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!!
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