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 interpreting various financial ratios to evaluate a company's liquidity, solvency, operational efficiency, and profitability. Key ratios include current ratio, quick ratio, debt-to-equity ratio, inventory turnover, gross profit margin, return on equity, and earnings per share. Ratio analysis is used to analyze a company's financial health and performance over time as well as compare it to other companies.
The study analyzed the impact of working capital management on the profitability of 58 small manufacturing firms in Mauritius over the period of 1998-2003. The results showed that return on total assets, a measure of profitability, was positively correlated with measures of working capital management efficiency like accounts receivable days and cash conversion cycle. However, it was negatively correlated with accounts payable days. The paper concluded that synchronizing current assets and liabilities is important for small firm profitability and the paper industry showed best practices in working capital management.
The document discusses funds flow statements and their preparation. It provides definitions of key terms like working capital and flow of funds. It explains that a funds flow statement depicts changes in working capital between two balance sheet dates by analyzing changes in current assets and current liabilities. The summary also shows how to prepare schedules of changes in working capital and sources and uses of funds statements to analyze the flow of funds.
This document discusses receivables management. It defines receivables as money owed to a firm by customers from sales. Effective receivables management optimizes profits by balancing investment in receivables with sales levels and costs of maintaining receivables like capital costs and collection costs. Firms must determine appropriate credit policies including credit terms, credit limits, and collection efforts to maximize returns while minimizing bad debts and collection period. Tools like credit analysis, aging schedules, and ratio analysis help firms monitor receivables and collection performance.
The document provides information on fund flow statements, including their meaning, definition, purpose, and preparation. It defines a fund flow statement as a report on the movement of funds or working capital during an accounting period. It explains how working capital is raised and used. The summary then outlines some key points on the meaning of funds, items that constitute sources and uses of funds, and the objectives and limitations of fund flow statements.
This document discusses working capital financing. It defines working capital as the capital required for day-to-day operations of a business, such as purchasing raw materials and meeting salary expenses. It then discusses concepts of working capital like gross, net, permanent, and temporary working capital. The importance of adequate working capital is outlined, noting that it helps maintain business solvency and allows a business to take advantage of opportunities. Methods of financing both long-term and short-term working capital are described, including the roles of equity, debt, retained earnings, and bank financing. Regulation of bank financing by the Reserve Bank of India is also summarized.
The document discusses capital structure and its theories. It defines capital structure as the proportion of long-term debt and equity used to finance a company's assets. A company's capital structure determines its risk and cost of capital. There are several theories on capital structure including the net income, net operating income, traditional, and Modigliani-Miller approaches. The optimal capital structure balances minimum costs and risks. Factors like tax rates, control, flexibility, and legal requirements influence a company's choice of capital structure.
Ratio analysis involves calculating and interpreting various financial ratios to evaluate a company's liquidity, solvency, operational efficiency, and profitability. Key ratios include current ratio, quick ratio, debt-to-equity ratio, inventory turnover, gross profit margin, return on equity, and earnings per share. Ratio analysis is used to analyze a company's financial health and performance over time as well as compare it to other companies.
The study analyzed the impact of working capital management on the profitability of 58 small manufacturing firms in Mauritius over the period of 1998-2003. The results showed that return on total assets, a measure of profitability, was positively correlated with measures of working capital management efficiency like accounts receivable days and cash conversion cycle. However, it was negatively correlated with accounts payable days. The paper concluded that synchronizing current assets and liabilities is important for small firm profitability and the paper industry showed best practices in working capital management.
The document discusses funds flow statements and their preparation. It provides definitions of key terms like working capital and flow of funds. It explains that a funds flow statement depicts changes in working capital between two balance sheet dates by analyzing changes in current assets and current liabilities. The summary also shows how to prepare schedules of changes in working capital and sources and uses of funds statements to analyze the flow of funds.
This document discusses receivables management. It defines receivables as money owed to a firm by customers from sales. Effective receivables management optimizes profits by balancing investment in receivables with sales levels and costs of maintaining receivables like capital costs and collection costs. Firms must determine appropriate credit policies including credit terms, credit limits, and collection efforts to maximize returns while minimizing bad debts and collection period. Tools like credit analysis, aging schedules, and ratio analysis help firms monitor receivables and collection performance.
The document provides information on fund flow statements, including their meaning, definition, purpose, and preparation. It defines a fund flow statement as a report on the movement of funds or working capital during an accounting period. It explains how working capital is raised and used. The summary then outlines some key points on the meaning of funds, items that constitute sources and uses of funds, and the objectives and limitations of fund flow statements.
This document discusses working capital financing. It defines working capital as the capital required for day-to-day operations of a business, such as purchasing raw materials and meeting salary expenses. It then discusses concepts of working capital like gross, net, permanent, and temporary working capital. The importance of adequate working capital is outlined, noting that it helps maintain business solvency and allows a business to take advantage of opportunities. Methods of financing both long-term and short-term working capital are described, including the roles of equity, debt, retained earnings, and bank financing. Regulation of bank financing by the Reserve Bank of India is also summarized.
The document discusses capital structure and its theories. It defines capital structure as the proportion of long-term debt and equity used to finance a company's assets. A company's capital structure determines its risk and cost of capital. There are several theories on capital structure including the net income, net operating income, traditional, and Modigliani-Miller approaches. The optimal capital structure balances minimum costs and risks. Factors like tax rates, control, flexibility, and legal requirements influence a company's choice of capital structure.
The document provides an overview of financial institutions in India, including their definition, functions, classifications, and examples. It discusses regulatory institutions like RBI and SEBI, as well as intermediaries like IFCI, ICICI, IDBI, LIC, SIDBI, state financial corporations, and specialized institutions like EXIM Bank. It describes the roles of these institutions, the types of assistance they provide like loans and guarantees, and the process of project appraisal.
This document discusses business finance, including the meaning, scope, traditional and modern approaches to financial management. It covers the major financial decisions around investment, financing, and dividends. Key aspects of financial management are discussed such as capital budgeting, working capital management, and capital structure. The objectives, importance and types of both fixed and working capital are also summarized. Finally, the document outlines various instruments that can be used to raise funds for business such as shares, retained profits, debentures, institutional finance, public deposits and bank finance.
This document discusses capital structure and the factors considered when determining a firm's optimal capital structure. It discusses several approaches to determining the optimal capital structure, including:
1. The net income approach, which argues that changing capital structure affects overall cost of capital and firm value.
2. The net operating income/Modigliani-Miller approach, which argues that changing capital structure does not affect overall cost of capital or firm value.
3. The traditional/intermediate approach, which argues that increasing debt initially decreases overall cost of capital up to an optimal point, after which further increasing debt increases overall cost of capital.
The document analyzes the assumptions and implications of each approach. It also lists factors
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.
Presentation on "Capital Market"
1.definition and characteristics
2.function and players
3.importance/role and types
4.factor and structure
5.reforms and development
The document discusses various types of term loans including long-term loans, intermediate term loans, and short-term loans. Long-term loans mature between 1-7 years and are used for major business expenses. Intermediate term loans mature in less than 5 years and are used to purchase equipment and vehicles. Short-term loans mature within 1 year and provide quick access to funds but have higher interest rates.
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 Analysis and Types of Financial AnalysisNEETHU S JAYAN
The document discusses financial analysis, which involves critically examining financial statements to understand a firm's financial position and performance. Financial analysis identifies strengths and weaknesses by establishing relationships between balance sheet and income statement items. It has several objectives, including providing reliable financial information to assess a firm's profitability, financial position, and ability to meet obligations. Financial analysis can be conducted internally or externally and has various types depending on the materials used, methodology, entities involved, and time horizon considered. Its limitations include potential to mislead users or make wrong judgments if not done properly.
The document discusses the money market in India. It defines the money market and notes that it deals in short-term financial instruments that can be easily converted to cash. Some key aspects of the Indian money market discussed include the various sub-markets (e.g. call money market), instruments (e.g. treasury bills), participants (e.g. commercial banks), and the role of the money market in providing short-term funds and allowing central bank control of liquidity.
Financial ratios are calculated using data from financial statements and allow comparisons of a company's performance over time and against other companies. There are several types of ratios including liquidity, asset turnover, financial leverage, profitability, and dividend policy ratios. Ratios have limitations when used alone but provide insights into a company's financial health when analyzed together over multiple periods. Common ratios include the current ratio for liquidity, inventory turnover for asset use, debt ratio for leverage, gross profit margin for profitability, and dividend yield for dividend policy.
This document discusses asset liability management (ALM) in banks. It defines ALM as a mechanism to address risks from mismatches between bank assets and liabilities due to liquidity or interest rate changes. The ALM framework focuses on profitability and viability. It aims to match asset and liability maturities across time horizons. The objectives of ALM include managing liquidity risk, interest rate risk, and currency risks to stabilize profits and the bank's financial position. Tools used in ALM include information systems, organizational structure, and processes to identify, measure and manage various risks.
This document discusses various capital budgeting techniques, including traditional non-discounting methods like payback period and accounting rate of return, as well as modern discounting techniques like net present value, internal rate of return, and profitability index. It provides formulas and steps for calculating each technique, discusses their advantages and disadvantages, and provides decision criteria for evaluating projects.
The document discusses key aspects of a statement of cash flows including its four main parts (cash, operating activities, investing activities, financing activities), methods for preparing it (direct vs indirect), uses both internally and externally, limitations, and provides an example cash flow statement for 5 companies. It explains how the statement of cash flows reconciles accrual-based accounting to cash-based transactions and flows.
This document discusses various profitability ratios used to measure a company's ability to generate profits. It defines ratios like gross profit margin, operating profit margin, net profit margin, return on assets, return on equity, and return on capital employed. These ratios are calculated using figures from a company's income statement and balance sheet like sales, costs, assets, liabilities, and equity. Higher ratios generally indicate better profitability performance, allowing companies and investors to evaluate performance and compare across firms.
Ratio analysis involves calculating relationships between financial statement items to interpret a firm's financial condition and performance. Ratios can be classified into liquidity, capital structure, profitability, and activity ratios. Liquidity ratios measure short-term solvency, capital structure ratios measure long-term solvency, profitability ratios measure operating efficiency and returns, and activity ratios measure asset utilization and efficiency. Ratios are compared over time, against industry standards, or between firms to identify strengths, weaknesses, and trends.
The document discusses the macro economic environment and financial markets in India. It describes the money market and its components like call money, treasury bills, commercial bills, and commercial paper. It also discusses the organized and unorganized segments of the money market. The capital market is described along with the gilt-edged market and corporate securities market. Reforms to strengthen the capital market are also summarized.
The Capital Asset Pricing Model (CAPM) uses beta to measure the non-diversifiable risk of a security and determine its expected return. CAPM assumes investors want to maximize returns and only consider systematic risk. It models expected return as the risk-free rate plus a risk premium based on the security's beta. The Security Market Line graphs this relationship between beta and expected return. Some researchers like Fama and French have expanded CAPM with additional size and value factors.
- The document analyzes various financial ratios for Virat Industries Ltd, an Indian company that produces cotton socks.
- It calculates liquidity ratios like current ratio and acid-test ratio to assess the company's ability to meet short-term obligations. It also calculates leverage ratios like debt-equity ratio to examine the firm's capital structure.
- The document concludes that the company's current ratio and cash ratio indicate a marginally satisfactory liquidity position. It also finds that the debt-equity ratio has been continuously decreasing, showing efforts to reduce debt levels.
The document provides an overview of financial institutions in India, including their definition, functions, classifications, and examples. It discusses regulatory institutions like RBI and SEBI, as well as intermediaries like IFCI, ICICI, IDBI, LIC, SIDBI, state financial corporations, and specialized institutions like EXIM Bank. It describes the roles of these institutions, the types of assistance they provide like loans and guarantees, and the process of project appraisal.
This document discusses business finance, including the meaning, scope, traditional and modern approaches to financial management. It covers the major financial decisions around investment, financing, and dividends. Key aspects of financial management are discussed such as capital budgeting, working capital management, and capital structure. The objectives, importance and types of both fixed and working capital are also summarized. Finally, the document outlines various instruments that can be used to raise funds for business such as shares, retained profits, debentures, institutional finance, public deposits and bank finance.
This document discusses capital structure and the factors considered when determining a firm's optimal capital structure. It discusses several approaches to determining the optimal capital structure, including:
1. The net income approach, which argues that changing capital structure affects overall cost of capital and firm value.
2. The net operating income/Modigliani-Miller approach, which argues that changing capital structure does not affect overall cost of capital or firm value.
3. The traditional/intermediate approach, which argues that increasing debt initially decreases overall cost of capital up to an optimal point, after which further increasing debt increases overall cost of capital.
The document analyzes the assumptions and implications of each approach. It also lists factors
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.
Presentation on "Capital Market"
1.definition and characteristics
2.function and players
3.importance/role and types
4.factor and structure
5.reforms and development
The document discusses various types of term loans including long-term loans, intermediate term loans, and short-term loans. Long-term loans mature between 1-7 years and are used for major business expenses. Intermediate term loans mature in less than 5 years and are used to purchase equipment and vehicles. Short-term loans mature within 1 year and provide quick access to funds but have higher interest rates.
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 Analysis and Types of Financial AnalysisNEETHU S JAYAN
The document discusses financial analysis, which involves critically examining financial statements to understand a firm's financial position and performance. Financial analysis identifies strengths and weaknesses by establishing relationships between balance sheet and income statement items. It has several objectives, including providing reliable financial information to assess a firm's profitability, financial position, and ability to meet obligations. Financial analysis can be conducted internally or externally and has various types depending on the materials used, methodology, entities involved, and time horizon considered. Its limitations include potential to mislead users or make wrong judgments if not done properly.
The document discusses the money market in India. It defines the money market and notes that it deals in short-term financial instruments that can be easily converted to cash. Some key aspects of the Indian money market discussed include the various sub-markets (e.g. call money market), instruments (e.g. treasury bills), participants (e.g. commercial banks), and the role of the money market in providing short-term funds and allowing central bank control of liquidity.
Financial ratios are calculated using data from financial statements and allow comparisons of a company's performance over time and against other companies. There are several types of ratios including liquidity, asset turnover, financial leverage, profitability, and dividend policy ratios. Ratios have limitations when used alone but provide insights into a company's financial health when analyzed together over multiple periods. Common ratios include the current ratio for liquidity, inventory turnover for asset use, debt ratio for leverage, gross profit margin for profitability, and dividend yield for dividend policy.
This document discusses asset liability management (ALM) in banks. It defines ALM as a mechanism to address risks from mismatches between bank assets and liabilities due to liquidity or interest rate changes. The ALM framework focuses on profitability and viability. It aims to match asset and liability maturities across time horizons. The objectives of ALM include managing liquidity risk, interest rate risk, and currency risks to stabilize profits and the bank's financial position. Tools used in ALM include information systems, organizational structure, and processes to identify, measure and manage various risks.
This document discusses various capital budgeting techniques, including traditional non-discounting methods like payback period and accounting rate of return, as well as modern discounting techniques like net present value, internal rate of return, and profitability index. It provides formulas and steps for calculating each technique, discusses their advantages and disadvantages, and provides decision criteria for evaluating projects.
The document discusses key aspects of a statement of cash flows including its four main parts (cash, operating activities, investing activities, financing activities), methods for preparing it (direct vs indirect), uses both internally and externally, limitations, and provides an example cash flow statement for 5 companies. It explains how the statement of cash flows reconciles accrual-based accounting to cash-based transactions and flows.
This document discusses various profitability ratios used to measure a company's ability to generate profits. It defines ratios like gross profit margin, operating profit margin, net profit margin, return on assets, return on equity, and return on capital employed. These ratios are calculated using figures from a company's income statement and balance sheet like sales, costs, assets, liabilities, and equity. Higher ratios generally indicate better profitability performance, allowing companies and investors to evaluate performance and compare across firms.
Ratio analysis involves calculating relationships between financial statement items to interpret a firm's financial condition and performance. Ratios can be classified into liquidity, capital structure, profitability, and activity ratios. Liquidity ratios measure short-term solvency, capital structure ratios measure long-term solvency, profitability ratios measure operating efficiency and returns, and activity ratios measure asset utilization and efficiency. Ratios are compared over time, against industry standards, or between firms to identify strengths, weaknesses, and trends.
The document discusses the macro economic environment and financial markets in India. It describes the money market and its components like call money, treasury bills, commercial bills, and commercial paper. It also discusses the organized and unorganized segments of the money market. The capital market is described along with the gilt-edged market and corporate securities market. Reforms to strengthen the capital market are also summarized.
The Capital Asset Pricing Model (CAPM) uses beta to measure the non-diversifiable risk of a security and determine its expected return. CAPM assumes investors want to maximize returns and only consider systematic risk. It models expected return as the risk-free rate plus a risk premium based on the security's beta. The Security Market Line graphs this relationship between beta and expected return. Some researchers like Fama and French have expanded CAPM with additional size and value factors.
- The document analyzes various financial ratios for Virat Industries Ltd, an Indian company that produces cotton socks.
- It calculates liquidity ratios like current ratio and acid-test ratio to assess the company's ability to meet short-term obligations. It also calculates leverage ratios like debt-equity ratio to examine the firm's capital structure.
- The document concludes that the company's current ratio and cash ratio indicate a marginally satisfactory liquidity position. It also finds that the debt-equity ratio has been continuously decreasing, showing efforts to reduce debt levels.
This document presents a project work on ratio analysis as a tool for financial analysis. It discusses ratio analysis as a technique for evaluating a company's financial condition and performance by calculating and comparing various financial ratios. The document defines key terms related to ratio analysis and outlines its objectives and procedures. It also classifies common financial ratios into five main categories: leverage ratios, liquidity ratios, profitability ratios, turnover/asset utilization ratios, and valuation ratios. Examples of important ratios under each category are provided.
This document provides an overview of key financial ratios used to analyze the financial performance and health of banking institutions. It discusses ratios categorized as profitability, liquidity, asset quality, efficiency, and capital/solvency ratios. Specific ratios covered include net margin, cost-to-income, return on equity, return on assets, current ratio, non-performing loans ratio, debt-to-equity, and capital-to-risk weighted assets. The document emphasizes that analyzing multiple ratios together provides a fuller picture of a bank's financial standing than any single ratio alone.
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.
Bank Alfalah was incorporated in 1997 as a public limited company and began banking operations in November 1997. It is now majority owned by an Abu Dhabi group. The presentation analyzes Bank Alfalah's financial performance using the CAMEL framework, finding that the bank maintains adequate capital ratios and liquidity, with improving asset quality and earnings. Management is deemed effective based on various productivity and profitability metrics.
this presentation discussed about ratio analysis and types of ratios like liquidity, solvency ratios, etc
all the images used in this presentation are collected from various sources ffrom the internet
Sip 2013 15 main report-kiran mankumbre 110914Kiran Mankumbre
This document provides an executive summary and introduction to analyzing the financial ratios of Dabur India Pvt Ltd. It discusses the objectives of the project, which are to develop a financial model of Dabur and learn about financial modeling and ratio analysis. It introduces the key types of ratios that will be analyzed, including liquidity, profitability, turnover, solvency, and overall profitability ratios. Specific ratios that will be calculated and analyzed include current ratio, quick ratio, gross profit ratio, operating ratio, net profit ratio, return on investment ratio, and return on capital employed ratio.
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 discusses ratio analysis and its applications. Ratio analysis involves comparing financial metrics and ratios to evaluate a company's performance over time, against its peers, and relative to industry benchmarks. The key types of ratios covered are liquidity ratios, solvency ratios, profitability ratios, efficiency ratios, coverage ratios, and market prospect ratios. Specific ratios discussed include the current ratio, debt-to-equity ratio, return on assets, inventory turnover, and dividend yield. The document emphasizes that ratio analysis is most insightful when trends are analyzed over time and when comparisons are made to competitors in the same industry.
The document discusses the analysis of financial statements. It defines financial statement analysis as the classification and interpretation of items in statements like the income statement and balance sheet. This helps evaluate the financial strengths and weaknesses of a company. The document outlines different types of analysis including external, internal, horizontal, and vertical analysis. It also describes various techniques used like comparative statements, trend analysis, common-size statements, and ratio analysis. Key ratios are discussed including liquidity, leverage, profitability, and activity ratios.
This document provides a project report on the financial statement analysis of Oberoi Realty, an Indian real estate developer. It includes an introduction to the company, objectives and scope of the analysis, calculations of various financial ratios to analyze liquidity, leverage, turnover and profitability. These ratios are used to understand the financial health and performance of the company. The report also includes the financial statements and an analysis of the company's position based on the ratios.
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.
This document provides information about a student's ratio analysis project. It includes an introduction to ratio analysis and its advantages and limitations. It then discusses the different types of ratios, including liquidity ratios, solvency ratios, and profitability ratios. Specific liquidity ratios like current ratio and quick ratio are defined. The document also includes financial statement data from Bank of Baroda and calculations of the current ratio and quick ratio for fiscal years 2020-21, 2019-20, and 2018-19. Definitions of solvency ratios like debt to equity ratio and debt ratio are also provided.
Presents the ideal opportunity to learn and grow by doing a yearly business performace review. Now is the time to reflect, rethink, reread and redesign before the start of a new year.
This document provides guidance on assessing a company's performance using financial statement analysis techniques. It discusses various types of ratios that can be used, including profitability, liquidity, management efficiency, solvency, and investment ratios. It also covers cash flow analysis. Key points include:
- Ratios and cash flows should be analyzed over time and compared to peers to evaluate a company's performance.
- Non-financial factors like the business environment must be considered when assessing performance.
- Multiple ratios across different categories should be examined together rather than in isolation to get a full picture of a company's financial health.
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.
GAIL (India) Limited is India's largest natural gas processing and distribution company that is owned by the Government of India. Some key points:
- GAIL commissioned India's first cross-country natural gas pipeline in 1991 that helped develop India's natural gas market.
- It has expanded operations globally through subsidiaries in Singapore and the US to pursue international opportunities.
- In addition to its pipeline infrastructure, GAIL also operates in the areas of city gas distribution and exploration and production.
- The company allocates 2% of its annual profits to corporate social responsibility programs focused on communities near its work centers.
Ratio Analysis and financial performanceYaarbailee1
This document discusses various financial performance metrics and financial ratios that can be used to analyze a company's financial statements. It defines financial ratios as a systematic use of quantitative relations between financial values that can help determine a company's existing strengths and weaknesses as well as its historical performance and current financial condition. The document then discusses different types of financial ratios, including profitability ratios, assets utilization ratios, short-term solvency/liquidity ratios, long-term solvency/debt utilization ratios, and other important ratios like earnings per share and price-earnings ratio. Specific ratios are defined within each category with explanations of what they measure and how they are interpreted.
This document appears to be a quiz containing multiple choice questions about various topics including business, current events, and logos of companies. There are three rounds of questions with different point values assigned for correct and incorrect answers. The questions cover recent investment announcements by countries in India, company acquisitions, appointments of operators for tourism projects, changes to foreign investment policies in India, identification of company logos, slogans of airlines and technology firms.
The document discusses India's manufacturing sector. It notes that manufacturing contributes 16% to India's GDP and includes sectors like automotive, chemicals, electronics, and food processing. The largest sub-sectors are discussed and statistics provided on manufacturing's contribution to GDP growth from 2007-2012. Challenges facing the sector are outlined like high costs and the need for skills development. Government initiatives to support manufacturing competitiveness are mentioned. Larsen and Toubro, a large Indian conglomerate active in construction, heavy equipment, and other areas is also summarized.
The Indian retail industry is the fifth largest in the world, worth around $500 billion currently and expected to increase to $750-850 billion by 2015. The industry can be classified into organized retail, consisting of licensed large retailers making up 3-5% of the market, and unorganized retail, consisting of small shops making up over 95% of the market. Emerging areas driving growth in the retail industry include apparel and fashion, lifestyle products, pharmaceuticals, and e-commerce. Factors fueling growth are increasing disposable income, nuclear families, and liberalization of FDI policies, while bottlenecks include lack of infrastructure, supply chain management, and trained workforce. Skills needed for the industry include analytical abilities
India has strengths like a large agricultural sector, skilled workforce, and growing IT industry. However, weaknesses include high unemployment, poverty, and inadequate infrastructure. Opportunities exist in foreign investment, the large population as a consumer base, and sectors like IT. Threats are a slowing global economy, high deficits, population growth, and dependence on oil imports. A SWOT analysis finds that while India faces challenges, it also has significant opportunities to strengthen its economy by addressing weaknesses and capitalizing on its strengths and opportunities.
This document provides information on various economic indicators and terms related to analyzing the stock market and economy. It discusses concepts like GDP, inflation, interest rates, commodity markets, technical analysis, and how to open demat and trading accounts. Specifically, it defines fundamental analysis as studying company fundamentals like profits, EPS, and debt ratios to determine which shares to buy. It also outlines the three main components of India's GDP - services at 55%, agriculture at 18%, and industry at 26%.
The document discusses stock exchanges in India. It defines a stock exchange as a market where existing securities are traded and outlines some key stock exchanges in India like Bombay Stock Exchange. It describes the functions of stock exchanges like providing liquidity and safety for investors. The document also discusses concepts like listing of securities on an exchange, online trading systems, demat accounts, and the roles of different participants in stock trading like brokers and speculators.
1. The document discusses product strategy and new product development. It defines a product and classifies products as consumer or industrial.
2. Consumer products are further divided into convenience, shopping, and specialty products. Industrial products include materials and parts, capital items, and supplies and services.
3. The process of new product development is outlined, including idea generation, concept development and testing, marketing strategy development, business analysis, product development, test marketing, and commercialization. Key considerations and steps in the new product development process are defined.
Privatization leads to less corruptionAnkit Porwal
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Pengantar Penggunaan Flutter - Dart programming language1.pptx
Ratio analysis
1. Ratio Analysis------ By: ANKIT PORWAL & KUMAR SAURAV
1 JAIN COLLEGE OF ENGINEERING, MBA DEPARTMENT. BELGAUM
Ratio Analysis
Ratio: Relationship between two numbers.
Accounting of Ratio: Relationship between accounting figure.
Ratio Analysis: It is a process of computing and presenting
the relationship between the items in the financial
statements.
Ratio analysis is the important tool of financial analysis
because it helps to the study the financial performance and
position of the firm.
Why ratios are used?
Ratio speaks about a business
Is profitable?
Is assign its assets efficiency?
Has a gearing problem?
Can the employee be paid higher wages?
Is a target/investor?
List of Users
1. Investors 5. Employees
2. Managers 6. Customers
3. Government 7. Other agencies
4. Suppliers & trade creditors.
Has a business made a good profit compared to the
turnover? profitability
2. Ratio Analysis------ By: ANKIT PORWAL & KUMAR SAURAV
2 JAIN COLLEGE OF ENGINEERING, MBA DEPARTMENT. BELGAUM
Does a business have enough money to pay its bill?
Liquidity
Have a business made a enough profit as compared to
assts and capital employed? Return ratio
How has a company used its fixed and current assets?
Turnover, activity & uses
Forms of Ratio Analysis
Pure Ratio - Relationship between current assets &
current liabilities.
Percentage - Profit & Sales
Rates – number of items
Classification of Ratio
1. Based on financial statement
2. Based on function
3. Based on users
1. Based on Financial Statement
Based on Balance Sheet
Liquidity ratio, quick ratio, proprietary ratio, debt equity
ratio, working capital, capital gearing ratio.
Based on Revenue Statement
Gross profit ratio, net profit ratio, operating ratio, stock
turnover, Net-operating profit ratio.
3. Ratio Analysis------ By: ANKIT PORWAL & KUMAR SAURAV
3 JAIN COLLEGE OF ENGINEERING, MBA DEPARTMENT. BELGAUM
Based on composite Ratio
Return on capital employed, return on equity capital,
debtor turnover ratio, creditor turnover ratio, dividend
payout, debt service coverage ratio.
2. Based on function
Liquidity / Solvency
Leverage Ratio
Debt equity Ratio
Proprietary Ratio
Capital Gearing
Activity Ratio (turnover or productivity)
Inventory turnover Ratio
Debtor turnover Ratio
All turnover Ratios.
Profitability Ratio
Gross profit Ratio relation of profit
Net profit Ratio & sales
Expenses Ratio
Return on Investment relation of profit
&Return on capital employed investment
Coverage Ratio
Debt service coverage Ratio
Dividend payout Ratio
4. Ratio Analysis------ By: ANKIT PORWAL & KUMAR SAURAV
4 JAIN COLLEGE OF ENGINEERING, MBA DEPARTMENT. BELGAUM
Based on Users
For short term Creditors
Current ratio, quick ratio, working capital ratio
Long term Creditors
Debt equity ratio, return on capital employed
For management
Operating ratio, expenses ratio, return on capital employed,
turnover ratio
For shareholders
Return on equity, return on proprietor fund
Current ratio
“Comparison between current assets & current liabilities”
“Pure ratio”
Formula: Current Assets
Current Liabilities
Components of Current Assets
Debtors (less provision)
Income accrued (due)
Bill receivable
Cash & bank balance
Marketable investment and securities
Closing stock of row material, work in progress, finished goods,
stores & spare.
Any prepaid expenses
Short term loan & advances
Advance tax payment
5. Ratio Analysis------ By: ANKIT PORWAL & KUMAR SAURAV
5 JAIN COLLEGE OF ENGINEERING, MBA DEPARTMENT. BELGAUM
Components of Current Liabilities
Creditors
Bill payable
Any outstanding expenses
Unclaimed and proposed dividend
Provision for any taxation
Income received in advance
Bank overdraft
Purpose
“Help to understanding the ability of the firm to meet its short
term obligation”
Uses
“It is used by creditor to judge the safety margin available,
which help them to ascertain the amount and the term of the
credit”
Limitation
Ignores comparison of working capital
EX: company A & company B have the same current ratio,
company A has more of stock and company B has more
cash. Company B has a better liquidity and solvency.
Ignores quality
EX: company A and company B have a same current ratio
and the same amount of stock & debtor, but the company
A has more stock and doubtful debts than company B has
a better liquidity.
6. Ratio Analysis------ By: ANKIT PORWAL & KUMAR SAURAV
6 JAIN COLLEGE OF ENGINEERING, MBA DEPARTMENT. BELGAUM
1.Current Ratio
“This ratio has to be studied with ‘Quick Ratio’ and ‘stock
to working capital Ratio’ for judging the short term
solvency”
2:1 is standard ratio.
When result are higher than standard?
Good short term liquidity position
It might significance excess stock
Bad debts –credit prepaid may be more
Idle cash
Under treading –not utilised full capacity
When results are lower than standard?
Unsatisfactory liquidity
Over trading
Lower stocks
Idle cash
2.Quick Ratio
Used to check liquidity of the firm.
Also define as a pure ratio
Formula:
Quick Assets
Quick Liabilities
Quick Assets = Current assets – (Stock + Prepaid expenses)
A. Stock is executed because it is uncertain as to when & how it
will be realise.
B. Prepaid expenses are executed because they can’t be
converted into cash.
Quick Liabilities = Current Liabilities – Bank Over Draft
7. Ratio Analysis------ By: ANKIT PORWAL & KUMAR SAURAV
7 JAIN COLLEGE OF ENGINEERING, MBA DEPARTMENT. BELGAUM
A. Bank over draft is excluded because it is a permanent
arrangement & it is not required to be paid as long as the firm
exists.
Purpose:
It is a solvency ratio which indicates the ability of the firm to
meet its short term liabilities without selling the stock.
How it is helpful?
It measures the immediate solvency of the firm.
It overcomes the limitation of current ratio.
i.e. It considers both the composition and quality of
working capital.
It emphasises of quality of Current Assets rather than the
quantity.
The standard of this is 1:1
Higher Than Standard:
It indicates very good day to day solvency/liquidity.
Idle cash balance.
Under investment.
Lower Than Standard:
Not satisfactory day to day liquidity/solvency.
Low cash balance.
High investment.
8. Ratio Analysis------ By: ANKIT PORWAL & KUMAR SAURAV
8 JAIN COLLEGE OF ENGINEERING, MBA DEPARTMENT. BELGAUM
3.Debt Equity Ratio
This ratio compares a long term debts with shareholder
funds. It is also expressed as a Pure Ratio.
FORMULA:
Debt => Borrowing Funds
Equity proprietor’s fund
Borrowing Funds Proprietor’s Fund
Debenture - Equity Share Capital
Loans - Preference Share
- Reserve & Surplus – (losses +
item not written off)
Purpose or Function:
This ratio is a solvency ratio which indicates the proportion of
debt & equity in financing the assets of the firm.
Helpful:
It helps to understand and analyse margin of safety for long
term credits.
Standard is 2:1
It also helps to ascertain the balance between debt & equity.
Higher Than Standard:
Low safety margin for lender.
More interest payment.
Low scope for loan.
Treading on equity.
9. Ratio Analysis------ By: ANKIT PORWAL & KUMAR SAURAV
9 JAIN COLLEGE OF ENGINEERING, MBA DEPARTMENT. BELGAUM
4.Gross Profit Ratio
This ratio compares gross profit with net sales. It is
expressed in form of percentage.
FORMULA:
Gross Profit * 100
Net Sales
Gross Profit = sales – cost of goods sold
Cost of goods sold in treading firm =
Opening stock+ purchase+ direct exp. – closing stock
Cost of goods sold for manufacturing firm =
Opening stock+ cost of materials+ labour+ exp. – closing stock
Net Sales = Sales – (sales return + any allowances)
Purpose or Function:
It is profitability ratio. This ratio helps to judge-
How efficiently the firm is managing its production,
purchase, selling & inventory.
How good is the control over direct cost?
How productive the firm is?
How much amount is left to meet other expenses & earn
net profit?
Higher Then Standard:
It indicates higher efficiency in managing purchase production
labour, sales & inventory.
High productivity.
Large amount available to meet other expenses.
10. Ratio Analysis------ By: ANKIT PORWAL & KUMAR SAURAV
10 JAIN COLLEGE OF ENGINEERING, MBA DEPARTMENT. BELGAUM
5.Stock Turnover/ Inventory Turnover Ratio
This ratio shows the relationship between the costs of
goods sold and average stock this ratio is normally expressed as
time or rate.
FORMULA:
Cost of Goods sold
Average Stock
Average stock = opening stock + closing stock
2
NOTE: in the absence of information, closing stock can be used
instead of average stock.
Stock holding period
Month = 12
STR
Days = 365
STR
Function or Purpose:
This is an activity ratio, which shows the relationship between
sales & stock. Its purpose is to:
Calculate the speed at which stock is being turned over into
sales.
Calculate the stock holding period.
To judge how efficient the stock are managed and utilised to
generate sales.
11. Ratio Analysis------ By: ANKIT PORWAL & KUMAR SAURAV
11 JAIN COLLEGE OF ENGINEERING, MBA DEPARTMENT. BELGAUM
Higher Than Standard:
Stock sold out very quickly.
Working capital requirement is less.
Over trading.
6.Operating Ratio
This ratio expresses the relationship between total
operating cost and net sales. It is expressed by the way of
percentage.
FORMULA:
Cost of goods sold + operating expenses * 100
Net sales
Operating expenses = office & administration exp., selling &
distribution exp., financial exp. (OD)
Function or Purpose:
This ratio indicates cost of operations.
Its purpose to measure and ascertain efficiency of management
with regard to operations.
Helpful:
This ratio helps to judge how much amount of sales revenue is
used in carrying the operation if the firm.
Operating ratio shows total of all cost in all the area such as
administration, sales etc. It is advisable to break it up into
various expenses ratio so that we can identify which
expenditures are increasing disproportionately.
This ratio has to be studied with expenses ratio and operating
net profit ratio before commenting on profitability of the firm.
12. Ratio Analysis------ By: ANKIT PORWAL & KUMAR SAURAV
12 JAIN COLLEGE OF ENGINEERING, MBA DEPARTMENT. BELGAUM
Higher Than Standard:
Low efficiency in managing purchase, production, labour,
inventory & sales.
Low productivity.
Small amount available to meet other expenses.
7.Return on Capital Employed Ratio (ROCE) or Return
on Investment (ROI)
The ratio measures the relationship between profit
(before interest & tax) and the capital to earn it. The ratio is
also known as return on investment (ROI).
FORMULA:
Profit before Interest & Tax * 100
Capital Employed
Capital employed =
Equity capital + preference share + reserve & surplus +credit
balance of P&L + debenture + long term loans – debit balance
of P&L.
Purpose or Function:
It is a profitability ratio.
It purposes is to measure overall profitability from the total
funds made available by the owners and lenders.
Helpful:
The ratio helps to judge how efficiently the firm is managing
the funds at its disposal.
13. Ratio Analysis------ By: ANKIT PORWAL & KUMAR SAURAV
13 JAIN COLLEGE OF ENGINEERING, MBA DEPARTMENT. BELGAUM
Higher than Standard:
It signifies more profit on each of the rupee invested.
Scope to attract fresh fund both from owner & lender.
It signifies higher amount of sales.
High increase in net worth.
Large amount of appropriation (interest, taxes, dividend)
8.Dividend Payout Ratio
This ratio shows the relationship between the dividends
paid to equity shareholders out of the profit available.
It is expressed in percentage.
FORMULA:
Dividend Paid * 100
Profit Available to Equity Shareholder
(PAT)
Profit availability to equity share holder means net profit
after interest, income tax & Preference dividend.
Purpose or Function:
This ratio is type of coverage ratio.
A coverage ratio shows the relationship between the profit and
the claim of outsider to be paid out if such profits.
Its purpose is to measure to dividend paying capacity of the
firm.
14. Ratio Analysis------ By: ANKIT PORWAL & KUMAR SAURAV
14 JAIN COLLEGE OF ENGINEERING, MBA DEPARTMENT. BELGAUM
Higher than Standard:
Scope to issue fresh equity share at a higher price.
Called FPO: follow up public offering.
High price in stick exchange.
During merger high price of shares.
Very high dividend makes shirt term equity holders happy.
Less reserve may mean low growth in future.
No possible of bonus issue.
9.Debt Service Coverage Ratio
This ratio shows the relation between net profit and interest +
instalment payable on loan. It is expressed as pure number.
Coverage means availability of profits for debts servicing.
FORMULA:
Cash profit available for debt servicing
(Interest + instalment due on loan)
Cash profit available for debt servicing
PAT + non cash debits
CFAT / no pat / NCF
Purpose:
It helps to measure debt service capacity of the company.
15. Ratio Analysis------ By: ANKIT PORWAL & KUMAR SAURAV
15 JAIN COLLEGE OF ENGINEERING, MBA DEPARTMENT. BELGAUM
Higher than Standard:
Strong capacity to pay interest as and when due.
Further loans easily available at the lower rate.
Large amount of profit available for taxes & dividend.
It also signifies that the firm is not treading on equity.
10. Debtor Turnover Ratio
This ratio shows the relationship between credit sales &
average debtors. It is expressed as a rate or as a time.
Formula:
Credit Sales
Average Debtor
Average Debtor = Bill Receivable + Debtor
Debtor Collection Period
12 OR 365
DTR DTR
Purpose:
To calculate speed at wage debtor get settled on an average
during the year.
It calculates the debtor collection period which helps to
indicate the period of credit allowed who an average debtor.
It helps to judge how efficiently the debtors are managed.
16. Ratio Analysis------ By: ANKIT PORWAL & KUMAR SAURAV
16 JAIN COLLEGE OF ENGINEERING, MBA DEPARTMENT. BELGAUM
Higher Than Standard:
Debts are collected at lower rate.
More chances of bad debts.
More credits are provided.
11. Creditors Turnover Ratio
This ratio shows the relationship between credit purchases
and average creditors. This also expressed in the form of rates or
times.
Formula:
Credit Purchase
Average Creditors
Average Creditors = Bills payable + Creditors
Creditors Payment Period:
12 OR 365
CTR CTR
Purpose:
It helps to analyse as to how quickly the creditors are paid off
on an average during the year.
It helps to calculate the period taken to pay off creditors.
Note: This ratio should be studied with STR & DTR to understand the
combined effect over the operating cycle.
17. Ratio Analysis------ By: ANKIT PORWAL & KUMAR SAURAV
17 JAIN COLLEGE OF ENGINEERING, MBA DEPARTMENT. BELGAUM
Higher Than Standard:
It signifies slow rate of payment.
More credit is available from creditors.
Working capital requirements is less.
Operating Cycle = STR + DTR – CTR
12. Stock to Working Capital Ratio
This ratio shows the relationship between the closing stock
and working capital. It helps to judge the quantum of
inventories in relation to the working capital of the business. It
is expressed as a percentage. It is also known as inventory
working capital ratio.
Formula:
Stock * 100
Working Capital
Stock = closing stock
Purpose:
It is liquidity ratio.
It indicates the composition and quality of the working capital
and also helps to study the salvage of the firm.
It shows the extant of the funds blocked in stock.
If investment of stock is higher it signifies that the amount of
liquid assets is lower.
This ratio should be studied with stock turnover ratio, current
ratio and quick ratio.
18. Ratio Analysis------ By: ANKIT PORWAL & KUMAR SAURAV
18 JAIN COLLEGE OF ENGINEERING, MBA DEPARTMENT. BELGAUM
Higher Than Standard:
More other current assets are available to pay current
liabilities.
13. Return on Equity Capital
This ratio measures the relationship between net profit
(after interest, tax & preference dividend) and the equity share
holders.
Formula:
Net Profit * 100
Equity Share Holders Funds
Equity Share Holders Funds = equity capital and reserve & surplus.
This ratio is expected as a percentage.
Purpose:
It is a profitability ratio.
Its purpose is to calculate the amount of profit available to take
care of equity dividends, transfer to reserve etc.
It is used by the present or perspective investor for deciding
whether to purchase, keep or selling the equity shares.
This ratio should be studied with capital gearing ratio to know
the effect of gearing on EPS.
19. Ratio Analysis------ By: ANKIT PORWAL & KUMAR SAURAV
19 JAIN COLLEGE OF ENGINEERING, MBA DEPARTMENT. BELGAUM
Higher Than Standard:
Large amount of appropriations (reserve & surplus, dividend,
etc.)
Higher EPS, in case of merger & acquisition it gives batter
purchase consideration.
Higher increase in net worth in the company.
14. Capital Gearing Ratio
Gearing means the process of increasing equity
shareholders return through the case of debt. Equity share
holders earn more when the rate of return on the capital is
more than the rate of interest on debt. This is also known as
leverage or treading on equity. This ratio shows the
relationship between two type of capital, equity capital
increasing reserves & preference share capital and long term
borrowings. It is usually expressed as a pure ratio. This is also
known as capital structure ratio.
Formula:
Preference Capital + Borrowed Funds
Equity Funds
Purpose:
It indicates the proportion of debt & equity in the financing of
assets of a firm.
Higher Than Standard:
Higher return for the shareholder if rate of the fixed return is
less than return on investment.
20. Ratio Analysis------ By: ANKIT PORWAL & KUMAR SAURAV
20 JAIN COLLEGE OF ENGINEERING, MBA DEPARTMENT. BELGAUM
15. Return on proprietor’s Fund
This ratio measures the relationship between profit
(after interest & tax) & the proprietor’s capital. It is
usually expressed as a percentage. It is also known as
return on net worth.
Formula:
Net Profit (after tax)
Proprietor’s Fund
Proprietor’s fund = equity, reserve & surplus and preference capital
Purpose:
It is profitability ratio.
It measures the rate of return on the total funds made available
from owners.
It helps to judge how efficiently the firm is managing the
owners fund at the disposal.
This ratio should be studied with debt equity ratio to know the
effect of capital structure on earnings of the proprietors.
Higher Than Standards:
Large amount available for appropriation.
Scope to attract fresh funds from the owner.
21. Ratio Analysis------ By: ANKIT PORWAL & KUMAR SAURAV
21 JAIN COLLEGE OF ENGINEERING, MBA DEPARTMENT. BELGAUM
16. Net Profit Ratio
The ratio indicates the relationship between net profit
and sales. It is usually expressed in the form of percentage.
Formula:
Net Profit (before tax)
Sales
Net profit before tax:
Net operating profit
Add: non operating income
Less: non operating expenses.
Purpose:
It is profitability ratio.
It indicates net profit for all types or activities of the entire
business.
It measures the overall profitability from:
- Operating activities of buying or selling the products.
- Financing activity of borrowing or lending.
- Buying or selling of investment.
This ratio helps to judge:
- How efficiently the firm is managing all its activities of
operations, financing & investments.
- How much amount is available for appropriations?
This ratio is studied with return on capital employed & return
on proprietor’s fund.
Higher Than Standard:
Good control over all expenses.
Large amount available for appropriation.
Strong capacity to face bad economic condition.
High increase in net worth.
It signifies unusual gain.