managerial accounting and control ppt

8/10/2019 Managerial Accounting and Control Ppt

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TRANSPORTATION

Managerial Accounting

& Control IISubmitted By- Gurjeev Nanda

Radha Rani

Udit Chauhan

Ahmita Sehgal

Ritu Satwal


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RETURN ON ASSETS

It helps in finding out how the company uses its assets/investmentsefficiently .

It measures the profitability of the firm in terms of assets/investmentsemployed .

Generally more the assets/investments more is the profit .

RETURN ON ASSETS = PROFIT AFTER TAX(PAT) 100

AVERAGE TOTAL ASSETS


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Company O and P both are of transportation firms andhave return on assets ratio of 3 and 4 respectively .

As they are of same industry we assume that the assetsemployed by both of them are equal.

Company P has high ratio , therefore it is utilizing the assetsmore efficiently then company O and is giving more profitsas compared to company O .

Pat for company o is 6.9% and company p is 2.3% . Thismeans company p is better than o .

Comparison


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RETURN ON EQUITY

This ratio is primarily done for owners point of view. Asthey invest in the firm and should know about the profitthat the firm is making as profit belongs to them.

This ratio analyses profit available for equity share holdersin respect to investment made by them .

It tells how well the funds of equity share holders have

been used .

Return on equity ratio = PATPreference Dividend

Equity Shareholders Fund


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Company O and P return on equity

ratio are 7 and 11 respectively

It tells us that company P is able to give

more satisfactory return to its owner

than company o .

Comparison


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COMPANY OCURRENT RATIO

CURRENT RATIO=TOTAL CURRENT

ASSETS/TOTAL CURRENT LIABILITIES

TOTAL CURRENT ASSETS =CASH AND

EQUIVALENTS+RECIEVABLES+INVENTORY+OTHE

R CURRENT ASSETS

=1.8%+6.5+1.5+0.9=10.7%


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TOTAL CURRENT LIABILITY=ACCOUNTS PAYABLE+OTHER CURRENT

LIABILITIES=12.0%+1.4=13.4

CURRENT RATIO=TOATAL CURRENT ASSEST /TOTAL CURRENTLIABILITIES

=10.7/13.4 X 100=80%

QUICK RATIO

=QUICK ASSETS/CURRENT LIABILITIES=TOTAL CURRENT ASSETSINVENTORY=10.71.5=9.2%QUICK RATIO=9.2/13.4=6.2


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CURRENT RATIOCURRENT RATIO=TOTAL CURRENT ASSETS /TOTAL CURRENT LIABILITIES

TOTAL CURRENT ASSETS =CASH ANDEQUIVALENTS+RECIEVABLES+INVENTORY+OTHER CURRENT ASSETS=0.9%+18.7+3.9+1.3=24.8%

COMPANY P


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TOTAL CURRENT LIABILITY=ACCOUNTS PAYABLE+OTHER CURRENTLIABILITIES

=5.1%+21=26.1%

CURRENT RATIO=TOATAL CURRENT ASSEST /TOTAL CURRENTLIABILITIES

=24.8/26.1 X 100=95%

QUICK RATIO=QUICK ASSETS/CURRENT LIABILITIES

=TOTAL CURRENT ASSETSINVENTORY=24.8-3.9=20.9%QUICK RATIO=20.9/26.1=0.8%


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INTERPRETATIONS

CURRENT RATIO IS AN INDICATOR OF THE FIRMS COMMITMENTTO MEET ITS SHORT TERM LIABILITIES WHERAS QUICK RATIO IS ANINDICATOR OF SHORT TERM SOLVANCY OF THE COMPANY

IDEAL CURRENT RATIO IS 2 WHERAS QUICK RATIO IS 1

CURRENT RATIO OF COMPANY O IS 0.80 WHILE COMPANY P IS.95

SINCE LIABILITIES ARE MORE AND ASSETS ARE LESS THEREFORE ITIS NOT GOOD FOR COMPANY

IT IS NOT GOOD FOR COMPANY O TO INVEST IN QUICK ASSESTSAS ITS QUICK RATIO IS 6.2 WHILE IDEAL RATIO SHOULD BE 1


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Receivables Turnover

RatioThis ratio measures how fast thestock is moving through the firm

and generating sales.

This ratio is collected in times.


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InterpretationHigher the ratio, the more efficient

the management of inventories and

vice versa.Here the ratio of company O is 7.08

and that of company P is 10.18

The ratio of company P is higher so itis more efficient in managing its

inventories rather than company O


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Inventory Turnover Ratio

This ratio indicates economy

and efficiency in thecollection of amount due

from debtors.

This ratio is donated in times.


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Interpretation

Higher the ratio, better it is since it

indicates that debtors debts are

being collected more quicklyHere, the ratio of company O is 30.97

and that of company P is 49.22

As the ratio of company P is higherwhich implies that company P is

more efficient in collecting from the

debtors.


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Long term debt equity ratio

This ratio ascertains the soundness ofthe long term financial position of the

firm This ratio expresses relationship

between debt (long term loans) andequity (shareholders funds)

Debt equity ratio = total long termdebt/shareholders fund


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Case study

Debt equity ratio of Ocompany =

total long term debts /shareholders fund

=14.5/44.3=0.33 or 33%

Debt equity ratio of p company = total long

term debts / shareholders fund

=13.7/42.5=0.32 or 32%


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Company O has comparativelyhigher debt portion relative to theequity than the other company P.

It might not normal to thecompany and might put thecompany risk but indicate highleverage.

Higher the ratio higher the riskyfinancial position and lower theratio safer the financial position.


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Dividend payout ratio

The Dividend payout(DP) ratio is the

ratio between the dividend per

share(DPS)and the earning per

share(EPS)of the firm

It refers to the proportion of the EPS

which has been distributed by the

company as dividends.

DP ratio= dividend per share/ earnings

per share


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Interpretation

Dividend payout ratio of company O is 46%and the dividend payout ratio of company Pis 42%.

Company O has higher dividend payout ratio

as compare to company P.

A reduction in dividends paid is looked poorlyupon by investors, and the stock price usuallydepreciates as investors seek other dividend-

paying stocks. A stable dividend payout ratio indicates a

solid dividend policy by the company's boardof directors


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Price Earning Ratio Establishes the relationship between the market price of the

share and earning per share.

It is expressed in Times, which indicates, how many times is themarket price of share to its earnings.

Computation: Price Earning Ratio = Market price per share/Earning per share.

This ratio is helpful in governing the market price of the share.

Market price per share = Price earning ratio X Earning per share.

This is the most widely used ratio in the stock exchange by theinvertors.

A high this ratio indicates the faith of investors in the stability andappreciation of company earnings.


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Interpretation

Company O Company P

P/E Ratio 20.9 23.3

The P/E Ratio of company O is less than that ofcompany P which shows that the investors have more

faith in investing in Company P as compared tocompany O.

Also the company P by giving more faith to theinvestors giving less risk investment whichautomatically leads to low returns.

Because higher the risk, higher the return or vice-versa.

On the other hand though company O is not givingless risky investment but it is giving more returns to the

investors than the company P.


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Market/Book Value Ratio

A ratio used to find the value of a company by comparingthe book value of a firm to its market value.

Book value is calculated by looking at the firm's historicalcost, or accounting value.

Market value is determined in the stock market through itsmarket capitalization (Market capitalization is the aggregatevaluation of the company based on its current share priceand the total number of outstanding stocks).

Establishes the relationship between the market price and

the book value of the share. It is also expressed in Times, which indicates, how many

times is market price of the share to its book value.

Computation: Market price per share/Book value per share

Also known as price-to-book ratio.

i


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Comparison

In this case Company Ps ratio is more

than that of company O.

A higher P/B ratio implies

that investors expectmanagement to

create more value from a given set ofassets, all else equal,

and/or that the market value of the firm'sassets is significantly higher than their

accounting value.

Company O Company PMarket to book value ratio 1.52 2.42


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THANK YOU!!

managerial accounting and control ppt

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