ratio analysis b.v.raghunandan
TRANSCRIPT
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Ratio Analysis
B.V.Raghunandan,SVS College,
Bantwal
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Definition
Ratio Analysis is a financial technique of measuring the strength and weakness of an organisation out of information available from financial reports specifically from the Balance Sheet and Income Statement
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Advantages
• Measuring the efficiency of organisations• Measuring the liquidity position of the companies• Measuring the capacity of companies to borrow
in the future• Understanding the overall financial position of
organisations• Estimating the solvency of the companies• Helping in forecasting
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Disadvantages
• Only quantitative tools• Manipulation of accounting figures• Too many analytical tools lead to varied interpretation• Based on past data• Same data may be interpreted in different ways• Vested interests• Measuring the changes in price levels• Accounting policies have the impact• Only symptoms and not cure
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Different Ratios
A] Liquidity Ratios
B] Solvency Ratios
C] Activity Ratios
D] Profitability Ratios
E] Shareholders’ Ratios
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A] Liquidity Ratio
• Current Ratio =
• Acid Test Ratio=
• Working Capital Turnover Ratio =
bilitiesCurrentLia
etsCurrentAss
bilityCurrentLia
gStockCloetsCurrentAss sin
italWorkingCap
Sales
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B] Solvency Ratios
1) Debt-Equity Ratio =
2) Capital Gearing Ratio =
3) Proprietary Ratio =
4) Interest Coverage Ratio =
Networth
btLongTermDe
Networth
esntSecuritiFixedPayme
100xsTotalAsset
Networth
LTDebtIntereston
EBIT
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C] Activity Ratio (Turnover Ratios)
1. Capital Turnover Ratio
2. Fixed Assets Turnover Ratio
3. Current Assets Turnover Ratio
4. Total Assets Turnover Ratio
5. Stock Turnover Ratio
6. Debtor Turnover Ratio
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Some of the Activity Ratios
1) Capital Turnover Ratio
=
where Capital Employed is long-term funds
loyedCapitalEmp
NetSales
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Activity Ratios..contd
2) Fixed Assets Turnover Ratio =
3) Current Assets Turnover Ratio=
4) Total Assets Turnover Ratio =
sFixedAsset
NetSales
etsCurrentAss
NetSales
sTotalAsset
NetSales
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Activity Ratio….contd
5) Stock Turnover Ratio =
6) Operating Ratio =
entoryAverageInv
sSoldCostofGood
100xNetSales
sSoldCostofGood
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D] Profitability Ratios
1) Gross Profit Ratio
2) Net Profit Ratio
3) Return on Total Assets
4) Return on Equity
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Formulae for Profitability Ratios
1) Gross Profit Ratio =
2) Net Profit Ratio =
100Pr
xNetSales
ofitGross
100Pr
xNetSales
ofitNet
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Formulae contd…..
3) Return on Total Assets =
4) Return on Equity =
100xsTotalAsset
EBIT
100'
xFundsrsShareholde
PAT
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E] Shareholders’ Ratios
1) EPS=
2) Price-Earning Ratio =
3) Dividend Yield Ratio=
4) Dividend Payout Ratio=
aresofEquityShNo
ofitSurplus
.
Pr
ShareEarningPer
ShareiceMarket /Pr
100/Pr
/x
ShareiceMarket
ShareDividend
100/
/x
ShareEarning
ShareDividend
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THANK YOU