1. Ratio Analysis B.V.Raghunandan, SVS College, Bantwal

2. Definition Ratio Analysis is a financial technique of measuring the strength and weakness of an organisation out of information available from financial reports specifically from the Balance Sheet and Income Statement

3. Advantages Measuring the efficiency of organisations Measuring the liquidity position of the companies Measuring the capacity of companies to borrow in the future Understanding the overall financial position of organisations Estimating the solvency of the companies Helping in forecasting

4. Disadvantages Only quantitative tools Manipulation of accounting figures Too many analytical tools lead to varied interpretation Based on past data Same data may be interpreted in different ways Vested interests Measuring the changes in price levels Accounting policies have the impact Only symptoms and not cure

5. Different Ratios A] Liquidity Ratios B] Solvency Ratios C] Activity Ratios D] Profitability Ratios E] Shareholders’ Ratios

6. A] Liquidity Ratio Current Ratio = Acid Test Ratio= Working Capital Turnover Ratio =

7. B] Solvency Ratios 1) Debt-Equity Ratio = 2) Capital Gearing Ratio = 3) Proprietary Ratio = 4) Interest Coverage Ratio =

8. C] Activity Ratio (Turnover Ratios) Capital Turnover Ratio Fixed Assets Turnover Ratio 3. Current Assets Turnover Ratio 4. Total Assets Turnover Ratio 5. Stock Turnover Ratio 6. Debtor Turnover Ratio

9. Some of the Activity Ratios 1) Capital Turnover Ratio = where Capital Employed is long-term funds

10. Activity Ratios..contd 2) Fixed Assets Turnover Ratio = 3) Current Assets Turnover Ratio= 4) Total Assets Turnover Ratio =

11. Activity Ratio….contd 5) Stock Turnover Ratio = 6) Operating Ratio =

12. D] Profitability Ratios Gross Profit Ratio Net Profit Ratio Return on Total Assets Return on Equity

13. Formulae for Profitability Ratios Gross Profit Ratio = 2) Net Profit Ratio =

14. Formulae contd….. 3) Return on Total Assets = 4) Return on Equity =

15. E] Shareholders’ Ratios 1) EPS= 2) Price-Earning Ratio = 3) Dividend Yield Ratio= 4) Dividend Payout Ratio=

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