Ratio Analysis
An analysis is maid using the current year data numbers to estimate the future . it is a fundamental analysis made to know the financial figures.
Liquidity ratio's
Current Ratio
It is used to calculate to know weather current current assets are enough to pay the current debts . The ideal ratio is 1:1 . it can be calculated as follows:
Current Ratio = Current Assets / Current Liabilities
The company current ratio is too low, the following actions can be taken
Liquidity ratio's
Current Ratio
It is used to calculate to know weather current current assets are enough to pay the current debts . The ideal ratio is 1:1 . it can be calculated as follows:
Current Ratio = Current Assets / Current Liabilities
The company current ratio is too low, the following actions can be taken
- Paying some of the debts
- Rising some funds or loans which is less than a year
- Rising new requites to increase your current assets
- Maintain some reserve from profits to meet the current transactions
The ratio explains about the shot terms liquidity. the higher quick ratio indicates that the company in the stable position. we can obtain the quick assets =current assets -stock. it can be explained as follows:
Quick assets/ Current Liabilities
Turnover Ratio's:
Receivables Turnover ratio explains about how the Receivables are collected on an average days .It can be calculated as follows:
Net Credit Sales / Debtors Or Avg Accounts Receivables.
Inventory Turnover ratio's
To know the avg inventory level.It is calculated as follows:
COGS / Cost of Goods Sold / Avg Inventory
To know the avg collection period
Avg debtors / Avg Daily Credit Sales
To know inventory period
365/debtors Turn Over Ratio
Fixed-Asset Turnover Ratio:
The ratio is calculated on net sales to fixed assets. the highest ratio ensures how the management is using the investments in fixed assets.
Net Sales/Net Fixed Assets
Total Assets Turnover Ratio
This ratio denotes the use of total assets in terms of sales. it is to know the difference between total assets and the fixed assets of the firm.it can be calculated as follows:
Net Sales / Total Assets
Leverage Ratio's:
It measures the risk of company.generally if the company have more debt then the risk is higher because all the assets are to be distributed in case of company becomes bankrupt . The Ratio analysis is to calculate every aspect of the company
Debt Equity Ratios:
The Value of the organization or company is given by its debt holders when you compare with its real owners.
It is calculated as follows:
Total Debt / Total Equity
Interest Coverage ratio:
After taken borrowings by the company in debt , generally interest charges are applied. this ratio is measured the ability that the interest is payable or not with income earned by the company it is measures as follows:
It is calculated as follows:
Earnings before tax and interest /interest
The Debt Service Coverage Ratio (DSCR):
The debt service coverage ratio (DSCR), also known as "debt coverage ratio. The debt service coverage ratio (DSCR),, also called as "debt coverage ratio," is the ratio calculated to meets the payments and debts with the return income.it easy to loans when this ratio is more. it can be calculated as follows:
Profit After Tax+ Deprecation+ Non Cash Exp+ Interest On Term Loans / Interest On Term Loans + Payment On Long Term Loans
Profitability Ratios
Explains the profit margin,return on equity , return on assets, return on capital employed, return on share holders equity, Earning per share that all are the income generating by the company :
- Gross profit ratio= gross profit / Net sales * 100
- Net profit ratio= Net profit / Net sales * 100
- Return on total assets= profit before int & tax / Fixed assets + current assets
- Return on capital employed = Net profit after tax / Total Capital Employed
- Return on share holders equity= Net profit after tax / avg total share holder equity or Net worth
- Earning per share= Net profit available to share holders / No.Of shares outstanding
- PE ratio = Market price per share / EPS ( earnings per share).
