financial analysis of raio anaylsis 1

8/4/2019 Financial Analysis of Raio Anaylsis 1

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i) Ratio Analysis:

TYPES OF RATIO ANALYSIS

Liquidity Ratios

Leverage Ratios

Activity Ratios

Profitability Ratios

Market Values

a)

Liquidity Ratios:Liquidity ratios measure a firms ability to meet its

current obligations. Liquidity ratios include:

1) Current Ratio = Current Assets/ Current Liabilities

2) Acid Test Ratio = (Current Assets Inventory)/Current Liabilities

3) Working Capital = Current assets Current Liabilities

4) Sales to Working Capital = Net Sales / Net Working Capital

b)

Leverage Ratios:Leverage ratios measure the degree of protection of suppliers of long-term

funds. Leverage ratios include:

1) Time interest earned = Earning before Tax / Interest Expense

2) Fixed Charge Coverage = (Net Income before Interest and Taxes +

interest + fixed costs) / fixed costs.


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3) Debt Ratio = Total Assets / Total Liabilities

4) Debt / Equity Ratio = Owners Equity/Total Assets

5) Debt to Tangible Net Worth Ratio = Total Debt / Tangible Net Worth

Here Tangible net worth is = (Owner equity Intangible assets)Or

Tangible Net Worth = (Total assets Liabilities Intangible Assets)

6) Current worth / Net worth Ratio:

(Current assets Current Liabilities) = Current Worth

(Total assets Total liabilities) = Net Worth

Current worth / Net worth Ratio = Current Worth / Net Worth

7) Total Capitalization Ratio = Long-Term Debt / (Long-Term Debt +

Owners' Equity)

8)Fixed assets Ratio / Equity Ratio

Here I first find Fixed Assets Ratio:

Fixed Assets Ratio = Fixed Assets / Total Long Term Fund

Here Total Long Term Fund is = (Total Long Term Debt + Owner Equity)


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Equity Ratio = Owners Equity/Total Assets

Now I able to find Fixed Assets Ratio / Equity Ratio

9) Long Term Assets versus Long Term Debt = Long Term Assets / Long

Term Debt

c)

Profitability Ratios:Profitability ratios measure the earning ability of a firm.

These include:

1) Net Profit Margin= Net profit after tax / sales * 100

2) Return on assets = Net Income / Total Assets

3) Du Pont Return on Assets = (Net Income / Sales) * (Sales / assets) *

(Assets / Equity)

4) Operating Income Margin=Operating Income / Sales * 100

5) Operating Assets Turnover = sales / Operating Assets

6) Return on Operating Assets = Earning before Interest and Tax / Operating

Assets

7) Sales to Fixed Assets = Sales / Fixed Assets

8) Return on investment= net profits before tax / shareholders equity

9) Return on Total Equity = Net Income /Shareholder Equity


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10) Gross Profit Ratio = Gross Profit / Sales * 100

d)d)

Activity RatiosActivity RatiosActivity ratios measure a firm's ability to convert different accounts within

their balance sheets into cash or sales. These include:

Accounts Receivable Turnover = annual net credit sales / average accounts

receivable

Average Collection Period = working days in a year / Account receivableturnover

Inventory Turnover = cost of good sold / Average account receivable

Average Age of Inventory = working days in a year / Inventory turnover

Total Assets Turnover = sales / total assets

Fixed Assets Turnover= Earning before Interest and Tax / Fixed Assets

e)

Market Ratios:Market ratios are commonly used by the investors to assess the

performance of a business as an investment and also the cost of issuing stock. These

include: Dividend per share = (dividend on ordinary shares) / (Number of shares

issued) * 100

Earning per Share = (Net profit after tax / number of shares issued) * 100


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Price/Earning Ratio = market value (share price) per share / earning per

share

Percentage of Earnings Retained = EPS - DIV1 where EPS are earnings

per share and DIV1 is the dividend.

Dividend Payout = dividends per share / earning per share

Dividend Yield = (dividends per share / market price per share)*100

OrDividend yield = dividend per share / share price

Book Value per Share = shareholders equity / Number of shares issued

f)

Statements of Cash FlowCash flow ratios indicate liquidity, borrowing capacity and

profitability. These include:

1) Operating Cash Flow/Current Maturities of Long Term Debt and Current

Notes Payable = Operating Cash Flow / (Current Maturities of Long Term

Debt and Current Notes Payable)

2) Operating Cash Flow/Total Debt = Operating Cash Flow / Total Debt

3) Operating Cash Flow per Share = operating cash flow preferred

dividends / Common Share out standing

4) Operating Cash Flow/Cash Dividends = Operating Cash Flow / Cash

Dividends

financial analysis of raio anaylsis 1

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