UNIT - VIII

FINANCIAL ANALYSIS THROUGH RATIOS

Introduction to Ratio A Ratio is only a comparison of the numerator with the denominator. The term ratio refers to the numerical or quantitative relationship b/w two figures. A ratio is relationship b/w two figures and obtained by dividing the former by the latter.

Classification of Ratios Classification by Statements Classification by Users Classification by Importance Classification by Purpose

Classification of Ratios (contd..) CLASSIFICATION BY STATEMENT Balance sheet ratios 1.Liquidity Ratio 2.Current Ratio 3.Stock Ratio 4.Proprietary Ratio 5.Dept-Equity Ratio 6.Capital Gearing Ratio P & L Ratios 1.Grass profit Ratio 2.Net profit Ratio 3.Operating profit ratio Inter-statement Ratios 1.Return on capital employed 2.Return on shareholders fund turnover of wc 3.Debtors turnover

Classification of Ratios (contd..) CLASSIFICATION BY USERS Ratios for Mngt 1.Operating Ratio 2.Debtors Turnover 3.Stock Turnover 4.Solvency Ratio 5.Return on cap. Ratios for Creditors 1.Current ratio 2.Solvency ratio 3.Fixed Assets ratio 4.Creditors turnover Inter-statement Ratios 1.Yield Rate 2.Proprietary Ratio 3.Dividend rate Ratio 4.Capital Gearing ratio

Classification of Ratios (contd..) CLASSIFICATION BY IMPORTANCE Primary Ratios 1.Asset Turnover 2.Profit Ratio 3.Operating profit 4.Return on Capital fund Secondary Ratios 1.Working capital Ratio 2.Stocks to Current Assets 3.Stocks to Fixed Assets 4.Fixed Assets to Total Assets 5.Expenses Ratio

Classification of Ratios (contd..) CLASSIFICATION BY PURPOSE SOLVENCY (Stability) PROFITABILITYACTIVITY (Performance) EARNINGS

Unit 6 Ratio Analysis

 RATIO is a simple mathematical expression, which explains Quantitative Relationship between the two.  RATIO ANALYSIS is a technique of interpretation of financial statements.

 Classification of Ratios 1. Liquidity Ratios (short term solvency) 2. Leverage Ratios (long term solvency) 3. Turnover Ratios (performance) 4. Profitability Ratios

Liquidity Ratios (short term solvency) Current Ratio Quick ratio

 Leverage Ratios (long term solvency) Debt Equity Ratio Proprietary Ratio Fixed Assets Ratio Interest Coverage Ratio Dividend Coverage Ratio

 Turnover Ratios (performance) Inventory Turn over ratio Debtors Turn over ratio Creditors Turn over ratio Working Capital Turn over ratio

Profitability Ratios Gross Profit Ratio Net Profit Ratio Operating Profit Ratio Return on Capital Employed Return on Net Worth Earning Per Share (EPS) Dividends Per Share (DPS) Price Earning Ratio (P/E Ratio)