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    Trend Analysis of Financial Ratios

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    Sushanta K. Bhuyan
    This document analyzes trend ratios for a company called MM Limited over the years 2001-2005. It summarizes the current ratio and interest coverage ratio calculations and discusses what each ratio measures. The current ratio measures a company's ability to pay short-term debts with current assets and remains relatively stable for MM Limited around 2.4-2.6x over the period. The interest coverage ratio measures the ability to pay interest expenses and increases for MM Limited from 2.5x in 2001 to a peak of 3.67x in 2002 before declining slightly.

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    Trend Analysis of Financial Ratios

    Uploaded by

    Sushanta K. Bhuyan
    18 views6 pages
    This document analyzes trend ratios for a company called MM Limited over the years 2001-2005. It summarizes the current ratio and interest coverage ratio calculations and discusses what each ratio measures. The current ratio measures a company's ability to pay short-term debts with current assets and remains relatively stable for MM Limited around 2.4-2.6x over the period. The interest coverage ratio measures the ability to pay interest expenses and increases for MM Limited from 2.5x in 2001 to a peak of 3.67x in 2002 before declining slightly.

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    This document analyzes trend ratios for a company called MM Limited over the years 2001-2005. It summarizes the current ratio and interest coverage ratio calculations and discusses what each ratio measures. The current ratio measures a company's ability to pay short-term debts with current assets and remains relatively stable for MM Limited around 2.4-2.6x over the period. The interest coverage ratio measures the ability to pay interest expenses and increases for MM Limited from 2.5x in 2001 to a peak of 3.67x in 2002 before declining slightly.

    Copyright:

    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    18 views6 pages

    Trend Analysis of Financial Ratios

    Uploaded by

    Sushanta K. Bhuyan
    This document analyzes trend ratios for a company called MM Limited over the years 2001-2005. It summarizes the current ratio and interest coverage ratio calculations and discusses what each ratio measures. The current ratio measures a company's ability to pay short-term debts with current assets and remains relatively stable for MM Limited around 2.4-2.6x over the period. The interest coverage ratio measures the ability to pay interest expenses and increases for MM Limited from 2.5x in 2001 to a peak of 3.67x in 2002 before declining slightly.

    Copyright:

    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    of 6

    Trend analysis of

    financial ratios
    Submitted by:-
    Kalyani Devi (BAM 19001)
    Imran Choudhury(BAM 19015)
    Tridisha Chetia (BAM 19016)
    Sushanta Krishna Bhuyan (BAM 19017)
    Simran Rajkhowa (BAM 19020)
    Ankur Sinha (BAM19021)
    Neha Bora (BAM 19025)
    Swapnil Das (BAM 19029)
    Noyanika Buragohain (BAM 19030)
    Supriya Das (BAM 19033)
    Current Ratio

     Current Ratio = Current Assets/Current Liabilities

     It measures whether a company has the ability to use its current assets
    to pay its short-term creditors (current liabilities). Financial Analysts
    deem a 2:1 ratio as an acceptable current ratio.

     Current assets include cash, current investments, trade receivables,


    inventories, pre-paid expenses, etc.

     Current liabilities include short term loans, accounts payable, provisions


    for bad debts, bank overdrafts, etc.
    Current ratio analysis of MM Limited

    Current Liabilities 2001 2002 2003 2004 2005


    Regular 1.3 1.8 2.5 3 3.1
    Common size 19.4 22.8 23.4 24.6 23.0
    Common base-year 100.0 138.5 192.3 230.8 238.5

    Current Assets 2001 2002 2003 2004 2005


    Regular 4 4.4 6 7.1 8.1
    Common size 59.7 55.7 56.1 58.2 60.0
    Common base-year 100.0 110.0 150.0 177.5 202.5

    Current Ratio 2001 2002 2003 2004 2005


    Regular 3.08 2.44 2.40 2.37 2.61
    Common base-year 100.0 79.4 78.0 76.9 84.9
    Interest coverage ratio

     Interest coverage ratio = PBIT/Interest Payments

     It measures the ability of a firm to honor its debt payments, i.e. the
    interest it has to pay on all kinds of debts, debentures, and corporate
    bonds issued, etc.

     Generally, and interest coverage ratio of 2 is considered as minimum


    acceptable.

     An interest coverage ratio below 1 indicates a company cannot meet its


    current interest payment obligations.
    Interest coverage ratio analysis.
    PBIT 2001 2002 2003 2004 2005
    Regular 0.5 1.1 1.2 1.3 2
    Common size 12.5 18.0 15.4 14.3 17.9
    Common base-year 100.0 220.0 240.0 260.0 400.0

    Interest 2001 2002 2003 2004 2005


    payments
    Regular 0.2 0.3 0.4 0.5 0.6
    Common size 5.0 4.9 5.1 5.5 5.4
    Common base-year 100.0 150.0 200.0 250.0 300.0

    Interest 2001 2002 2003 2004 2005


    Coverage Ratio
    Regular 2.50 3.67 3.00 2.60 3.33
    Common base-year 100.0 146.7 120.0 104.0 133.3
    Thank

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