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Tuesday, 29 May 2012

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Ratio Analysis

What is Ratio Analysis
Relationship between items or groups of items in the financial statement.-Financial ratios are one component of financial analysis. Some of the many ratios and some of the terminology are included here:

IBalance Sheet Ratios:
1. Current Ratio= Current Assets / Current Liabilities
Std 2:1
 2. Liquid Ratio = Quick Assets / Quick Liabilities
Std 1:1
3. Proprietary Ratio= Proprietor’s Fund* / Total Assets
Std Neither betoo high or too low*Equity + R.S + Pref+ Surplus - Miscellaneous
4.Stock working capital Ratio:= stock / Working capital
Std 1:1Higher ratio indicates weak working capital
5. Capital Gearing Ratio = Fixed income bearing securities /Non fixed income bearing securities
High geared
= fixed interest bearing securities are greater than equityshareholders fund
Low geared
= just opposite to the above
Std 1:4
6. Debt Equity Ratio = Long term debts / Shareholders Funds
Std 2:1
7. Fixed Assets Ratio = Fixed Assets / Long term funds
II. Revenue Statement Ratios:
8.Gross Profit Ratio = Gross Profit / Net Sales×100
9.Operating Ratio = Operating Cost / Net Sales
×100Manufacturing Concern – highOther firms’ -low
10.Expenses Ratio = Concerned Expense / Net Sales
11.Net Profit Ratio = Net profit / Net Sales
×10012.Net Operating Profit Ratio = Operating Profit / Net Sales×100
Operating profit = GP- all expenses including finance
13.Stock Turnover Ratio = Cost of Goods Sold/ Average Stock Std.: Seasonable based on nature of production
III Combined/ Composite Ratios:
14. Return on Capital Employed = NPBIT / Capital Employed×100-indicate the management efficiency-productivity of capital utilized-overall efficiency.
15. Return on Proprietors Funds = NPAT / Proprietors Funds
16.Return on Equity Share capital = NPAT-Pref.Dividend / Equity share capital
17.Earnings per share = NPAT- Pref. Dividend / No of Equity Shares

18.Dividend / Payout Ratio = Divi. Per Equity share / EPS

19.Divi. Yield Ratio = Divi. Per share / Mkt price per share

20.Price –Earning Ratio = Mkt. Price Per Share / EPS

21.Debt Service Ratio = NPBIT / Interest
( Interest coverage Ratio)
22.Creditors Turnover Ratio = Credit Purchase /Average Accounts Payable
C.P.Period = days/ months in a year / CTR 
23.Debtors Turnover Ratio = Credit Sales / Average Accounts Receivable
D.C.Period = days/ months in a year / DTR 
24.Fixed Assets Turnover Ratio = Sales / Fixed Assets

25.Total Assets Turnover Ratio = Sales / Total Assets

26.Working Capital Turnover Ratio = Sales / Working Capital
27.Capital Turnover Ratio = Sales/ Capital employed


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