logging in or signing up RATIO ANALYSIS final chhabraankit1 Download Post to : URL : Related Presentations : Share Add to Flag Embed Email Send to Blogs and Networks Add to Channel Uploaded from authorPOINT lite Insert YouTube videos in PowerPont slides with aS Desktop Copy embed code: Embed: Flash iPad Copy Does not support media & animations WordPress Embed Customize Embed URL: Copy Thumbnail: Copy The presentation is successfully added In Your Favorites. Views: 8427 Category: Education License: All Rights Reserved Like it (0) Dislike it (4) Added: January 13, 2009 This Presentation is Public Favorites: 6 Presentation Description No description available. Comments Posting comment... By: nasirjalal (31 month(s) ago) nice Saving..... Post Reply Close Saving..... Edit Comment Close By: vikas009 (42 month(s) ago) plz allow to download these presentation Saving..... Post Reply Close Saving..... Edit Comment Close By: SIDDHARTH_BEAM (44 month(s) ago) plz allow me 2 download this presentation Saving..... Post Reply Close Saving..... Edit Comment Close By: SIDDHARTH_BEAM (44 month(s) ago) plz allow me 2 download Saving..... Post Reply Close Saving..... Edit Comment Close Premium member Presentation Transcript What is a ratio? : What is a ratio? A ratio:- It is the mathematical relationship between two quantities in the form of a fraction or percentage. A ratio on its own has little or no meaning at all. Significance of using ratios: : Significance of using ratios: It is compared with other ratios in the same set of financial statements. It is compared with the same ratio in previous financial statements (trend analysis). It is compared with a standard of performance (industry average). WHAT IS RATIO ANALYSIS? : WHAT IS RATIO ANALYSIS? DEFINITION:- It refers to an analysis of the relationships of items in financial statements & thereby an investigation into the financial performance of an entity using a series of ratios. Classification of ratios:- : Classification of ratios:- Generally ratios are divided into four areas which provide different kinds of information:- Leverage Ratios Liquidity Ratios Profitability Ratios 4. Other ratios LIQUIDITY RATIOS : LIQUIDITY RATIOS MEANING:- It measures the ability of a firm to meet its short term obligations & reflects the short term financial solvency of firm. Classification:- Current ratio Acid-test ratio LIQUIDITY RATIOS : LIQUIDITY RATIOS Current ratio:- It is the ratio of total current assets to total current liabilities. Formula:- current assets current liabilities Current ratio = LIQUIDITY RATIOS : LIQUIDITY RATIOS Acid-test ratio:- It measures the firm’s ability to convert its current assets quickly into cash in order to meet its current liabilities. Hence also known as Quick ratio. Formula: Quick assets current liabilities Acid-test ratio = Leverage ratios : Leverage ratios Meaning:- It is defined as financial ratio which throws light on long term solvency of a firm with regards to the following two aspects:- ability to repay the principal & regular payment of interest Leverage ratios : Leverage ratios Classification:- Debt-equity ratio Capital gearing ratio Interest coverage ratio Debt service coverage ratio Leverage ratios : Leverage ratios Debt-equity ratio:- It indicates the relationship between borrowed funds and owners capital. Formula:- Total debt Shareholders equity D/E ratio = Leverage ratios : Leverage ratios Capital gearing ratio:- It indicates the relationship between equity funds and fixed income bearing funds. Formula:- Equity funds Fixed income bearing funds CGR = Leverage ratios : Leverage ratios Interest coverage ratio:- It measures the debt servicing capacity of the firm. It is determined by dividing the EBIT by the fixed interest charges. Formula:- EBIT Interest Interest coverage ratio = Leverage ratios : Leverage ratios Debt service coverage ratio:- It computes the debt service capacity of a business firm. In general 2:1 is considered as satisfactory ratio. Formula:- EAT+Interest+Depreciation+OA Installment DSCR = Profitability ratios : Profitability ratios Meaning:- These ratios tell us whether a business is making profits - and if so whether at an acceptable rate. It uses margin analysis and show the return on sales and capital employed. Profitability ratios : Profitability ratios Classification:- The key profitability ratios are: Gross profit ratio Operating profit ratio Return on Capital employed ratio Profitability ratios : Profitability ratios Operating profit ratio:- It refers to a company's ability to control its other operating costs or overheads. Formula:- EBIT Net Sales Operating profit ratio = Profitability ratios : Profitability ratios Gross profit ratio:- It refers to ability of the business to consistently control its production costs or to manage the margins its makes on products its buys and sells. Formula:- Gross Profit Sales Gross profit margin = Profitability ratios : Profitability ratios Return on capital employed:- It measures the profits related to return on capital employed. The term capital employed refers to long term funds supplied by lenders and owners of the firm. Formula:- EBIT Average total capital employed ROCE = Other Ratios : Other Ratios Earning per share:- It measures the profit available to the equity shareholders on a share. It is calculated by dividing the profits available to the equity shareholders by the number of outstanding shares. Formula:- Net profit available to equity-holders Number of ordinary shares outstanding EPS = Other Ratios : Other Ratios Price-earnings ratio:- It measures investors’ expectations and the market appraisal of the performance of a firm. Formula:- Market price of share EPS P/E ratio = THANK YOU : THANK YOU You do not have the permission to view this presentation. In order to view it, please contact the author of the presentation.
RATIO ANALYSIS final chhabraankit1 Download Post to : URL : Related Presentations : Share Add to Flag Embed Email Send to Blogs and Networks Add to Channel Uploaded from authorPOINT lite Insert YouTube videos in PowerPont slides with aS Desktop Copy embed code: Embed: Flash iPad Copy Does not support media & animations WordPress Embed Customize Embed URL: Copy Thumbnail: Copy The presentation is successfully added In Your Favorites. Views: 8427 Category: Education License: All Rights Reserved Like it (0) Dislike it (4) Added: January 13, 2009 This Presentation is Public Favorites: 6 Presentation Description No description available. Comments Posting comment... By: nasirjalal (31 month(s) ago) nice Saving..... Post Reply Close Saving..... Edit Comment Close By: vikas009 (42 month(s) ago) plz allow to download these presentation Saving..... Post Reply Close Saving..... Edit Comment Close By: SIDDHARTH_BEAM (44 month(s) ago) plz allow me 2 download this presentation Saving..... Post Reply Close Saving..... Edit Comment Close By: SIDDHARTH_BEAM (44 month(s) ago) plz allow me 2 download Saving..... Post Reply Close Saving..... Edit Comment Close Premium member Presentation Transcript What is a ratio? : What is a ratio? A ratio:- It is the mathematical relationship between two quantities in the form of a fraction or percentage. A ratio on its own has little or no meaning at all. Significance of using ratios: : Significance of using ratios: It is compared with other ratios in the same set of financial statements. It is compared with the same ratio in previous financial statements (trend analysis). It is compared with a standard of performance (industry average). WHAT IS RATIO ANALYSIS? : WHAT IS RATIO ANALYSIS? DEFINITION:- It refers to an analysis of the relationships of items in financial statements & thereby an investigation into the financial performance of an entity using a series of ratios. Classification of ratios:- : Classification of ratios:- Generally ratios are divided into four areas which provide different kinds of information:- Leverage Ratios Liquidity Ratios Profitability Ratios 4. Other ratios LIQUIDITY RATIOS : LIQUIDITY RATIOS MEANING:- It measures the ability of a firm to meet its short term obligations & reflects the short term financial solvency of firm. Classification:- Current ratio Acid-test ratio LIQUIDITY RATIOS : LIQUIDITY RATIOS Current ratio:- It is the ratio of total current assets to total current liabilities. Formula:- current assets current liabilities Current ratio = LIQUIDITY RATIOS : LIQUIDITY RATIOS Acid-test ratio:- It measures the firm’s ability to convert its current assets quickly into cash in order to meet its current liabilities. Hence also known as Quick ratio. Formula: Quick assets current liabilities Acid-test ratio = Leverage ratios : Leverage ratios Meaning:- It is defined as financial ratio which throws light on long term solvency of a firm with regards to the following two aspects:- ability to repay the principal & regular payment of interest Leverage ratios : Leverage ratios Classification:- Debt-equity ratio Capital gearing ratio Interest coverage ratio Debt service coverage ratio Leverage ratios : Leverage ratios Debt-equity ratio:- It indicates the relationship between borrowed funds and owners capital. Formula:- Total debt Shareholders equity D/E ratio = Leverage ratios : Leverage ratios Capital gearing ratio:- It indicates the relationship between equity funds and fixed income bearing funds. Formula:- Equity funds Fixed income bearing funds CGR = Leverage ratios : Leverage ratios Interest coverage ratio:- It measures the debt servicing capacity of the firm. It is determined by dividing the EBIT by the fixed interest charges. Formula:- EBIT Interest Interest coverage ratio = Leverage ratios : Leverage ratios Debt service coverage ratio:- It computes the debt service capacity of a business firm. In general 2:1 is considered as satisfactory ratio. Formula:- EAT+Interest+Depreciation+OA Installment DSCR = Profitability ratios : Profitability ratios Meaning:- These ratios tell us whether a business is making profits - and if so whether at an acceptable rate. It uses margin analysis and show the return on sales and capital employed. Profitability ratios : Profitability ratios Classification:- The key profitability ratios are: Gross profit ratio Operating profit ratio Return on Capital employed ratio Profitability ratios : Profitability ratios Operating profit ratio:- It refers to a company's ability to control its other operating costs or overheads. Formula:- EBIT Net Sales Operating profit ratio = Profitability ratios : Profitability ratios Gross profit ratio:- It refers to ability of the business to consistently control its production costs or to manage the margins its makes on products its buys and sells. Formula:- Gross Profit Sales Gross profit margin = Profitability ratios : Profitability ratios Return on capital employed:- It measures the profits related to return on capital employed. The term capital employed refers to long term funds supplied by lenders and owners of the firm. Formula:- EBIT Average total capital employed ROCE = Other Ratios : Other Ratios Earning per share:- It measures the profit available to the equity shareholders on a share. It is calculated by dividing the profits available to the equity shareholders by the number of outstanding shares. Formula:- Net profit available to equity-holders Number of ordinary shares outstanding EPS = Other Ratios : Other Ratios Price-earnings ratio:- It measures investors’ expectations and the market appraisal of the performance of a firm. Formula:- Market price of share EPS P/E ratio = THANK YOU : THANK YOU