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RATIO ANALYSIS1.ppt
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- 2. ANALYSTS • TRADE CREDITORS •SUPPLIER’S OF LONG TERM DEBT • INVESTORS • MANAGEMENT
- 3. RATIOS • THE INDICATEDQUOTIENT OF TWO MATHEMATICAL EXPRESSIONS • RELATIONSHIP BETWEEN TWO OR MORE THINGS • QUALITATIVE JUDGEMENT
- 4. STANDARDS OF COMPARISION •PAST RATIOS • COMPETITOR’S RATIOS • INDUSTRY RATIOS • PROJECTED RATIOS
- 5. METHODS OF COMPARISION •TIME SERIES ANALYSIS • CROSS –SECTIONAL OR INTER-FIRM ANALYSIS • INDUSTRY ANALYSIS • PROFORMA ANALYSIS
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- 9. COST OF GOODSSOLD
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- 12. RATIOS CLASSIFIED • LIQUIDITYRATIOS • LEVERAGE RATIOS • ACTIVITY RATIOS • PROFITABILITY RATIOS
- 13. LIQUIDITY RATIOS • CURRENTRATIO =CURRENT ASSETS/CURRENT LIABILITIES • QUICK RATIO/ACID TEST RATIO = (CURRENT ASSETS – INVENTORIES)/ CURRENT LIABILITIES • CASH RATIO = (CASH + MARKETEABLE SECURITIES)/CURRENT LIABILITIES
- 14. LIQUIDITY RATIOS • INTERVALMEASURE =(CURRENT ASSETS – INVENTORY)/AVG DAILY OPERATING EXPENSES • NET WORKING CAPITAL RATIO = NET WORKING CAPITAL/ NET ASSETS
- 15. LEVERAGE OR CAPITALSTRUCTURE RATIOS • DEBT RATIO = TOTAL DEBT/(TOTAL DEBT+ NET WORTH) • DEBT- EQUITY RATIO = TOTAL DEBT/ NET WORTH CAPITAL EMPLOYED TO NET WORTH RATIO =CAPITAL EMPLOYED/NET WORTH =NET ASSET/NET WORTH • OTHER DEBT RATIOS – TOTAL LIABILITIES/TOTAL ASSETS – LONG TERM DEBT/(LONG TERM DEBT+NET WORTH)
- 16. LEVERAGE OR CAPITALSTRUCTURE RATIOS • COVERAGE RATIOS – INTEREST COVERAGE RATIO OR TIMES INTEREST EARNED = EBITDA/INTEREST – FIXED CHARGES COVERAGE =EBITDA/(INTEREST+(LOAN REPAYMENT/(1-TAX RATE))
- 17. ACTIVITY RATIOS • INVENTORYTURNOVER – COST OF GOOD SOLD/AVERAGE INVENTORY – SALES/INVENTORY – DAYS OF INVENTORY HOLDINGS = 360/INVENTORY TURNOVER – RAW MATERIAL INVENTORY TURNOVER = MATERIAL CONSUMED/ AVG RM INVENTORY – WORK IN PROCESS INVENTORY TURNOVER = COST OF PRODUCTION/ AVG WIP INVENTORY
- 18. ACTIVITY RATIOS • DEBTORS(ACCOUNTS RECEIVABLE) TURNOVER – CREDIT SALES/AVERAGE DEBTORS – SALES/AVERAGE DEBTORS – AVERAGE COLLECTION PERIOD = 360/DT • ASSET TURNOVER – NET ASSET OR C E TURNOVER = SALES/ NA – TOTAL ASSET TURNOVER = SALES / TA – FIXED AND CURRENT ASSET TURNOVER
- 19. ACTIVITY RATIOS • WORKINGCAPITAL TURNOVER = SALES/ NET CURRENT ASSETS
- 20. PROFITABILITY RATIOS • GROSSPROFIT MARGIN – (SALES-COGS)/SALES • NET PROFIT MARGIN – PROFIT AFTER TAX/SALES • NET MARGIN BASED ON NOPAT – EBIT(1-T)/SALES • OPERATING EXPENSE RATIO – OPERATING EXPENSES/SALES – COGS RATIO= COGS/SALES • ROI – ROTA=EBIT(1-T)/TA – RONA=EBIT(1-T)/NA
- 21. PROFITABILITY RATIOS • ROE –PAT/NW • EPS – PAT/NUMBER OF SHARES OUTSTANDING • DPS – EARNINGS PAID TO SHAREHOLDERS/NUMBER OF ORDINARY SHARES OUTSTANDING • DIVIDEND PAYOUT RATIO – DPS/EPS – GROWTH IN EQUITY = (1-DPS/EPS)ROE
- 22. PROFITABILITY RATIOS • DIVIDENDSAND EARNINGS YEILDS – DIVIDEND YEILD= DPS/MVPS – EARNING YEILD=EPS/MVPS • PRICE- EARNINGS RATIO • MARKET TO BOOK VALUE RATIO • TOBIN’S Q – MARKET VALUE OF ASSETS/REPLACEMENT COST OF ASSETS
- 23. DUPONT ANALYSIS • RONA/ROCE= ASSET TURNOVER* GROSS PROFIT MARGIN * OPERATING LEVERAGE • ROE = RONA* (PAT/EBIT)*(NA/NW) = RONA *LEVERAGE FACTOR
- 24. UTILITY OF RATIOANALYSIS • PERFORMANCE ANALYSIS • CREDIT ANALYSIS • SECURITY ANALYSIS • COMPETITIVE ANALYSIS • TREND ANALYSIS
- 25. CAUTIONS IN RATIOANALYSIS • STANDARDS FOR COMPARISION • COMPANY DIFFERENCES • PRICE LEVEL CHANGES • DIFFERENT DEFINITIONS OF VARIABLES • CHANGING SITUATIONS • HISTORICAL DATA
- 26. PREDICTORS OF FAILURE •NON PARAMETRIC ANALYSIS • MULTIPLE DISCRIMINANT ANALYSIS Z= 0.012X1+0.014X2+0.033X3+0.066X4+0.010X5 Z= DISCRIMINANT FUNCTION SCORE X1=NWC/TA X2=RE/TA(%) X3=EBIT/TA(%) X4=MVE/BVD(%) X5=SALES/TA
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