Acounting power point to eassy
ProjectManager
project_manager_slides.pptxThe Financial Analysis
Profitability Ratios
Liquidity Ratios
Activity Ratios
Financial leverage ratios
Share holders ratio
Return on Investment ratios
Horizontal / Vertical Analysis
Financial Statements
Profitability Ratios
Gross Profit ratio
Net Profit Ratio
Profitability Ratios
These ratios are computed from Income Statement.
Gross Profit = Gross Profit / Net Sales
Net Profit ratio = Net Profit / Net Sales
Net profit ratio is 19.16%, which should be compared with industry average for proper analysis.
Gross profit ratio is calculated in trading business only. In service industry like school, college, transport companies, only Net profit ratio is computed.
Liquidity Ratios
Operating Cycle
Number of days Inventory
Number of days receivable
Number of days payable
Current Ratio
Quick ratio
Net working capital ratio
Liquidity Ratios
Liquidity ratios are computed to assess the liquid financial position of the business. It is very much necessary for the business to have sufficient cash or cash equivalents to pay current liabilities.
Liquid ratios are computed from the Balance sheet and normally compared with the same ratio of the previous year or industry average.
Current Ratio is 5.03 and quick ratio is 4.23, indicates a strong position of the business in liquidity.
Activity Ratios
Inventory turnover ratio
Accounts receivable turnover
Total assets turnover
Fixed Assets turnover
Activity Ratios
These ratios are used to measure the efficient use of assets.
Inventory turnover ratio indicate the ratio of cost of goods sold to inventory. The higher the ratio, indicate the efficient management of the inventory. The inventory turnover ratio is 0.3111, and it is too high.
Accounts receivable turnover indicates the efficiency of management in collection of outstanding.
Assets turnover and Fixed Assets turnover ratios indicates the efficiency in using assets to generate sales.
Financial Leverage ratios
Total debt to assets ratio
Long term debt to assets ratio
Debt to equity ratio
Financial Leverage ratios
Financial leverage ratios indicate the dependence of business on borrowed funds. Business needs to borrow funds, but too much dependence on borrowed funds in injurious to the financial health of the business.
Total debt to assets ratio indicates the proportion of assets that are financed by borrowed funds. The ratio is 40.14%, which indicates the efficient management of the business.
Long term debt to assets indicates the proportion of assets financed with long-term debt. The ratio is 23%, and it is within the industry average.
Shareholder’s ratios
Earnings per share
Price earning ratio
Dividend per share
Dividend payout ratio
Dividend Yield
Shareholder’s ratios
Shareholder’s ratio are very important for the owner’s (Stockholders) of the business. They invest their money to get a good return on their investments. Hence the growth in these ratios are always viewed as a motivation for the stockholders.
Earnings per share, Dividend per share, dividend yield and payout ratios are computed from the Income statement and Balance sheet. The increase in these ratio will increase the market price of the share.
Shareholder’s ratios
Price earning ratio is the ratio of the Market price per share to Earnings per Share. The earnings per share is computed from Income statement. It gives an idea of increase / decrease in market price with the increase / decrease in Earnings per share.
Book value per share - This is also important for the shareholders as increase in book value per share will provide strength to increase in market price of the share.
The Financial Analysis
The other analysis of financial statements are carried out by
Horizontal Analysis
Vertical Analysis
The Financial Analysis
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