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    9fb81module 4 M&s

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    Shagun Agarwal
    The document discusses financial analysis and various tools used for financial analysis including ratio analysis. It provides examples of different types of ratios used in financial analysis such as liquidity ratios like current ratio and quick ratio, turnover/activity ratios like inventory turnover and debtors turnover, solvency ratios like debt to total funds ratio, and profitability ratios like gross profit margin and return on investment. The ratios are calculated using financial data from statements and are used to analyze the financial performance and position of a company.

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    Download as PPT, PDF, TXT or read online from Scribd

    9fb81module 4 M&s

    Uploaded by

    Shagun Agarwal
    46 views16 pages
    The document discusses financial analysis and various tools used for financial analysis including ratio analysis. It provides examples of different types of ratios used in financial analysis such as liquidity ratios like current ratio and quick ratio, turnover/activity ratios like inventory turnover and debtors turnover, solvency ratios like debt to total funds ratio, and profitability ratios like gross profit margin and return on investment. The ratios are calculated using financial data from statements and are used to analyze the financial performance and position of a company.

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    financial analysis

    Original Title

    9fb81module 4 m&s

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    © Attribution Non-Commercial (BY-NC)

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    The document discusses financial analysis and various tools used for financial analysis including ratio analysis. It provides examples of different types of ratios used in financial analysis such as liquidity ratios like current ratio and quick ratio, turnover/activity ratios like inventory turnover and debtors turnover, solvency ratios like debt to total funds ratio, and profitability ratios like gross profit margin and return on investment. The ratios are calculated using financial data from statements and are used to analyze the financial performance and position of a company.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as PPT, PDF, TXT or read online from Scribd
    Download as ppt, pdf, or txt
    46 views16 pages

    9fb81module 4 M&s

    Uploaded by

    Shagun Agarwal
    The document discusses financial analysis and various tools used for financial analysis including ratio analysis. It provides examples of different types of ratios used in financial analysis such as liquidity ratios like current ratio and quick ratio, turnover/activity ratios like inventory turnover and debtors turnover, solvency ratios like debt to total funds ratio, and profitability ratios like gross profit margin and return on investment. The ratios are calculated using financial data from statements and are used to analyze the financial performance and position of a company.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as PPT, PDF, TXT or read online from Scribd
    Download as ppt, pdf, or txt
    of 16

    FINANCIAL ANALYSIS

    Objectives of financial analysis

    Name of Institution

    To know the solvency of the firm To find out the strengths and weaknesses of the firm To make comparative study with other firms and intra-firm To know the capability of payment of interest and dividend To study the trend of business To know the efficiency of management To provide useful information to the management to make future decisions To find out the earning capacity or profitability

    Tools for financial analysis


    Comparative statements Common size statements Trend analysis Accounting ratios Cash flow statements Funds flow statements

    Name of Institution

    Comparative Statements

    Name of Institution

    Financial statements figures for two or more years are placed side by side to facilitate comparison Columns indicate increase or decrease in figures from one year to another or change as a percentage Utility To make data simpler and more understandable To indicate the trend of To indicate strong and weak points of business To compare firms performance with average performance of the industry To help in forecasting
    3

    Ratio analysis

    Name of Institution

    Ratio analysis expresses the relationship between selected financial data. These relationships can be expressed as: percentages rates, or proportions
    4

    Name of Institution

    Liquidity Ratios
    Current Ratio
    Current Assets/Current Liabilities
    Current Assets- e.g. Inventories, Debtors, Cash, Bank Current Liabilities- Trade Creditors, Bills Payables, Bank overdraft

    Current Ratio

    Name of Institution

    As the current ratio measures the ability of the enterprise to meet its current obligations. The ideal current ratio is 2:1

    Name of Institution

    Liquidity Ratio
    Quick Ratio (Current Assets Inventory- Prepaid Expenses)/Current Liabilities The Quick ratio is the more stringent measure of liquidity because inventories which are least liquid of current assets are excluded from the ratio.

    Name of Institution

    Liquidity Ratio
    Net Working Capital Ratio
    Net Working Capital/Net Assets NWC = Current Assets Current Liabilities. Net Assets = Fixed assets + Current assets Current Liabilities

    Name of Institution

    Turnover / Activity Ratios


    Inventory turnover Ratio = Cost of Goods sold/Average Inventory,
    Average. Inventory. = Opening +Closing Inventory/2

    Average Collection Period= Average Inventory/Cost Of Goods Sold x 360,


    COGS=Sales Gross profit
    9

    Name of Institution

    Turnover / Activity Ratios


    Debtors/Account Receivables turnover Ratio = Credit Sales/Average Debtors
    Average Debtors = Opening+ Closing Debtors/2

    10

    Name of Institution

    Turnover / Activity Ratios


    Average Collection Period = 360/Debtors Turnover Ratio

    11

    Turnover / Activity Ratios


    Creditors / Payable Turnover Ratio Creditors Turnover Ratio = Credit Purchases/ Average Creditors

    Name of Institution

    12

    Name of Institution

    Turnover / Activity Ratios


    Net Asset Turnover = Net Sales/Net Assets Total Asset Turnover = Net Sales/Total Assets Fixed Asset Turnover = Net Sales/Net Fixed Assets Current Assets Turnover = Net sales/Current Assets Working Capital Turnover = Net Sales/Net Working Capital

    13

    Name of Institution

    Solvency Ratios
    Debt to total funds Ratio = Total liabilities ------------------------- x 100 Total Assets Debt Equity Ratio = Long term Liabilities -------------------------x100 Net Worth
    14

    Name of Institution

    Profitability Ratios
    Gross profit Margin = (Sales-Cost Of Good Sold)/ Net Sales Net Profit Margin = Net Profit/ Net Sales Operating Ratio =Cost of Goods Sold+ Operating Expenses/Sales

    15

    Name of Institution

    Profitability Ratios
    Return On Investment= Profit before interest,tax and dividend ______________________________x100 Capital Employed
    Capital Employed= (Total Debt + Net worth)

    16

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