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.
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 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.
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.
The document discusses various bond valuation concepts like coupon rate, current yield, spot interest rate, yield to maturity, yield to call, and realized yield. It provides examples to calculate these measures and explains how bond prices are determined based on factors like interest rates, time to maturity, and cash flows. Bond duration is introduced as a measure of interest rate risk exposure, and bond risks from default and changes in interest rates are explained.
This document provides an overview of financial statement analysis and ratio analysis. It defines key financial statements like the income statement, balance sheet, and statement of cash flows. It also explains the purpose of ratio analysis is to evaluate a firm's performance, liquidity, profitability, and financial stability by calculating and comparing various financial ratios over time and against industry benchmarks. Common ratios covered include liquidity, leverage, activity, and profitability ratios. Ratio analysis is a useful tool but requires comparing ratios to standards and accounting for company and industry differences.
This document defines and discusses various types of ratio analysis used in accounting. It begins by defining a ratio as a mathematical relationship between two quantitative figures. It then outlines the main steps in ratio analysis and some key advantages and limitations. The rest of the document categorizes ratios in several ways: by financial statements, by intended users, by relative importance, and by purpose/function. It provides examples of specific ratios that fall under each of these categories, such as liquidity ratios, profitability ratios, and turnover ratios. The document aims to provide an overview of the different approaches to ratio analysis in accounting.
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.
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 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.
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.
The document discusses various bond valuation concepts like coupon rate, current yield, spot interest rate, yield to maturity, yield to call, and realized yield. It provides examples to calculate these measures and explains how bond prices are determined based on factors like interest rates, time to maturity, and cash flows. Bond duration is introduced as a measure of interest rate risk exposure, and bond risks from default and changes in interest rates are explained.
This document provides an overview of financial statement analysis and ratio analysis. It defines key financial statements like the income statement, balance sheet, and statement of cash flows. It also explains the purpose of ratio analysis is to evaluate a firm's performance, liquidity, profitability, and financial stability by calculating and comparing various financial ratios over time and against industry benchmarks. Common ratios covered include liquidity, leverage, activity, and profitability ratios. Ratio analysis is a useful tool but requires comparing ratios to standards and accounting for company and industry differences.
This document defines and discusses various types of ratio analysis used in accounting. It begins by defining a ratio as a mathematical relationship between two quantitative figures. It then outlines the main steps in ratio analysis and some key advantages and limitations. The rest of the document categorizes ratios in several ways: by financial statements, by intended users, by relative importance, and by purpose/function. It provides examples of specific ratios that fall under each of these categories, such as liquidity ratios, profitability ratios, and turnover ratios. The document aims to provide an overview of the different approaches to ratio analysis in accounting.
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.
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.
,
cost of capital
,
bond
,
preferred stock
,
factors influencing cost of capital determination
,
cost of new common stock
,
cost of debt components
,
cost of preferred stock
,
components of cost of capital
This chapter discusses the valuation of bonds and shares. It explains the characteristics of different types of bonds and shares and how to value them using present value concepts. The chapter focuses on the linkage between share values, earnings, and dividends. It also covers bond valuation, including the impact of interest rate changes on bond prices. Credit ratings help assess the default risk of different bonds.
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 provides an overview of marketable securities, including:
- Defining marketable securities as financial instruments that can be easily bought and sold on a stock exchange within a short period of time.
- Features of marketable securities like liquidity, ease of transferability, and lower returns due to lower risk.
- Types of risk associated with securities like default risk, interest rate risk, and inflation risk.
- Classifying marketable securities into marketable equity securities and marketable debt securities.
- Common types of marketable securities like commercial paper, treasury bills, and certificates of deposit.
- Reasons for investing in marketable securities like serving as a cash substitute,
Okay, let me calculate the working capital requirement step-by-step:
1) Raw Material for 60000 units
= 60000 * 60% of Rs. 5 = Rs. 18,00,000
2) Work in Progress for 60000 units
= 60000 * 10% of Rs. 5 = Rs. 3,00,000
3) Finished Goods for 60000 units
= 60000 * 20% of Rs. 5 = Rs. 6,00,000
4) Debtors for 60000 units at selling price of Rs. 5 per unit
= 60000 * Rs. 5 = Rs. 3,00,000
5) Creditors for 2
Discounted cash flow valuation uses present value calculations to determine the value of investment projects and companies. It discounts future cash flows back to the present using a discount rate. The net present value (NPV) of a project is calculated by taking the present value of all expected future cash flows. A positive NPV means the project adds value while a negative NPV means it destroys value. Proper valuation requires forecasting cash flows, determining the appropriate discount rate, and discounting the cash flows to get the NPV.
This document discusses working capital management. It defines working capital as the capital required for day-to-day business operations, including financing current assets like inventory, accounts receivable, etc. Working capital management involves managing current assets, current liabilities, and their relationships. The objectives are to maintain a balance between current assets and liabilities and optimize investment in current assets. Components, types, determinants, and sources of financing for working capital are also covered.
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.
This document discusses the relationship between risk and return in investments. It defines total risk as the sum of systematic and unsystematic risk. Systematic risk stems from external market factors that affect all investments, while unsystematic risk is specific to a particular company. The expected return and risk of individual stocks varies, with higher risk investments generally offering higher returns. A portfolio combines multiple assets to reduce overall risk through diversification. The portfolio risk depends on the covariance and correlation between the individual assets' returns. Diversifying across assets with low correlation is an effective way to reduce risk.
This document outlines the different types of issuers and instruments in the debt market. Government securities are issued by central and state governments and include treasury bills, coupon bearing bonds, zero coupon bonds, and floating rate bonds. Public sector bonds are issued by government agencies, statutory bodies, and public sector undertakings and include debentures, government guaranteed bonds, commercial papers, and PSU bonds. Private sector bonds are issued by corporates, banks, and financial institutions and include debentures, commercial papers, fixed and floating rate bonds, zero coupon bonds, inter-corporate deposits, certificates of deposits, and bonds.
What is the 'Time Value of Money - TVM'
The time value of money (TVM) is the idea that money available at the present time is worth more than the same amount in the future due to its potential earning capacity. This core principle of finance holds that, provided money can earn interest, any amount of money is worth more the sooner it is received. TVM is also referred to as present discounted value.
BREAKING DOWN 'Time Value of Money - TVM'
Money deposited in a savings account earns a certain interest rate. Rational investors prefer to receive money today rather than the same amount of money in the future because of money's potential to grow in value over a given period of time. Money earning an interest rate is said to be compounding in value.
BREAKING DOWN 'Compound Interest'
Compound Interest Formula
Compound interest is calculated by multiplying the principal amount by one plus the annual interest rate raised to the number of compound periods minus one.The total initial amount of the loan is then subtracted from the resulting value.
Earnings per share is a ratio used to analyze financial statements that measures a company's profit allocated to each outstanding share of common stock. International Accounting Standard 33 was developed to standardize how earnings per share is calculated, which involves dividing earnings attributable to ordinary shareholders by the weighted average number of ordinary shares. There are two types of earnings per share calculations: basic EPS uses actual ordinary shares outstanding, while diluted EPS considers additional potential ordinary shares, such as from convertible bonds, that would lower per-share earnings if converted.
Liquidity Ratio
Measures the relationship between current assets and current liabilities with the help of data extracted from the balance sheet of the company
Assess the ability of business to meet its short-term obligation usually one year
Assess whether the business has sufficient cash and current assets to pay back its current liabilities
Types of Liquidity Ratio
Current Ratio, Quick Ratio, Cash Ratio
Current Ratio
It measures the ability of the business to meet its current liabilities by converting current assets into cash during the operating cycle of the firm to pay off the debt efficiently on time
Higher the current ratio, better is the firm’s position in managing its working capital
The standard current ratio showing an efficient liquidity is 2:1
Formula, Current Ratio = (𝐂𝐮𝐫𝐫𝐞𝐧𝐭 𝐀𝐬𝐬𝐞𝐭𝐬)/(𝐂𝐮𝐫𝐫𝐞𝐧𝐭 𝐋𝐢𝐚𝐛𝐢𝐥𝐢𝐭𝐢𝐞𝐬)
Quick Ratio
Quick ratio is also known as acid-test ratio
It takes into account only those current assets which are highly liquid so it excludes the inventory/stocks from current asset
Formula, Quick Ratio = (𝐂𝐮𝐫𝐫𝐞𝐧𝐭 𝐀𝐬𝐬𝐞𝐭𝐬 −𝐒𝐭𝐨𝐜𝐤𝐬 −𝐏𝐫𝐞𝐩𝐚𝐢𝐝 𝐄𝐱𝐩𝐞𝐧𝐬𝐞𝐬)/(𝐂𝐮𝐫𝐫𝐞𝐧𝐭 𝐋𝐢𝐚𝐛𝐢𝐥𝐢𝐭𝐢𝐞𝐬)
Quick assets = Current Assets – Stocks – Prepaid Expenses
A standard quick ratio is considered to be 1:1 which is safe for any business
Thus, quick ratio is an indicator of a company’s short-term liquidity position and measures ability of business to meet its short-term obligations with most liquid assets
Cash Ratio
Cash ratio is the most stringent measure of liquidity which takes into account only cash & cash equivalents to get the working capital efficiency of business
The metric calculates a company's ability to repay its short-term debt with readily-liquidated cash resources
Formula, Cash Ratio = (𝐂𝒂𝒔𝒉 & 𝑪𝒂𝒔𝒉 𝑬𝒒𝒖𝒊𝒗𝒂𝒍𝒆𝒏𝒕𝒔)/(𝐂𝐮𝐫𝐫𝐞𝐧𝐭 𝐋𝐢𝐚𝐛𝐢𝐥𝐢𝐭𝐢𝐞𝐬)
Cash equivalents are the assets that can speedily get converted into cash as and when required like cash on hand, demand deposits, money market instruments, savings accounts.
Thank you for Watching
Subscribe to Devtech Finance
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.
Risk and Return Analysis .ppt By Sumon SheikhSumon Sheikh
Risk and return analysis presentation with suitable examples. A perfect class-presentation file.
Prepared by Sumon Sheikh, BBA Student, majoring Accounting and Information Systems at Jatiya Kabi Kazi Nazrul Islam University, Trishal, Mymensingh-2224, Bangladesh.
Working capital represents a company's short-term liquidity and is used to finance day-to-day operations. The two main sources of working capital finance are trade credit and bank borrowing. Trade credit involves suppliers extending credit to customers, and is an important source of financing especially for small businesses. Banks provide working capital financing through various facilities like overdrafts, cash credits, bill discounting, and loans. Banks follow guidelines from committees like Tandon and Chore to regulate working capital lending and ensure prudent financing.
This document discusses various concepts related to investment returns and risk. It begins by defining return as income received plus capital gains. It then discusses the components of return including yield and capital gains. It provides a formula to calculate total return. The document then discusses various types of risk including market risk, liquidity risk, and foreign exchange risk. It also covers sensitivity analysis using range and standard deviation. Finally, it discusses portfolio returns and risks, and introduces the Capital Asset Pricing Model to relate expected returns to market risk.
Risk And Return In Financial Management PowerPoint Presentation SlidesSlideTeam
Analyze investment risk and profitability with this professionally designed Risk and Return in Financial Management PowerPoint Presentation Slides. The content ready portfolio risk-return trade-off PowerPoint compete deck comprises of PPT slides such as risk and return of stock bonds, and T-bills, investment strategies of predefined portfolios, risk and return of portfolio manager, measuring stock volatility proportionate, portfolio return analysis, calculating asset beta, portfolio value at risk, ranking the passive income streams impact to name a few. Explain the relationship between risk on investing in the financial market with potential return using portfolio risk analysis PPT slides. Utilize the visually appealing risk-reward relationship presentation design to structure your financial presentation. Furthermore, portfolio risk-return in security analysis PPT visuals are completely customizable. You can add or delete the content if needed. Download this visually appealing security analysis and portfolio management presentation deck to manage investment risk. Our Risk And Return In Financial Management PowerPoint Presentation Slides ensure you feel joyous. You will find the inspiration you desire.
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.
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.
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.
,
cost of capital
,
bond
,
preferred stock
,
factors influencing cost of capital determination
,
cost of new common stock
,
cost of debt components
,
cost of preferred stock
,
components of cost of capital
This chapter discusses the valuation of bonds and shares. It explains the characteristics of different types of bonds and shares and how to value them using present value concepts. The chapter focuses on the linkage between share values, earnings, and dividends. It also covers bond valuation, including the impact of interest rate changes on bond prices. Credit ratings help assess the default risk of different bonds.
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 provides an overview of marketable securities, including:
- Defining marketable securities as financial instruments that can be easily bought and sold on a stock exchange within a short period of time.
- Features of marketable securities like liquidity, ease of transferability, and lower returns due to lower risk.
- Types of risk associated with securities like default risk, interest rate risk, and inflation risk.
- Classifying marketable securities into marketable equity securities and marketable debt securities.
- Common types of marketable securities like commercial paper, treasury bills, and certificates of deposit.
- Reasons for investing in marketable securities like serving as a cash substitute,
Okay, let me calculate the working capital requirement step-by-step:
1) Raw Material for 60000 units
= 60000 * 60% of Rs. 5 = Rs. 18,00,000
2) Work in Progress for 60000 units
= 60000 * 10% of Rs. 5 = Rs. 3,00,000
3) Finished Goods for 60000 units
= 60000 * 20% of Rs. 5 = Rs. 6,00,000
4) Debtors for 60000 units at selling price of Rs. 5 per unit
= 60000 * Rs. 5 = Rs. 3,00,000
5) Creditors for 2
Discounted cash flow valuation uses present value calculations to determine the value of investment projects and companies. It discounts future cash flows back to the present using a discount rate. The net present value (NPV) of a project is calculated by taking the present value of all expected future cash flows. A positive NPV means the project adds value while a negative NPV means it destroys value. Proper valuation requires forecasting cash flows, determining the appropriate discount rate, and discounting the cash flows to get the NPV.
This document discusses working capital management. It defines working capital as the capital required for day-to-day business operations, including financing current assets like inventory, accounts receivable, etc. Working capital management involves managing current assets, current liabilities, and their relationships. The objectives are to maintain a balance between current assets and liabilities and optimize investment in current assets. Components, types, determinants, and sources of financing for working capital are also covered.
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.
This document discusses the relationship between risk and return in investments. It defines total risk as the sum of systematic and unsystematic risk. Systematic risk stems from external market factors that affect all investments, while unsystematic risk is specific to a particular company. The expected return and risk of individual stocks varies, with higher risk investments generally offering higher returns. A portfolio combines multiple assets to reduce overall risk through diversification. The portfolio risk depends on the covariance and correlation between the individual assets' returns. Diversifying across assets with low correlation is an effective way to reduce risk.
This document outlines the different types of issuers and instruments in the debt market. Government securities are issued by central and state governments and include treasury bills, coupon bearing bonds, zero coupon bonds, and floating rate bonds. Public sector bonds are issued by government agencies, statutory bodies, and public sector undertakings and include debentures, government guaranteed bonds, commercial papers, and PSU bonds. Private sector bonds are issued by corporates, banks, and financial institutions and include debentures, commercial papers, fixed and floating rate bonds, zero coupon bonds, inter-corporate deposits, certificates of deposits, and bonds.
What is the 'Time Value of Money - TVM'
The time value of money (TVM) is the idea that money available at the present time is worth more than the same amount in the future due to its potential earning capacity. This core principle of finance holds that, provided money can earn interest, any amount of money is worth more the sooner it is received. TVM is also referred to as present discounted value.
BREAKING DOWN 'Time Value of Money - TVM'
Money deposited in a savings account earns a certain interest rate. Rational investors prefer to receive money today rather than the same amount of money in the future because of money's potential to grow in value over a given period of time. Money earning an interest rate is said to be compounding in value.
BREAKING DOWN 'Compound Interest'
Compound Interest Formula
Compound interest is calculated by multiplying the principal amount by one plus the annual interest rate raised to the number of compound periods minus one.The total initial amount of the loan is then subtracted from the resulting value.
Earnings per share is a ratio used to analyze financial statements that measures a company's profit allocated to each outstanding share of common stock. International Accounting Standard 33 was developed to standardize how earnings per share is calculated, which involves dividing earnings attributable to ordinary shareholders by the weighted average number of ordinary shares. There are two types of earnings per share calculations: basic EPS uses actual ordinary shares outstanding, while diluted EPS considers additional potential ordinary shares, such as from convertible bonds, that would lower per-share earnings if converted.
Liquidity Ratio
Measures the relationship between current assets and current liabilities with the help of data extracted from the balance sheet of the company
Assess the ability of business to meet its short-term obligation usually one year
Assess whether the business has sufficient cash and current assets to pay back its current liabilities
Types of Liquidity Ratio
Current Ratio, Quick Ratio, Cash Ratio
Current Ratio
It measures the ability of the business to meet its current liabilities by converting current assets into cash during the operating cycle of the firm to pay off the debt efficiently on time
Higher the current ratio, better is the firm’s position in managing its working capital
The standard current ratio showing an efficient liquidity is 2:1
Formula, Current Ratio = (𝐂𝐮𝐫𝐫𝐞𝐧𝐭 𝐀𝐬𝐬𝐞𝐭𝐬)/(𝐂𝐮𝐫𝐫𝐞𝐧𝐭 𝐋𝐢𝐚𝐛𝐢𝐥𝐢𝐭𝐢𝐞𝐬)
Quick Ratio
Quick ratio is also known as acid-test ratio
It takes into account only those current assets which are highly liquid so it excludes the inventory/stocks from current asset
Formula, Quick Ratio = (𝐂𝐮𝐫𝐫𝐞𝐧𝐭 𝐀𝐬𝐬𝐞𝐭𝐬 −𝐒𝐭𝐨𝐜𝐤𝐬 −𝐏𝐫𝐞𝐩𝐚𝐢𝐝 𝐄𝐱𝐩𝐞𝐧𝐬𝐞𝐬)/(𝐂𝐮𝐫𝐫𝐞𝐧𝐭 𝐋𝐢𝐚𝐛𝐢𝐥𝐢𝐭𝐢𝐞𝐬)
Quick assets = Current Assets – Stocks – Prepaid Expenses
A standard quick ratio is considered to be 1:1 which is safe for any business
Thus, quick ratio is an indicator of a company’s short-term liquidity position and measures ability of business to meet its short-term obligations with most liquid assets
Cash Ratio
Cash ratio is the most stringent measure of liquidity which takes into account only cash & cash equivalents to get the working capital efficiency of business
The metric calculates a company's ability to repay its short-term debt with readily-liquidated cash resources
Formula, Cash Ratio = (𝐂𝒂𝒔𝒉 & 𝑪𝒂𝒔𝒉 𝑬𝒒𝒖𝒊𝒗𝒂𝒍𝒆𝒏𝒕𝒔)/(𝐂𝐮𝐫𝐫𝐞𝐧𝐭 𝐋𝐢𝐚𝐛𝐢𝐥𝐢𝐭𝐢𝐞𝐬)
Cash equivalents are the assets that can speedily get converted into cash as and when required like cash on hand, demand deposits, money market instruments, savings accounts.
Thank you for Watching
Subscribe to Devtech Finance
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.
Risk and Return Analysis .ppt By Sumon SheikhSumon Sheikh
Risk and return analysis presentation with suitable examples. A perfect class-presentation file.
Prepared by Sumon Sheikh, BBA Student, majoring Accounting and Information Systems at Jatiya Kabi Kazi Nazrul Islam University, Trishal, Mymensingh-2224, Bangladesh.
Working capital represents a company's short-term liquidity and is used to finance day-to-day operations. The two main sources of working capital finance are trade credit and bank borrowing. Trade credit involves suppliers extending credit to customers, and is an important source of financing especially for small businesses. Banks provide working capital financing through various facilities like overdrafts, cash credits, bill discounting, and loans. Banks follow guidelines from committees like Tandon and Chore to regulate working capital lending and ensure prudent financing.
This document discusses various concepts related to investment returns and risk. It begins by defining return as income received plus capital gains. It then discusses the components of return including yield and capital gains. It provides a formula to calculate total return. The document then discusses various types of risk including market risk, liquidity risk, and foreign exchange risk. It also covers sensitivity analysis using range and standard deviation. Finally, it discusses portfolio returns and risks, and introduces the Capital Asset Pricing Model to relate expected returns to market risk.
Risk And Return In Financial Management PowerPoint Presentation SlidesSlideTeam
Analyze investment risk and profitability with this professionally designed Risk and Return in Financial Management PowerPoint Presentation Slides. The content ready portfolio risk-return trade-off PowerPoint compete deck comprises of PPT slides such as risk and return of stock bonds, and T-bills, investment strategies of predefined portfolios, risk and return of portfolio manager, measuring stock volatility proportionate, portfolio return analysis, calculating asset beta, portfolio value at risk, ranking the passive income streams impact to name a few. Explain the relationship between risk on investing in the financial market with potential return using portfolio risk analysis PPT slides. Utilize the visually appealing risk-reward relationship presentation design to structure your financial presentation. Furthermore, portfolio risk-return in security analysis PPT visuals are completely customizable. You can add or delete the content if needed. Download this visually appealing security analysis and portfolio management presentation deck to manage investment risk. Our Risk And Return In Financial Management PowerPoint Presentation Slides ensure you feel joyous. You will find the inspiration you desire.
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.
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.
This document discusses financial statement analysis. It provides an overview of key topics including the purpose of financial statement analysis, the primary tools used, important financial statements and ratios analyzed, sources of financial data, why analysis is needed, and who uses financial statement analysis information both internally and externally. Key ratios discussed include liquidity, leverage, profitability and turnover ratios. Limitations of financial statement analysis are also covered.
Ratio Analysis By- Ravi Thakur From CMD Ravi Thakur
Ratio analysis is a technique used to analyze financial statements and evaluate the performance, financial position, and cash flows of a business or corporation. Ratios can be used to compare a company's performance over several years, compare a company to other companies, and assess its operating and financial efficiency. Some key points covered in the document include:
- Ratio analysis involves calculating and interpreting various financial ratios to analyze trends, evaluate performance, assess risk, and make comparisons.
- Common types of ratios include liquidity ratios, leverage ratios, activity ratios, and profitability ratios.
- Ratio analysis helps lenders and others evaluate a company's liquidity position, profitability, solvency, financial stability, management quality, and risk.
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.
Ratio analysis is an important tool for financial analysis that allows assessment of key financial metrics like liquidity, profitability, solvency, and risk. It involves calculating and analyzing relationships between items and groups of items from financial statements. Common ratios used in ratio analysis include the current ratio, quick ratio, debt-equity ratio, and profitability ratios. Ratio analysis is useful for lenders in evaluating the financial position, performance, strengths, and weaknesses of a business. It provides insights into the liquidity, operational efficiency, and credit risk of companies.
This document provides information on ratio analysis including its definition, purpose, types of ratios, and how they are calculated and interpreted. Ratio analysis is a technique used to analyze financial statements and evaluate the performance, financial position, and viability of a business entity. It involves calculating various financial ratios using data from the income statement, balance sheet, and cash flow statement, and comparing them over time and against industry benchmarks to gain insight into the entity's profitability, liquidity, leverage, and operating efficiency. The document outlines various financial ratios that can be computed such as the current ratio, quick ratio, debt-to-equity ratio, and discusses how ratios are expressed and important considerations in their use and interpretation.
Ratio analysis is a tool used to analyze financial statements and determine a firm's liquidity, profitability, and financial stability. It involves calculating various ratios using data from the income statement and balance sheet, and comparing them over time and against industry benchmarks. The document discusses various types of ratios like liquidity, leverage, asset utilization, and market valuation ratios. It also provides the formulas to calculate important ratios like current ratio, debt-to-equity, return on equity, and earnings per share. The document is intended to explain the concept of ratio analysis and its importance for financial statement evaluation.
Ratio analysis is a method used to interpret financial statements and assess the strengths and weaknesses of a firm. Ratios measure the relationship between different financial metrics and can be used to compare performance over time, between firms, or against standards. Key types of ratios include liquidity, capital structure, profitability, and activity ratios which analyze different aspects of a firm's financial health and operations. Calculating ratios on its own does not provide value; analysis and comparison are required to draw meaningful conclusions.
Here are the key ratios calculated from the financial information provided:
1. Tangible Net Worth for 2005-06: Capital (300) + Reserves (140) - Goodwill (50) = 390
2. Current Ratio for 2006-07: Current Assets (170 + 30 + 170 + 20 + 240 + 190) / Current Liabilities (580 + 70 + 80 + 70) = 820/800 = 1.02
3. Debt Equity Ratio for 2005-06: Total Debt (Bank Term Loan 320 + Unsec. Long Term Loan 150) / Tangible Net Worth (390) = 470/390 = 1.2
Ratio analysis measures relationships between financial variables to show how a firm's situation compares to its past, other firms, and the industry. Ratios are used to identify performance, standardize information, provide early warnings, and enable trend spotting. Key types of ratios include liquidity, activity, debt, and profitability. Liquidity ratios measure a firm's ability to pay obligations and include current, quick, and cash ratios. Activity ratios evaluate efficiency through measures like inventory turnover, accounts receivable period, and asset turnover.
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 ...
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.
Ratio analysis is a technique used to analyze a company's financial statements. It involves calculating and comparing various financial ratios over time and against industry benchmarks to gain insight into the company's performance. The document outlines various types of ratios that can be calculated, including liquidity ratios, capital structure ratios, turnover ratios, and profitability ratios. It provides examples of specific ratios within each category, such as the current ratio, debt-to-equity ratio, inventory turnover ratio, and return on equity. The objective of ratio analysis is to help stakeholders evaluate a company's performance, strengths, weaknesses, and risks to inform decision making.
Financial statement analysis involves analyzing a company's balance sheets, income statements, and cash flow statements over multiple years. Key aspects of analysis include calculating financial ratios to evaluate the company's liquidity, profitability, leverage, capital structure, and efficiency. Common ratios calculated include current ratio, debt-to-equity ratio, profit margin, return on equity, inventory turnover, and debt service coverage ratio. Comparing ratios across time periods and to industry benchmarks provides insights into the company's financial health and performance.
This document discusses ratio analysis, which involves calculating and presenting relationships between financial statement items. Ratios are used to interpret financial statements and assess a firm's strengths/weaknesses, historical performance, and current financial condition. The document categorizes ratios into liquidity, capital structure/leverage, profitability, and activity ratios. It provides definitions and calculations for key ratios within each category such as current ratio, debt-to-equity ratio, net profit margin, inventory turnover ratio, and discusses how ratios can be used for analysis and comparison purposes.
Ratio analysis is a technique used to analyze and interpret financial statements. It involves calculating and comparing various financial ratios over time and between companies to gain insight into aspects like profitability, liquidity, leverage, and efficiency. Some key ratios discussed in the document include current ratio, quick ratio, debt ratio, return on equity, inventory turnover, and dividend coverage ratio. Ratio analysis provides a simplified and standardized way to analyze a company's financial health and performance.
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.
Financial Analysis tool containing all four types of ratios (liquidity ratio, capital structure or leverage ratio, turnover or activity ratio and profitability ratio)
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.
"Does Foreign Direct Investment Negatively Affect Preservation of Culture in the Global South? Case Studies in Thailand and Cambodia."
Do elements of globalization, such as Foreign Direct Investment (FDI), negatively affect the ability of countries in the Global South to preserve their culture? This research aims to answer this question by employing a cross-sectional comparative case study analysis utilizing methods of difference. Thailand and Cambodia are compared as they are in the same region and have a similar culture. The metric of difference between Thailand and Cambodia is their ability to preserve their culture. This ability is operationalized by their respective attitudes towards FDI; Thailand imposes stringent regulations and limitations on FDI while Cambodia does not hesitate to accept most FDI and imposes fewer limitations. The evidence from this study suggests that FDI from globally influential countries with high gross domestic products (GDPs) (e.g. China, U.S.) challenges the ability of countries with lower GDPs (e.g. Cambodia) to protect their culture. Furthermore, the ability, or lack thereof, of the receiving countries to protect their culture is amplified by the existence and implementation of restrictive FDI policies imposed by their governments.
My study abroad in Bali, Indonesia, inspired this research topic as I noticed how globalization is changing the culture of its people. I learned their language and way of life which helped me understand the beauty and importance of cultural preservation. I believe we could all benefit from learning new perspectives as they could help us ideate solutions to contemporary issues and empathize with others.
Vicinity Jobs’ data includes more than three million 2023 OJPs and thousands of skills. Most skills appear in less than 0.02% of job postings, so most postings rely on a small subset of commonly used terms, like teamwork.
Laura Adkins-Hackett, Economist, LMIC, and Sukriti Trehan, Data Scientist, LMIC, presented their research exploring trends in the skills listed in OJPs to develop a deeper understanding of in-demand skills. This research project uses pointwise mutual information and other methods to extract more information about common skills from the relationships between skills, occupations and regions.
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.
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.
Solution Manual For Financial Accounting, 8th Canadian Edition 2024, by Libby...Donc Test
Solution Manual For Financial Accounting, 8th Canadian Edition 2024, by Libby, Hodge, Verified Chapters 1 - 13, Complete Newest Version Solution Manual For Financial Accounting, 8th Canadian Edition by Libby, Hodge, Verified Chapters 1 - 13, Complete Newest Version Solution Manual For Financial Accounting 8th Canadian Edition Pdf Chapters Download Stuvia Solution Manual For Financial Accounting 8th Canadian Edition Ebook Download Stuvia Solution Manual For Financial Accounting 8th Canadian Edition Pdf Solution Manual For Financial Accounting 8th Canadian Edition Pdf Download Stuvia Financial Accounting 8th Canadian Edition Pdf Chapters Download Stuvia Financial Accounting 8th Canadian Edition Ebook Download Stuvia Financial Accounting 8th Canadian Edition Pdf Financial Accounting 8th Canadian Edition Pdf Download Stuvia
1. Elemental Economics - Introduction to mining.pdfNeal Brewster
After this first you should: Understand the nature of mining; have an awareness of the industry’s boundaries, corporate structure and size; appreciation the complex motivations and objectives of the industries’ various participants; know how mineral reserves are defined and estimated, and how they evolve over time.
5 Tips for Creating Standard Financial ReportsEasyReports
Well-crafted financial reports serve as vital tools for decision-making and transparency within an organization. By following the undermentioned tips, you can create standardized financial reports that effectively communicate your company's financial health and performance to stakeholders.
2. WHY FINANCIAL ANALYSIS
Lenders’ need it for carrying out the following
Technical Appraisal
Commercial Appraisal
Financial Appraisal
Economic Appraisal
Management Appraisal
3. RATIO ANALYSIS
It’s a tool which enables the banker or lender to
arrive at the following factors :
Liquidity position
Profitability
Solvency
Financial Stability
Quality of the Management
Safety & Security of the loans & advances to be
or already been provided
4. HOW A RATIO IS EXPRESSED?
As Percentage - such as 25% or 50% . For
example if net profit is Rs.25,000/- and the sales is
Rs.1,00,000/- then the net profit can be said to be
25% of the sales.
As Proportion - The above figures may be
expressed in terms of the relationship between net
profit to sales as 1 : 4.
As Pure Number /Times - The same can also be
expressed in an alternatively way such as the sale
is 4 times of the net profit or profit is 1/4th of the
sales.
5. CLASSIFICATION OF RATIOS
Balance Sheet
Ratio
P&L Ratio or
Income/Revenue
Statement Ratio
Balance Sheet
and Profit & Loss
Ratio
Financial Ratio Operating Ratio Composite Ratio
Current Ratio
Quick Asset Ratio
Proprietary Ratio
Debt Equity Ratio
Gross Profit Ratio
Operating Ratio
Expense Ratio
Net profit Ratio
Stock Turnover Ratio
Fixed Asset
Turnover Ratio,
Return on Total
Resources Ratio,
Return on Own
Funds Ratio,
Earning per Share
Ratio, Debtors’
Turnover Ratio,
6. FORMAT OF BALANCE SHEET FOR RATIO ANALYSIS
LIABILITIES ASSETS
NET WORTH/EQUITY/OWNED FUNDS
Share Capital/Partner’s Capital/Paid up
Capital/ Owners Funds
Reserves ( General, Capital, Revaluation &
Other Reserves)
Credit Balance in P&L A/c
FIXED ASSETS : LAND & BUILDING, PLANT
& MACHINERIES
Original Value Less Depreciation
Net Value or Book Value or Written down value
LONG TERM LIABILITIES/BORROWED
FUNDS : Term Loans (Banks & Institutions)
Debentures/Bonds, Unsecured Loans, Fixed
Deposits, Other Long Term Liabilities
NON CURRENT ASSETS
Investments in quoted shares & securities
Old stocks or old/disputed book debts
Long Term Security Deposits
Other Misc. assets which are not current or
fixed in nature
CURRENT LIABILTIES
Bank Working Capital Limits such as
CC/OD/Bills/Export Credit
Sundry /Trade Creditors/Creditors/Bills
Payable, Short duration loans or deposits
Expenses payable & provisions against various
items
CURRENT ASSETS : Cash & Bank Balance,
Marketable/quoted Govt. or other securities,
Book Debts/Sundry Debtors, Bills Receivables,
Stocks & inventory (RM,SIP,FG) Stores &
Spares, Advance Payment of Taxes, Prepaid
expenses, Loans and Advances recoverable
within 12 months
INTANGIBLE ASSETS
Patent, Goodwill, Debit balance in P&L A/c,
Preliminary or Preoperative expenses
7. SOME IMPORTANT NOTES
Liabilities have Credit balance and Assets have Debit
balance
Current Liabilities are those which have either become due
for payment or shall fall due for payment within 12 months
from the date of Balance Sheet
Current Assets are those which undergo change in their
shape/form within 12 months. These are also called
Working Capital or Gross Working Capital
Net Worth & Long Term Liabilities are also called Long
Term Sources of Funds
Current Liabilities are known as Short Term Sources of
Funds
Long Term Liabilities & Short Term Liabilities are also called
8. SOME IMPORTANT NOTES
Assets other than Current Assets are Long Term Use of Funds
Installments of Term Loan Payable in 12 months are to be taken
as Current Liability only for Calculation of Current Ratio & Quick
Ratio.
If there is profit it shall become part of Net Worth under the head
Reserves and if there is loss it will become part of Intangible
Assets
Investments in Govt. Securities to be treated current only if these
are marketable and due. Investments in other securities are to be
treated Current if they are quoted. Investments in
allied/associate/sister units or firms to be treated as Non-current.
Bonus Shares as issued by capitalization of General reserves
and as such do not affect the Net Worth. With Rights Issue,
change takes place in Net Worth and Current Ratio.
9. 1. Current Ratio : It is the relationship between the
current assets and current liabilities of a concern.
Current Ratio = Current Assets/Current Liabilities
If the Current Assets and Current Liabilities of a concern
are Rs.4,00,000 and Rs.2,00,000 respectively, then the
Current Ratio will be : Rs.4,00,000/Rs.2,00,000 = 2 : 1
The ideal Current Ratio preferred by Banks is
1.33 : 1
2. Net Working Capital : This is worked out as surplus of
Long Term Sources over Long Tern Uses, alternatively it
is the difference of Current Assets and Current
Liabilities.
NWC = Current Assets – Current Liabilities
10. 3. ACID TEST or QUICK RATIO : It is the ratio between Quick Current
Assets and Current Liabilities.
Quick Current Assets : Cash/Bank Balances + Receivables upto 6 months +
Quickly realizable securities such as Govt. Securities or quickly marketable/quoted
shares and Bank Fixed Deposits
Acid Test or Quick Ratio = Quick Current Assets/Current Liabilities
Example :
Cash 50,000
Debtors 1,00,000
Inventories 1,50,000 Current Liabilities 1,00,000
Total Current Assets 3,00,000
Current Ratio = > 3,00,000/1,00,000 = 3 : 1
Quick Ratio = > 1,50,000/1,00,000 = 1.5 : 1
11. 4. DEBT EQUITY RATIO : It is the relationship between
borrower’s fund (Debt) and Owner’s Capital (Equity).
Long Term Outside Liabilities / Tangible Net Worth
Liabilities of Long Term Nature
Total of Capital and Reserves & Surplus Less Intangible Assets
For instance, if the Firm is having the following :
Capital = Rs. 200 Lacs
Free Reserves & Surplus = Rs. 300 Lacs
Long Term Loans/Liabilities = Rs. 800 Lacs
Debt Equity Ratio will be => 800/500 i.e. 1.6 : 1
12. 5. PROPRIETARY RATIO : This ratio indicates the extent to which
Tangible Assets are financed by Owner’s Fund.
Proprietary Ratio = (Tangible Net Worth/Total Tangible
Assets) x 100
The ratio will be 100% when there is no Borrowing for purchasing
of Assets.
6. GROSS PROFIT RATIO : By comparing Gross Profit percentage to
Net Sales we can arrive at the Gross Profit Ratio which indicates the
manufacturing efficiency as well as the pricing policy of the concern.
Gross Profit Ratio = (Gross Profit / Net Sales ) x 100
Alternatively , since Gross Profit is equal to Sales minus Cost of
Goods Sold, it can also be interpreted as below :
Gross Profit Ratio = [ (Sales – Cost of goods sold)/ Net Sales]
x 100
A higher Gross Profit Ratio indicates efficiency in production of the unit.
13. 7. OPERATING PROFIT RATIO :
It is expressed as => (Operating Profit / Net Sales ) x 100
Higher the ratio indicates operational efficiency
8. NET PROFIT RATIO :
It is expressed as => ( Net Profit / Net Sales ) x 100
It measures overall profitability.
14. 9. STOCK/INVENTORY TURNOVER RATIO :
(Average Inventory/Sales) x 365 for days
(Average Inventory/Sales) x 52 for weeks
(Average Inventory/Sales) x 12 for months
Average Inventory or Stocks = (Opening Stock + Closing Stock)
-----------------------------------------
2
. This ratio indicates the number of times the inventory is
rotated during the relevant accounting period
15. 10. DEBTORS TURNOVER RATIO : This is also called Debtors
Velocity or Average Collection Period or Period of Credit given .
(Average Debtors/Sales ) x 365 for days
(52 for weeks & 12 for months)
11. ASSET TRUNOVER RATIO : Net Sales/Tangible Assets
12. FIXED ASSET TURNOVER RATIO : Net Sales /Fixed Assets
13. CURRENT ASSET TURNOVER RATIO : Net Sales / Current Assets
14. CREDITORS TURNOVER RATIO : This is also called Creditors
Velocity Ratio, which determines the creditor payment period.
(Average Creditors/Purchases)x365 for days
(52 for weeks & 12 for months)
16. 15. RETRUN ON ASSETS : Net Profit after Taxes/Total Assets
16. RETRUN ON CAPITAL EMPLOYED :
( Net Profit before Interest & Tax / Average Capital Employed) x 100
Average Capital Employed is the average of the equity share
capital and long term funds provided by the owners and the
creditors of the firm at the beginning and end of the accounting
period.
17. Composite Ratio
17. RETRUN ON EQUITY CAPITAL (ROE) :
Net Profit after Taxes / Tangible Net Worth
18. EARNING PER SHARE : EPS indicates the quantum of net profit
of the year that would be ranking for dividend for each share of
the company being held by the equity share holders.
Net profit after Taxes and Preference Dividend/ No. of Equity
Shares
19. PRICE EARNING RATIO : PE Ratio indicates the number of times
the Earning Per Share is covered by its market price.
Market Price Per Equity Share/Earning Per Share
18. 20. DEBT SERVICE COVERAGE RATIO : This ratio is one of the most
important one which indicates the ability of an enterprise to
meet its liabilities by way of payment of installments of Term
Loans and Interest thereon from out of the cash accruals and
forms the basis for fixation of the repayment schedule in
respect of the Term Loans raised for a project. (The Ideal DSCR
Ratio is considered to be 2 )
PAT + Depr. + Annual Interest on Long Term Loans & Liabilities
---------------------------------------------------------------------------------
Annual interest on Long Term Loans & Liabilities + Annual
Installments payable on Long Term Loans & Liabilities
( Where PAT is Profit after Tax and Depr. is Depreciation)
19. LIABILITES ASSETS
Capital 180 Net Fixed Assets 400
Reserves 20 Inventories 150
Term Loan 300 Cash 50
Bank C/C 200 Receivables 150
Trade Creditors 50 Goodwill 50
Provisions 50
800 800
EXERCISE 1
a. What is the Net Worth : Capital + Reserve = 200
b. Tangible Net Worth is : Net Worth - Goodwill = 150
c. Outside Liabilities : TL + CC + Creditors + Provisions = 600
d. Net Working Capital : C A - C L = 350 - 250 = 50
e. Current Ratio : C A / C L = 350 / 300 = 1.17 : 1
f. Quick Ratio : Quick Assets / C L = 200/300 = 0.66 : 1
20. EXERCISE 2
LIABILITIES 2005-06 2006-07 2005-06 2006-07
Capital 300 350 Net Fixed Assets 730 750
Reserves 140 160 Security Electricity 30 30
Bank Term Loan 320 280 Investments 110 110
Bank CC (Hyp) 490 580 Raw Materials 150 170
Unsec. Long T L 150 170 S I P 20 30
Creditors (RM) 120 70 Finished Goods 140 170
Bills Payable 40 80 Cash 30 20
Expenses Payable 20 30 Receivables 310 240
Provisions 20 40 Loans/Advances 30 190
Goodwill 50 50
Total 1600 1760 1600 1760
1. Tangible Net Worth for 1st Year : ( 300 + 140) - 50 = 390
2. Current Ratio for 2nd Year : (170 + 20 + 240 + 2+ 190 ) / (580+70+80+70)
820 /800 = 1.02
3. Debt Equity Ratio for 1st Year : 320+150 / 390 = 1.21
21. Exercise 3.
LIABIITIES ASSETS
Equity Capital 200 Net Fixed Assets 800
Preference Capital 100 Inventory 300
Term Loan 600 Receivables 150
Bank CC (Hyp) 400 Investment In Govt. Secu. 50
Sundry Creditors 100 Preliminary Expenses 100
Total 1400 1400
1. Debt Equity Ratio will be : 600 / (200+100) = 2 : 1
2. Tangible Net Worth : Only equity Capital i.e. = 200
3. Total Outside Liabilities / Total Tangible Net Worth : (600+400+100) / 200
= 11 : 2
4. Current Ratio will be : (300 + 150 + 50 ) / (400 + 100 ) = 1 : 1
22. LIABILITIES ASSETS
Capital + Reserves 355 Net Fixed Assets 265
P & L Credit Balance 7 Cash 1
Loan From S F C 100 Receivables 125
Bank Overdraft 38 Stocks 128
Creditors 26 Prepaid Expenses 1
Provision of Tax 9 Intangible Assets 30
Proposed Dividend 15
550 550
Q. What is the Current Ratio ? Ans : (125 +128+1+30) / (38+26+9+15)
: 255/88 = 2.89 : 1
Q What is the Quick Ratio ? Ans : (125+1)/ 88 = 1.43 : 11
Q. What is the Debt Equity Ratio ? Ans : LTL / Tangible NW
= 100 / ( 362 – 30)
= 100 / 332 = 0.30 : 1
Exercise 4.
23. LIABILITIES ASSETS
Capital + Reserves 355 Net Fixed Assets 265
P & L Credit Balance 7 Cash 1
Loan From S F C 100 Receivables 125
Bank Overdraft 38 Stocks 128
Creditors 26 Prepaid Expenses 1
Provision of Tax 9 Intangible Assets 30
Proposed Dividend 15
550 550
Q . What is the Proprietary Ratio ? Ans : (T NW / Tangible Assets) x 100
[ (362 - 30 ) / (550 – 30)] x 100
(332 / 520) x 100 = 64%
Q . What is the Net Working Capital ?
Ans : C. A - C L. = 255 - 88 = 167
Q . If Net Sales is Rs.15 Lac, then What would be the Stock Turnover
Ratio in Times ? Ans : Net Sales / Average Inventories/Stock
1500 / 128 = 12 times approximately
Exercise 4. contd…
24. LIABILITIES ASSETS
Capital + Reserves 355 Net Fixed Assets 265
P & L Credit Balance 7 Cash 1
Loan From S F C 100 Receivables 125
Bank Overdraft 38 Stocks 128
Creditors 26 Prepaid Expenses 1
Provision of Tax 9 Intangible Assets 30
Proposed Dividend 15
550 550
Q. What is the Debtors Velocity Ratio ? If the sales are Rs. 15 Lac.
Ans : ( Average Debtors / Net Sales) x 12 = (125 / 1500) x 12
= 1 month
Q. What is the Creditors Velocity Ratio if Purchases are Rs.10.5 Lac ?
Ans : (Average Creditors / Purchases ) x 12 = (26 / 1050) x 12 = 0.3 months
Exercise 4. contd…
25. Exercise 5. : Profit to sales is 2% and amount of profit is say
Rs.5 Lac. Then What is the amount of Sales ?
Answer : Net Profit Ratio = (Net Profit / Sales ) x 100
2 = (5 x100) /Sales
Therefore Sales = 500/2 = Rs.250 Lac
Exercise 6. A Company has Net Worth of Rs.5 Lac, Term
Liabilities of Rs.10 Lac. Fixed Assets worth RS.16 Lac and
Current Assets are Rs.25 Lac. There is no intangible Assets
or other Non Current Assets. Calculate its Net Working
Capital.
Answer
Total Assets = 16 + 25 = Rs. 41 Lac
Total Liabilities = NW + LTL + CL = 5 + 10+ CL = 41 Lac
Current Liabilities = 41 – 15 = 26 Lac
Therefore Net Working Capital = C. A – C.L
= 25 – 26 = (- )1 Lac
26. Exercise 7 : Current Ratio of a concern is 1 : 1. What will be the Net
Working Capital ?
Answer : It suggest that the Current Assets is equal to Current Liabilities
hence the NWC would be NIL
Exercise 8 : Suppose Current Ratio is 4 : 1. NWC is Rs.30,000/-. What
is the amount of Current Assets ?
Answer : 4 x - 1 x = 30,000
Therefore x = 10,000 i.e. Current Liabilities is Rs.10,000
Hence Current Assets would be 4x = 4 x 10,000 = Rs.40,000/-
Exercise 9. The amount of Term Loan installment is Rs.10000/ per
month, monthly average interest on TL is Rs.5000/-. If the amount
of Depreciation is Rs.30,000/- p.a. and PAT is Rs.2,70,000/-. What
would be the DSCR ?
DSCR = (PAT + Depr + Annual Intt.) / Annual Intt + Annual Installment
= (270000 + 30000 + 60000 ) / 60000 + 120000
= 360000 / 180000 = 2
27. Exercise 10 : Total Liabilities of a firm is Rs.100 Lac and Current Ratio
is 1.5 : 1. If Fixed Assets and Other Non Current Assets are to the tune
of Rs. 70 Lac and Debt Equity Ratio being 3 : 1. What would be the Long
Term Liabilities?
Ans : We can easily arrive at the amount of Current Asset being Rs. 30 Lac
i.e. ( Rs. 100 L - Rs. 70 L ). If the Current Ratio is 1.5 : 1, then Current
Liabilities works out to be Rs. 20 Lac. That means the aggregate of Net
Worth and Long Term Liabilities would be Rs. 80 Lacs. If the Debt Equity
Ratio is 3 : 1 then Debt works out to be Rs. 60 Lacs and equity Rs. 20 Lacs.
Therefore the Long Term Liabilities would be Rs.60 Lac.
Exercise 11 : Current Ratio is say 1.2 : 1 . Total of balance sheet being
Rs.22 Lac. The amount of Fixed Assets + Non Current Assets is Rs. 10
Lac. What would be the Current Liabilities?
Ans : When Total Assets is Rs.22 Lac then Current Assets would be 22 – 10
i.e Rs. 12 Lac. Thus we can easily arrive at the Current Liabilities figure
which should be Rs. 10 Lac
28. Questions on Fund Flow Statement
Q . Fund Flow Statement is prepared from the Balance sheet :
1. Of three balance sheets
2. Of a single year
3. Of two consecutive years
4. None of the above.
Q. Why this Fund Flow Statement is studied for ?
1. It indicates the quantum of finance required
2. It is the indicator of utilisation of Bank funds by the concern
3. It shows the money available for repayment of loan
4. It will indicate the provisions against various expenses
Q . In a Fund Flow Statement , the assets are represented by ?
1. Application of Funds
2. Sources of Funds
3. Surplus of sources over application
4. Deficit of sources over application
29. Q . In Fund Flow Statements the Liabilities are represented by ?
1. Sources of Funds
2. Use of Funds
3. Deficit of sources over application
4. All of the above.
Q . When the long term sources are more than long term uses, in the
fund flow statement, it would suggest ?
1. Increase in Current Liabilities
2. Decrease in Working Capital
3. Increase in NWC
4. Increase in NWC
Q . When the long term uses in a fund flow statement are more than the
long term sources, the n it would mean ?
1. Reduction in the NWC
2. Reduction in the Working Capital Gap
3. Reduction in Working Capital
4. All of the above
30. Q. How many broader categories are there for the Sources of funds, in
the Fund Flow Statement ?
1. Only One, Source of Funds
2. Two, Long Term and Short Term Sources
3. Three , Long, Medium and Short term sources
4. None of the above.
Q. Which of following item is not an application of funds in the