facilitate comparison of:
One company over time
One company versus other companies
Uses: How can stakeholders benefit and why?
Lenders to determine creditworthiness
Stockholders to estimate future cash flows and risk
Managers to identify areas of weakness and strength
Financial statement analysis involves (1) comparing a firms; performance with that of the other firms in the same industry; and (2)Evaluating trends in the firm’s financial position over time.
Financial statement analysis is used by managers to identify situations needing attention. Potential lenders use financial statement analysis to determine whether a company is credit worthy, and stockholders use it to help them predict future earnings, dividends, and free cash flow.
5
Ratio Analysis
Used to extract information not obvious from simply examining financial statements.
Provides standardized comparison of firms
Example: Giant owes $10 million in debt while Safeway owes $20 million in debt. Which firm has a stronger financial position?
It is very difficult to answer this question without first determining each company's debt relative to its assets, earnings, and interests. Ratio analysis allows us to standardize these debts so as to easily compare the two forms.
6
The Income Statement Example
20162017ESales$5,834,400 $7,035,600COGS except depr.4,980,000 5,800,000Other expenses720,000 612,960Deprec.116,960 120,000 Tot. op. costs5,816,960 6,532,960 EBIT17,440 502,640Int. expense176,000 80,000 EBT(158,560)422,640Taxes (40%)(63,424)169,056Net income($ 95,136)$ 253,584
7
The Balance Sheet – Assets Example
20162017ECash$ 7,282 $ 14,000S-T invest.20,000 71,632AR632,160 878,000Inventories1,287,360 1,716,480 Total CA1,946,802 2,680,112 Net FA939,790 836,840Total assets$2,886,592 $3,516,952
8
The Balance Sheet – Liabilities & Equity
20162017EAccts. payable$ 324,000 $ 359,800Notes payable720,000 300,000Accruals284,960 380,000 Total CL1,328,960 1,039,800Long-term debt1,000,000 500,000Common stock460,000 1,680,936Ret. earnings97,632 296,216 Total equity557,632 1,977,152Total L&E$2,886,592 $3,516,952
9
Other Data
20162017EStock price$6.00$12.17# of shares100,000 250,000EPS-$0.95$1.01DPS$0.11$0.22Book val. per sh.$5.58$7.91Lease payments$40,000$40,000Tax rate0.40.4
10
What are Liquidity Ratios?
Measures a company’s ability to meet its short-term obligations.
Current Ra.
The document discusses ratio analysis, which involves calculating and interpreting various financial ratios to evaluate aspects of a company's performance and financial position. It defines key ratios including liquidity ratios, activity ratios, profitability ratios, and leverage ratios. It provides formulas and examples for specific ratios like current ratio, inventory turnover, debt-to-equity ratio, and return on equity. The purpose of ratio analysis is to help assess a company's liquidity, profitability, financial stability, and management quality.
The document provides analysis of various financial ratios for Tata Consultancy Services (TCS) for 2014 and 2013. It summarizes key liquidity, activity, long-term solvency, and profitability ratios. The liquidity ratios like current ratio and quick ratio increased in 2014 compared to 2013, indicating TCS has more current assets relative to current liabilities. Inventory turnover decreased while inventory holding period reduced, showing better management of inventory levels. Debtors turnover increased, meaning longer time to collect receivables. Debt-equity and interest coverage ratios improved from 2013 to 2014, demonstrating stronger financial position and debt-servicing ability.
Tech Mahindra is an Indian IT services company with over 158,000 employees globally. The document analyzes Tech Mahindra's financial ratios for FY 2021-22. It finds that Tech Mahindra has good current, acid-test, and cash ratios, indicating strong liquidity. It also has low debt ratios and a favorable debt-to-equity ratio, suggesting manageable leverage. Additionally, Tech Mahindra has high returns on equity and acceptable earnings per share, demonstrating good profitability. Overall, the financial analysis presents Tech Mahindra as a company with strong liquidity and profitability metrics, making it a reasonable investment.
Reliance Industries Limited (RIL) is one of the largest companies in India. A financial analysis of RIL found strengths such as high inventory and debtor turnover ratios, and a high debt service ratio. Weaknesses included low liquidity and current ratios. Opportunities include raising funds through debt. Threats include underutilized capital from a low capital gearing ratio.
Ratio analysis of maruti suzuzki india ltdravneetubs
The document analyzes various financial ratios of a company for the year 2014-15. It discusses Return on Investment (ROI) ratio of 11.5%, debt-equity ratio of 0.01, fixed asset ratio of 0.4, interest coverage ratio of 23.71, current ratio of 0.968, quick ratio of 0.67, gross profit margin of 10%, net profit margin of 5.98%, operating ratio of 92.91%, operating profit ratio of 8.76%, earnings per share of Rs. 92.13, book value per share of Rs. 694.45, and price earnings ratio of 21.40. Various stakeholders and their interests in different financial ratios are also outlined.
The document provides financial information for XXX Constructions Pvt. Ltd for the fiscal years 2013 through 2016. It includes key metrics such as net sales, operating profit, PAT, cash profit, margins, tangible net worth, total liabilities, and ratios such as TOL/TNW. XXX Constructions is an Indian mining and construction company that diversified into Africa in 2012 by establishing a subsidiary in Zambia. The financial position of the company appears stable with consistent sales growth and profits over the period analyzed.
Ratios and formulas are important analytical tools for evaluating a company's financial statements. Ratio analysis involves calculating relationships between financial data to assess aspects of a company's operations, such as liquidity, profitability, leverage, efficiency and creditworthiness. Common financial ratios are grouped into categories like liquidity ratios, which measure ability to meet current obligations, and profitability ratios, which evaluate expenses and returns. A standard list of ratios does not exist, as analysts choose those most relevant and understandable for the situation.
This document provides information on ratio analysis for financial statement evaluation. It defines various types of ratios including liquidity, activity, profitability, leverage and market ratios. Specific ratios discussed include current ratio, quick ratio, debt-equity ratio, gross profit ratio, return on equity, earnings per share and price-earnings ratio. The purpose, calculation and ideal levels of these ratios are explained. Sample balance sheet formats and ratio calculations are also presented to illustrate the concepts.
The document discusses the needs and purposes of key financial statements including the income statement, balance sheet, and statement of cash flows. It explains the components and calculations of these statements. It also describes common financial ratios used in analysis of statements, such as liquidity, profitability, asset management, and leverage ratios. These ratios are used to evaluate a firm's performance and financial position over time and in comparison to other companies.
Financial analysis for juhayna & domty co . graduation project zagzig uni...Eslam Fathi
Financial Analysis is the process of selecting, evaluating, and identifying the financial
strength and weaknesses of the firm by properly establishing relationship between
items of financial statements. Firms, bank, loan officers and business owners all use
Financial analysis to learn more about a company’s current financial health as well as its
potential.
This document provides an analysis of various financial ratios for a company over two years. It begins with an introduction to ratio analysis and its importance. It then calculates and interprets various ratios including current ratio, debt to equity ratio, net profit margin, gross profit margin, inventory turnover, debtors turnover, creditors turnover and return on capital employed. The analysis found that the current ratio and return on capital employed increased slightly but debt to equity ratio also increased, indicating less financial stability. Profit margins were low. Inventory turnover and creditors turnover decreased. The conclusion recommends the company improve utilization of assets, pricing strategies and timely payment of creditors.
This document discusses various financial ratios used for analyzing the financial statements of a business. It begins by defining key components of a balance sheet such as assets, liabilities, equity, current assets and current liabilities. It then explains over 20 different types of financial ratios categorized as liquidity ratios, activity ratios, leverage ratios, profitability ratios and market ratios. Specific formulas to calculate ratios such as current ratio, debt equity ratio, return on equity, earnings per share etc. are provided. Several examples are given to showcase calculation of various ratios from sample financial statement information. The document serves as a comprehensive reference guide for understanding and analyzing important financial ratios.
Chapter 6_Interpretation of Financial StatementPresana1
This document provides an overview of ratio analysis for financial statement evaluation. It defines ratios that measure profitability, liquidity, management efficiency, leverage, and valuation/growth. Specific ratios are defined along with their formulas and uses. An example is provided to demonstrate ratio calculations for the Norton Corporation using data on its income statement, balance sheet, and other financial details. Ratios computed include current ratio, acid-test ratio, accounts receivable turnover, inventory turnover, equity ratio, return on sales, return on equity, earnings per share, and price-earnings ratio. The document also outlines advantages and limitations of ratio analysis for stakeholders.
The document provides an overview of ratio analysis, fund flow statements, and cash flow statements. It discusses various types of ratios like liquidity ratios, leverage ratios, and activity ratios. It explains key liquidity ratios like current ratio, quick ratio, and cash ratio. It also discusses leverage ratios like debt ratio and debt-equity ratio. The document then covers activity or turnover ratios and provides formulas for inventory turnover ratio and assets turnover ratio. It defines a fund flow statement and cash flow statement and discusses their purpose and limitations.
The document discusses various types of financial ratios used in ratio analysis. It defines 4 main categories of ratios: liquidity ratios like current and quick ratios, profitability ratios like earnings per share and return on equity, solvency ratios like debt to equity ratio, and efficiency ratios like inventory turnover. Specific formulas and calculations are provided for key ratios within each category like current ratio, return on equity, debt to equity, and days sales outstanding. The ratios are tools for managers to evaluate a company's financial strength and performance.
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 ...
This document provides an overview of financial management. It defines financial management as the determination, acquisition, allocation and utilization of financial sources with the aim of achieving particular goals or objectives. Financial management involves investment decisions about what assets a company should hold, financing decisions about how the company will pay for investments, and dividend decisions about how to allocate profits. The objectives of financial management are typically described as maximizing profits, returns, and shareholder wealth. Financial decisions are influenced by both microeconomic factors related to a company and macroeconomic factors in the broader economy.
The statement of cash flows shows how a company's operating, investing, and financing activities affected cash during an accounting period. It explains the net increase or decrease in cash. Cash includes cash equivalents such as money market accounts and treasury bills. The statement of cash flows classifies cash flows into operating, investing, and financing activities to provide information about cash receipts and payments. Adjustments must be made to the income statement to convert accrual-based figures to a cash basis for the operating activities section.
The document discusses the purpose and analysis of funds flow statements. It explains that a funds flow statement measures changes in a firm's financial position between two balance sheet dates by analyzing sources and uses of funds. Sources typically include profits, debt increases, and asset sales, while uses typically include asset purchases, debt repayments, dividends, and working capital increases. The document then provides details on calculating sources and uses of funds, and constructing a funds flow statement.
This document discusses various techniques for analyzing financial statements, including ratio analysis and common size statements. It provides examples of calculating different types of ratios to evaluate a company's liquidity, capital structure, profitability and efficiency. Ratios discussed include the current ratio, acid-test ratio, inventory turnover ratio, debtors turnover ratio, creditors turnover ratio, debt-equity ratio and interest coverage ratio. The document emphasizes that ratio analysis is a tool to assess the strengths, weaknesses, historical performance and current financial condition of a firm.
This document discusses various capital budgeting techniques for evaluating investment projects. It defines the payback period method, internal rate of return, net present value, and profitability index. For each method, it provides the calculation, acceptance criteria, and strengths and weaknesses. It then works through an example project at a company called Basket Wonders, calculating the payback period, IRR, NPV, and PI to determine if the project should be accepted based on the company's criteria.
Working capital refers to a company's short-term assets and liabilities related to day-to-day operations. It measures a company's ability to pay off current liabilities with its current assets. There are several approaches to determining a company's working capital needs, including industry norms, economic modeling, and strategic choices. Key determinants of working capital needs include the nature of the business, production and business cycles, credit and production policies, growth plans, profit levels, and operating efficiency. Proper management of working capital is important for ensuring sufficient liquidity and continuity of operations.
This document discusses capital structure and various capital structure theories. It begins by defining capital structure as the mix of owned and borrowed capital used to finance a company's assets. The key considerations in planning capital structure are return, cost, risk, control, flexibility, and capacity. It then covers four capital structure theories - net income approach, net operating income approach, Modigliani-Miller model, and traditional approach. The net income approach proposes that firm value increases with more debt due to lower costs. The net operating income approach argues firm value is independent of capital structure. The Modigliani-Miller model supports the net operating income view. The traditional approach finds an optimal capital structure that minimizes costs.
This document provides an overview of dividend theory, including:
- Issues in dividend policy like balancing shareholder desires for dividends vs firm needs for reinvestment.
- Models of dividend relevance like Walter's model and Gordon's model, and the dividend irrelevance hypothesis of Modigliani and Miller.
- Arguments for dividend relevance including the "bird in the hand" preference for certain dividends, and market imperfections.
- Factors that give dividend policy informational content about the firm's future prospects.
This document discusses the analysis of financial statements through various tools and techniques. It begins by defining financial statement analysis and outlining its purpose. It then explains key tools for analysis like comparative statements, common size statements, trend analysis, and ratio analysis. Various types of ratios are classified like liquidity, leverage, activity, and profitability ratios. The document also discusses the interpretation of analysis and interested parties that use financial statement analysis.
The document provides an overview of financial statement analysis. It discusses that financial analysis identifies the financial strengths and weaknesses of a firm by establishing relationships between balance sheet and profit/loss statement items. The key objectives of financial analysis are to evaluate a firm's profitability, debt servicing ability, business risk, and growth. Various techniques of financial analysis are also outlined, including comparative statements analysis, common-size analysis, trend analysis, and ratio analysis. The document aims to explain the concepts and applications of financial statement analysis.
Financial forecasting involves making inferences about a company's future financial performance based on economic assumptions, sales forecasts, and pro forma financial statements. Key techniques include creating pro forma income statements, balance sheets, and cash budgets. Pro forma income statements can be prepared using the percentage of sales or budgeted expense method. Pro forma balance sheets project asset and liability accounts based on percentages of sales and expected values. External funding requirements are also estimated to determine future financing needs.
This document discusses financial statement analysis through the use of ratios. It describes the types of ratios used - liquidity, leverage, activity, and profitability - and what each can indicate about a firm's financial position and performance. Ratios are compared over time and against industry benchmarks to evaluate a firm's liquidity, use of debt, asset efficiency, and overall earnings power. While ratios provide useful information, their analysis requires caution due to differences between firms and changing economic conditions.
This document provides an overview of finance and financial management. It defines finance as the study of how individuals allocate resources over time in an uncertain environment and how financial markets and institutions facilitate these allocations. The key aspects of corporate finance are discussed as investment decisions about what projects a firm should undertake and financing decisions about how to pay for investments. The financial objective of management is to maximize shareholder wealth by increasing share price over time. Some of the main principles of finance discussed include risk aversion, the time value of money, and the relation between risk and return. The document also briefly outlines the historic evolution of the field of finance and some of the major works and theories that have developed it into the modern approach used today.
This document provides an overview of financial forecasting. Financial forecasting involves making projections about a company's future financial performance based on assumptions about economic conditions, sales forecasts, and planned financing. Key techniques for financial forecasting include creating pro forma financial statements like income statements and balance sheets, as well as cash budgets and operating budgets. Pro forma statements are created using the percentage of sales method or budgeted expense method to project line items. Forecasting sales involves techniques like trend analysis, regression analysis, and executive opinion. Financial projections are used to assess future performance, examine operational changes, anticipate financing needs, and estimate cash flows.
Financial management concerns decisions about acquiring, financing, and managing assets to achieve goals. It involves investment decisions about what assets to hold, financing decisions about how to pay for assets, and asset management decisions about efficient use of assets. The primary objectives are maximizing profits, returns, and shareholder wealth through decisions that consider factors like the firm's size, risk level, and the economic environment.
The document discusses the importance of micro, small and medium enterprises (MSMEs) for employment generation and economic growth in India. It notes that timely access to credit and innovative marketing are challenges for small businesses. A small enterprise is considered 'sick' if its accounts are substandard for over 6 months, there is over 50% erosion in net worth due to cash losses, or it has been in commercial production for 2+ years. The document advocates for improving infrastructure, skills, technology, and access to finance for small businesses.
Marketing strategies to battle recession include:
1) Researching customers and focusing on core values.
2) Maintaining marketing spending while adjusting product portfolios and pricing tactics.
3) Supporting distributors while emphasizing market share and core values.
The Rise and Fall of Ponzi Schemes in America.pptxDiana Rose
Ponzi schemes, a notorious form of financial fraud, have plagued America’s investment landscape for decades. Named after Charles Ponzi, who orchestrated one of the most infamous schemes in the early 20th century, these fraudulent operations promise high returns with little or no risk, only to collapse and leave investors with significant losses. This article explores the nature of Ponzi schemes, notable cases in American history, their impact on victims, and measures to prevent falling prey to such scams.
Understanding Ponzi Schemes
A Ponzi scheme is an investment scam where returns are paid to earlier investors using the capital from newer investors, rather than from legitimate profit earned. The scheme relies on a constant influx of new investments to continue paying the promised returns. Eventually, when the flow of new money slows down or stops, the scheme collapses, leaving the majority of investors with substantial financial losses.
Historical Context: Charles Ponzi and His Legacy
Charles Ponzi is the namesake of this deceptive practice. In the 1920s, Ponzi promised investors in Boston a 50% return within 45 days or 100% return in 90 days through arbitrage of international reply coupons. Initially, he paid returns as promised, not from profits, but from the investments of new participants. When his scheme unraveled, it resulted in losses exceeding $20 million (equivalent to about $270 million today).
Notable American Ponzi Schemes
1. Bernie Madoff: Perhaps the most notorious Ponzi scheme in recent history, Bernie Madoff’s fraud involved $65 billion. Madoff, a well-respected figure in the financial industry, promised steady, high returns through a secretive investment strategy. His scheme lasted for decades before collapsing in 2008, devastating thousands of investors, including individuals, charities, and institutional clients.
2. Allen Stanford: Through his company, Stanford Financial Group, Allen Stanford orchestrated a $7 billion Ponzi scheme, luring investors with fraudulent certificates of deposit issued by his offshore bank. Stanford promised high returns and lavish lifestyle benefits to his investors, which ultimately led to a 110-year prison sentence for the financier in 2012.
3. Tom Petters: In a scheme that lasted more than a decade, Tom Petters ran a $3.65 billion Ponzi scheme, using his company, Petters Group Worldwide. He claimed to buy and sell consumer electronics, but in reality, he used new investments to pay off old debts and fund his extravagant lifestyle. Petters was convicted in 2009 and sentenced to 50 years in prison.
4. Eric Dalius and Saivian: Eric Dalius, a prominent figure behind Saivian, a cashback program promising high returns, is under scrutiny for allegedly orchestrating a Ponzi scheme. Saivian enticed investors with promises of up to 20% cash back on everyday purchases. However, investigations suggest that the returns were paid using new investments rather than legitimate profits. The collapse of Saivian l
KYC Compliance: A Cornerstone of Global Crypto Regulatory FrameworksAny kyc Account
This presentation explores the pivotal role of KYC compliance in shaping and enforcing global regulations within the dynamic landscape of cryptocurrencies. Dive into the intricate connection between KYC practices and the evolving legal frameworks governing the crypto industry.
Confirmation of Payee (CoP) is a vital security measure adopted by financial institutions and payment service providers. Its core purpose is to confirm that the recipient’s name matches the information provided by the sender during a banking transaction, ensuring that funds are transferred to the correct payment account.
Confirmation of Payee was built to tackle the increasing numbers of APP Fraud and in the landscape of UK banking, the spectre of APP fraud looms large. In 2022, over £1.2 billion was stolen by fraudsters through authorised and unauthorised fraud, equivalent to more than £2,300 every minute. This statistic emphasises the urgent need for robust security measures like CoP. While over £1.2 billion was stolen through fraud in 2022, there was an eight per cent reduction compared to 2021 which highlights the positive outcomes obtained from the implementation of Confirmation of Payee. The number of fraud cases across the UK also decreased by four per cent to nearly three million cases during the same period; latest statistics from UK Finance.
In essence, Confirmation of Payee plays a pivotal role in digital banking, guaranteeing the flawless execution of banking transactions. It stands as a guardian against fraud and misallocation, demonstrating the commitment of financial institutions to safeguard their clients’ assets. The next time you engage in a banking transaction, remember the invaluable role of CoP in ensuring the security of your financial interests.
For more details, you can visit https://technoxander.com.
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.
Abhay Bhutada, the Managing Director of Poonawalla Fincorp Limited, is an accomplished leader with over 15 years of experience in commercial and retail lending. A Qualified Chartered Accountant, he has been pivotal in leveraging technology to enhance financial services. Starting his career at Bank of India, he later founded TAB Capital Limited and co-founded Poonawalla Finance Private Limited, emphasizing digital lending. Under his leadership, Poonawalla Fincorp achieved a 'AAA' credit rating, integrating acquisitions and emphasizing corporate governance. Actively involved in industry forums and CSR initiatives, Abhay has been recognized with awards like "Young Entrepreneur of India 2017" and "40 under 40 Most Influential Leader for 2020-21." Personally, he values mindfulness, enjoys gardening, yoga, and sees every day as an opportunity for growth and improvement.
The Impact of Generative AI and 4th Industrial RevolutionPaolo Maresca
This infographic explores the transformative power of Generative AI, a key driver of the 4th Industrial Revolution. Discover how Generative AI is revolutionizing industries, accelerating innovation, and shaping the future of work.
OJP data from firms like Vicinity Jobs have emerged as a complement to traditional sources of labour demand data, such as the Job Vacancy and Wages Survey (JVWS). Ibrahim Abuallail, PhD Candidate, University of Ottawa, presented research relating to bias in OJPs and a proposed approach to effectively adjust OJP data to complement existing official data (such as from the JVWS) and improve the measurement of labour demand.
Fabular Frames and the Four Ratio ProblemMajid Iqbal
Digital, interactive art showing the struggle of a society in providing for its present population while also saving planetary resources for future generations. Spread across several frames, the art is actually the rendering of real and speculative data. The stereographic projections change shape in response to prompts and provocations. Visitors interact with the model through speculative statements about how to increase savings across communities, regions, ecosystems and environments. Their fabulations combined with random noise, i.e. factors beyond control, have a dramatic effect on the societal transition. Things get better. Things get worse. The aim is to give visitors a new grasp and feel of the ongoing struggles in democracies around the world.
Stunning art in the small multiples format brings out the spatiotemporal nature of societal transitions, against backdrop issues such as energy, housing, waste, farmland and forest. In each frame we see hopeful and frightful interplays between spending and saving. Problems emerge when one of the two parts of the existential anaglyph rapidly shrinks like Arctic ice, as factors cross thresholds. Ecological wealth and intergenerational equity areFour at stake. Not enough spending could mean economic stress, social unrest and political conflict. Not enough saving and there will be climate breakdown and ‘bankruptcy’. So where does speculative design start and the gambling and betting end? Behind each fabular frame is a four ratio problem. Each ratio reflects the level of sacrifice and self-restraint a society is willing to accept, against promises of prosperity and freedom. Some values seem to stabilise a frame while others cause collapse. Get the ratios right and we can have it all. Get them wrong and things get more desperate.
University of North Carolina at Charlotte degree offer diploma Transcripttscdzuip
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Madhya Pradesh, the "Heart of India," boasts a rich tapestry of culture and heritage, from ancient dynasties to modern developments. Explore its land records, historical landmarks, and vibrant traditions. From agricultural expanses to urban growth, Madhya Pradesh offers a unique blend of the ancient and modern.
13 Jun 24 ILC Retirement Income Summit - slides.pptxILC- UK
ILC's Retirement Income Summit was hosted by M&G and supported by Canada Life. The event brought together key policymakers, influencers and experts to help identify policy priorities for the next Government and ensure more of us have access to a decent income in retirement.
Contributors included:
Jo Blanden, Professor in Economics, University of Surrey
Clive Bolton, CEO, Life Insurance M&G Plc
Jim Boyd, CEO, Equity Release Council
Molly Broome, Economist, Resolution Foundation
Nida Broughton, Co-Director of Economic Policy, Behavioural Insights Team
Jonathan Cribb, Associate Director and Head of Retirement, Savings, and Ageing, Institute for Fiscal Studies
Joanna Elson CBE, Chief Executive Officer, Independent Age
Tom Evans, Managing Director of Retirement, Canada Life
Steve Groves, Chair, Key Retirement Group
Tish Hanifan, Founder and Joint Chair of the Society of Later life Advisers
Sue Lewis, ILC Trustee
Siobhan Lough, Senior Consultant, Hymans Robertson
Mick McAteer, Co-Director, The Financial Inclusion Centre
Stuart McDonald MBE, Head of Longevity and Democratic Insights, LCP
Anusha Mittal, Managing Director, Individual Life and Pensions, M&G Life
Shelley Morris, Senior Project Manager, Living Pension, Living Wage Foundation
Sarah O'Grady, Journalist
Will Sherlock, Head of External Relations, M&G Plc
Daniela Silcock, Head of Policy Research, Pensions Policy Institute
David Sinclair, Chief Executive, ILC
Jordi Skilbeck, Senior Policy Advisor, Pensions and Lifetime Savings Association
Rt Hon Sir Stephen Timms, former Chair, Work & Pensions Committee
Nigel Waterson, ILC Trustee
Jackie Wells, Strategy and Policy Consultant, ILC Strategic Advisory Board
Optimizing Net Interest Margin (NIM) in the Financial Sector (With Examples).pdfshruti1menon2
NIM is calculated as the difference between interest income earned and interest expenses paid, divided by interest-earning assets.
Importance: NIM serves as a critical measure of a financial institution's profitability and operational efficiency. It reflects how effectively the institution is utilizing its interest-earning assets to generate income while managing interest costs.
How to Invest in Cryptocurrency for Beginners: A Complete GuideDaniel
Cryptocurrency is digital money that operates independently of a central authority, utilizing cryptography for security. Unlike traditional currencies issued by governments (fiat currencies), cryptocurrencies are decentralized and typically operate on a technology called blockchain. Each cryptocurrency transaction is recorded on a public ledger, ensuring transparency and security.
Cryptocurrencies can be used for various purposes, including online purchases, investment opportunities, and as a means of transferring value globally without the need for intermediaries like banks.
3. 03/25/14 3
SIGNIFICANCE OF RATIO
ANALYSIS
CSD ‘A’ earns Rs 50,000
CSD ‘B’ earns Rs 40,000
Which is more efficient? A or B
CSD ‘A’ has emp Rs 4,00,000
CSD ‘B’ has emp Rs 3,00,000
Profit as a % of Capital emp
‘A’ = (50,000/ 4,00,000) * 100 =12.50%
‘B’ = (40,000/ 3,00,000) * 100 =13.33%
4. 03/25/14 4
RATIO
A ratio is a statistical yardstick that
provides a measure of the relationship
between two variables or figures.
5. LIABILITIES
31MAR07
31MAR08
ASSETS
31MAR07
31MAR08
170 SHARE CAPITAL
EQUITY
PREFERENCE
120
50
170 213 FIXED ASSETS
NET
GROSS STOCK
LESS
DEPRECIATION
594
365
229
180 RESERVES AND
SURPLUSES
215 11 INTANGIBLE
ASSETS
15
150 SECURED LOANS
DEBENTURES
LOANS /ADVANCES
50
101
151 5 INVESTMENTS 5
20 UNSECURED
LOANS
30 670 CURRENT ASSETS
CASH IN BANK
RECEIVABLES
INVENTORIES
PRE-PAID
EXPENSES
73
189
355
64
681
409 CURRENT
LIABILITIES
SUNDRY CREDITORS
PROVISIONS
330
69
399
30 MISC 35
BALANCE SHEET ABC COMPANY AS AT 31
MAR2008
6. MAR 08
FIGS 2007 FIGS 2008
847 NET SALES 904
657 COST OF GOODS SOLD
STOCKS
WAGES AND SALARIES
OTHER MANUFACTURING EXPENSES
366
188
160
714
190 GROSS PROFIT 190
103 OPERATING EXPENSES:
SELLING/ADM
DEPRECIATION
71
25
96
87 OPERATING PROFIT 94
11 NON-OPERATING PROFIT/DEFICIT 49
98 PROFIT BEFORE INTEREST&TAX
(EBIT)
143
26 INTEREST(ON BANK
BORROWINGS/LOANS)
DEBENTURES
29
4
33
72 PROFIT BEFORE TAX 110
36 TAX 58
36 PROFIT AFTER TAX 52
12 DIVIDENDS:EQUITY/ PREFERENCE 14 / 3 17
7. 03/25/14 7
A comparison is more useful than mere Nos
Analysis of financial ratios involves two types of
comparisons:
Present ratio with the past ratios & expected future
ratios
Ratios of one firm with those of similar firms or with
industry averages at same point of time
Essential to consider nature of business
(apples cannot be compared with oranges)
WHY BOTHER WITH
RATIOS?
9. 03/25/14 9
LIQUIDITY RATIOS
Current ratio
Quick / Acid test ratio
Shows ability of company to pay its current financial
obligations
Company should not be selling its assets at a loss to meet
its financial obligations; worst scenario be forced into
liquidation
10. 03/25/14 12
CURRENT RATIO (CR)
Measure of company’s ability to meet short term
requirements
Indicates whether current liabilities are adequately
covered by current assets
Measures safety margin available for short term creditors
CR = Current assets/Current liabilities
If Net Working Capital is to be positive, CR >1
Indian avg for non banking industries is 2
Current assets = 681
Current liabilities = 399
CR = 681/399 = 1.71
11. 03/25/14 13
CURRENT RATIO (CR) -
IMPORTANCE
Higher ratio ensures firm does not face problems in
meeting increased working capital requirements
Low ratio implies repeated withdrawls from bank to
meet liquidity requirements
High CR as compared to other firms implies advantage
of lower int rates from banks
12. 03/25/14 14
ACID TEST RATIO/QUICK
RATIO(QR)
Used to examine whether firm has adequate cash or cash
equivalents to meet current obligations without resorting to
liquidating non cash assets such as inventories
Measures position of liquidity at a point of time
QR = Quick Assets / Current Liabilities
Quick assets = Current assets – (inventories + prepaid
expenses)
= 681–(355+64) = 262
Current liabilities = 399
QR = 262/399 = 0.66
As a thumb rule ideal QR = 1; should not be less than 1
14. 03/25/14 16
LEVERAGE RATIOS
Shows dependence of firm on outside long term finance
Shows long term financial solvency & measures firm’s ability
to pay interest & principle regularly when due
To assess extent to which the firm borrowed money vis-à-
vis funds supplied by owners; Use of debt finance
Companies whose EBIT <= Interest payments are risky
Debt - Equity ratio
Debt - Total fund ratio
Debt - Assets ratio
Interest coverage ratio
Liability coverage ratio
15. 03/25/14 17
Measures relative proportion of debt & equity in financing assets
of a firm
Company can have good current ratio and liquidity position,
however liquidity may have come from long term borrowed
funds, the repayment of which along with interest will put
liquidity under pressure
DER = Long term debt / Share holders funds
Creditors would like this to be low; Lower ratio implies larger
credit cushion (margin of protection to creditors)
IDB expects DER of 2:1 in respect of SMEs
DEBT EQUITY RATIO
16. 03/25/14 18
Debt (loans) = Secure loans + Unsecure loans
= 151+30=181
Share holders funds = (equity+ preference capital +
res & surplus – fictitious assets &
accumulated losses not written off )
= 120+50+215 = 385
DER = 181/385 = 0.47 = (0.47:1)
Creditors are providing Rs 0.47 financing for each rupee
provided by shareholders
DEBT EQUITY RATIO
17. 03/25/14 19
DEBT – TOTAL FUND
RATIO
DTF ratio= Long term debt / Total fund
Debt (long term) = 181
Total funds (debt + sh holders’ funds)
= 181+(170+215-35) = 531
DTF ratio = 181/531 = 0.34
34% of the firms funds are debt (of various types)
remaining 66% is financed by owners/ share holders
Higher the debt - total funds ratio, greater the
financial risk
18. 03/25/14 20
DEBT – ASSETS RATIO
Debt - Assets ratio = Debt / Net assets
Debt = 181
Net assets (less fictitious assets & losses) =
930
Ratio = 181/930 = 0.19
19% of the firms assets are financed with debt (of
various types).
Shows coverage provided by the assets to total debt
19. 03/25/14 21
INTEREST COVERAGE RATIO
Gives ability of company to pay back long term loans
along with interest or other charges from generation
of profit from its operations
Interest coverage ratio = EBIT / Debt interest
EBIT = 143
Interest = 29+4 = 33
Ratio = 143/33=4.33
EBIT should be 6 – 7 times of debt interest
Shows margin of cover to lenders; of prime imp
20. 03/25/14 22
LIABILITY COVERAGE
RATIO
Calculated to determine time a company would take
to pay off all its liabilities from internally generated
funds
Assumes that liabilities will not be liquidated from
additional borrowings or from sale of assets
LCR = Internally generated funds / Total liabilities
Internally gen funds = Equity + Pref + R&S = 385
Total liabilities = 965
LCR = 385/965 = 0.399
22. 03/25/14 24
ACTIVITY / TURN OVER
RATIOS
Allows to examine whether total amount of each type of
asset a company owns is reasonable, too high or too low in
light of current and forecast operating needs
In order to purchase / acquire assets, companies need to
borrow or obtain Capital from elsewhere :-
More assets acquired implies high int and low profits
Lesser assets implies operations not as efficient as
possible
Activity turn over ratios used to assess efficiency with
which company utilizing its assets
Relates to level of activity represented by sales or cost of
goods sold
• Inventory turnover ratio
• Average collection period
• Fixed assets turn over ratio
23. 03/25/14 25
Measures No of times inventory turned over in a
year
OR
No of days of inventory held by company to sp
sales
Times Inventory turned over =
Net sales OR COGS
Avg inventory Avg stocks
Inventory measured in days of sale =
365 x Avg inventory
Net Sales
INVENTORY TURN OVER RATIO
24. 03/25/14 26
A ratio of 6 times indicates inventory turned over
six times in a year
OR
Ratio of 60 days indicates enough inventory to
support sales for 60 days held by company
Excessive inventories unproductive; represent
investment with zero rate of return
Conversely less inventory results in loss of
customers
ABC’s ratio = 904/355 = 2.54
ABC’s Days of Inv = (355 x 365)/904 = 143.33 days
INVENTORY TURN OVER RATIO
25. 03/25/14 27
AVERAGE COLLECTION PERIOD
Represents duration a company must wait after making
sales, before it actually receives cash from its customers
ACP = Avg receivables OR
Average sales per day
= Avg receivables x 365
Sales
Imp
For assessing effectiveness of credit policy of firm
Enables mgmt to take timely measures to effectively
manage credit
Too high value - firm facing difficulties in collecting debts
Too low value - restrictive credit policy
Receivables = 189
Sales = 904
ACP = (189 x 365)/ 904 = 76.2 days
say 76 days
26. 03/25/14 28
FIXED ASSETS TURNOVER RATIO
Measures effectiveness of utilization of fixed assets by
company
Used to compare fixed assets utilization of two firms
Not truly reflective of performance / efficiency
High ratio (depreciation) if old assets
Low ratio if capital assets procured recently
FATR = Net sales (or COGS)/ Fixed assets
Higher ratio indicates better utilisation of assets (with a
caution on age of assets)
Fixed Assets = 229
Net Sales = 904
FATR = 904 / 229 = 3.95
28. 03/25/14 30
PROFITABILITY RATIOS
Gross profit margin ratio (GPMR)
Net profit margin ratio (NPMR)
Return on investment
• Profitability ratios indicate
• Company's profitability in relation to other
companies
• Internal comparison with last yrs profits
•Managements effectiveness as shown by returns
generated on sales and investments
29. 03/25/14 31
GROSS PROFIT MARGIN RATIO
(GPMR)
Represents cost of production
Helps in understanding proportion of raw materials used
and direct expenses incurred in overall production process
Reflects income being generated which can be
apportioned by promoters
Reflects efficiency of firm’s operations as well as how
products are priced
GPMR = Gross profit/ Net sales
Net Sales = 904
Gross Profit = Net sales - COGS = 904 - 714 = 190
GPMR = Gross Profit / Net sales
= 190 / 904 = 0.21 = 21%
Implies 79% (100-21%) of sales contribute towards
direct expenses and raw mtrl
30. 03/25/14 32
NET PROFIT MARGIN RATIO
(NPMR)
Takes into account not only cost of production but also
administrative expenses like staff salary, selling &
distribution overheads
Represents surplus of gross profit after meeting expenses
Net profit appropriated to meet tax liability, dividend
payments and to retain part in business
NPMR = Net profit (Profit after tax)/ Net sales
Net Sales = 904
Net Profit after taxes = 52
NPMR = Net Profit / Net sales
= 52 / 904 = 0.057 = 5.7%
Implies for every Rs 100/- of sales, Rs 5.7/- earned as
profit which can be used for dividend distr and
apportioned to res & surplus
• Company B has outperformed Company A in total sales
• However A has utilized its resources more efficiently
COMPANY A COMPANY B
SALES 2,00,000 2,50,000
GROSS PROFIT 40,000 40,000
NET PROFIT 20,000 22,000
GROSS PROFIT
MARGIN
20% 16%
NET PROFIT MARGIN 10% 8.8%
31. 03/25/14 33
PROFITABILITY IN RELATION TO INVESTMENT-
RETURN ON INVESTMENT (ROI)
Indicates efficiency with which company used its Capital
(Equity as well as debt)
Takes into account overall returns of the company
assuming company has not taken any debt
Gives overall returns including adjustments of earnings
for fin leveraging
Enables one to check whether return made on investment
is better than other alternatives available
Suited for inter-firm comparisons
ROI = EBIT x100 / Capital employed
• EBIT = 143
• Capital employed = 566 ( (120+50+215+181)-(0+0) )
(Eq +Pref sh +Res & surp+Debt)-(Fictitious assets +
Non operating investments)
• ROI = 143/566 x 100 = 25.26 %.
• The company has earned a profit of 25.26 paise on
every 100 Re invested
34. 03/25/14 36
EARNINGS PER SHARE
(EPS)
Represents total earnings of a company available for
distribution among equity shareholders
Evaluates performance of company shares over a period of
time
EPS = Net profit available for equity shareholders / No of
Equity shares
EPS alone should not be basis of decision making with
respect to purchase of any company share
Faulty reasons of High EPS
Less No of Equity shares
Investment in risky ventures
35. 03/25/14 37
PRICE EARNING (PE) MULTIPLE
Simplest method of comparing different stocks at a point
of time to make investment decisions
As a layman, this is the price being paid for buying one
rupee of earning of a company eg If PE of Infosys share is
Rs 9/- it means we are paying to the market a price of 9
for every Rs 1/- earning of the company
PE Ratio = Market Price per share/ EPS
36. 03/25/14 38
PRICE EARNING GROWTH (PEG)
MULTIPLE
An extension of PE which also takes into account growth
rate of the company
PEG Multiple = PE / Growth
COMPANY
A
COMPANY
B
Analysis
Market Price 200 200
EPS 10 20
Growth rate 5% 2%
PE Multiple 20 (200/10) 10 (100/20) A overvalued
PEG Multiple 4 (20/5) 5 (10/2) B overpriced wrt
growth potential
Which company stocks to be purchased ?
37. 03/25/14 39
DIVIDEND PAYOUT RATIO
Shows amount of dividend paid out of earnings
An indication of amount of profits put back into company
Imp ratio to assess long term prospects of company
Dividend Payout Ratio = Dividend / Net Income
38. 03/25/14 40
DIVIDEND YIELD
Shows relationship between Dividend per share and
market price
An imp ratio to compare two companies
Dividend Yield (%) = Dividend amount per share *100
Market price of share
39. 03/25/14 41
BETA OF SECURITY
Refers to overall market risk which a security is carrying
and which cannot be diversified
Responsiveness of share price of a company with respect
to overall market movement
If over a period of time, market has given a return of 20%;
individual share of company ‘A’ has given return of 10%;
Beta of A = 10 / 20 = 0.5
If investor is risk averse, should invest in stocks with low
Beta; Even if market falls by drastic amount his investment
will not take that much hit
40. 03/25/14 4203/25/14 42
FINANCIAL RATIOS
.
LIQUIDITY
NWC = CA - CL
CR = CA/CL
ATR = (CA –INVENTORY)/CL
LEVERAGE
Debt-Equity Ratio = Debt/Net Worth
Liab Coverage Ratio = Int gen funds / Total
Liab Debt to Assets Ratio = Debt/Total
Assets Interest Coverage Ratio = EBIT/Debt
Interest
ACTIVITY/TURNOVER
Inventory Turn Over Ratio = Net Sales/Inventory
FATR = Net Sales/Total
Assets
Avg Collection Period = 365/ RTOR
PROFITABILITY
GPMR = Gross Profit/Net Sales
NPMR = Net Profit/Net Sales
ROI = EBIT x 100/
Capital
ROE = Equity earnings/
Solvency , Safety
Margins,
Idle Resources , Risk
Long term solvency
Risk due to debt
Owners Stake
Coverage provided
by assets
Interest burden
Utilisation
Credit mgt
Restrictions
Efficency
Efficency
Acceptability
Overall performance
Margin of Safety
Ability for PAT