ratio analysis
Post on 06-May-2015
1.213 Views
Preview:
TRANSCRIPT
What is Ratio Analysis
Accounting RatiosAccounting Ratios are the relationship between two amounts or two group of amounts given in financial statements(Income statement/Profit & Loss A/c & Position Statements/Balance Sheet) . It is a process of simplify the complex amounts it is helpful to understand the quantitative and qualitative relations of items shown in financial statements. It is a significant tool of managerial and financial analysis and decision making .It is also helpful in forecasting of growth of profits and wealth .
In order to compute a meaningful ratios, there must be a significant relation between the two figures . A ratio focuses attention on a relation which is significant, but a full interpretation of the ratio usually requires further investigation of the underlying data. Ratios are an aid to analysis and interpretation, they are not a substitute for sound thinking.
TYPES OF RATIOS/ CLASSIFICATION OF RATIOS
Liquidity Ratios1.Current Ratio 2. Liquid Ratio/Quick Ratio/Acid Test Ratio
Profitability Ratio1. Gross profit Ratio2.Net Profit Ratio3.Return on Equity4.Return on Capital Employed/Total Investment5.Return on Total Assets
Turnover Ratios
1.inventry/Stock turnover ratio2.Fixed Asset turnover ratio3.Current Asset Turnover Ratio4.Working Assets Turnover Ratio Stability Ratios/Capital Ratios
1.Debt Equity ratio2.Fixed Asset to Capital ratio
On the basis of P/L A/C Or Income Statement
1. Gross Profit Ratio Gross Profit × 100
Net sales (credit sale+cash)
2.
Net Profit Ratio Net profit ×100 Net sales
3. Operating ratio Cost of goods sold + Op. exp. × 100 Net sales
4.
Expenses Ratio Particular expenses × 100 Net sales
5. Stock or Inventory turnover Ratio
Net sales Or Cost of goods sold Average Inventory Average stock = Opening +closing 2
6. Operating expenses ratio Operating expenses ×100 Net sales
7. Operating profit ratio Operating Profit×100 Net sales Operating profit = Gross Profit –operating expenses
8. Interest coverage ratio PBIT (Profit before interest and terms) Interest on long term debts
1. Current Ratio Current Asset (2:1) Current liability
2. Quick or Liquid Ratio Quick or Liquid Assets (1:1) Quick Liabilities Quick assets = Current – ( Closing Stock + Prepaid ) Quick liabilities = Current liabilities – Bank overdraft
3. Proprietary Ratio (Net worth to total asset ratio )
Equity or share holder fund Total Assets or total equities Share holders fund = Eq. share capital + Reserve fund +reserve for dividend
4. Fixed Asset Ratio ( Fixed Asset to net worth )
Fixed Assets Net worth or long term loans
5. Capital gearing ratio
Shareholders fund (Total debts capital = Debentures + Total debts capital preference share capital)
Share holder fund = Equity share capital+ Reserve fund +
Reserve for dividend 6. Debt equity
ratio Long term debt or External equity Share holder eq. or fund Internal Equity
7. Solvency Ratio Total assets (1:1) Total liability
top related