This document discusses various financial ratios used to analyze a company's liquidity, debt management, asset utilization, profitability, and overall financial performance. It covers key liquidity ratios like current ratio and quick ratio. Debt management ratios include debt ratio and debt-to-equity ratio. Asset utilization ratios assess efficiency, like total asset turnover. Profitability ratios measure margins and returns on assets/equity. The DuPont analysis breaks return on equity into profit margin and total asset turnover components. Modern techniques also examine market value added and economic value added.

1. FNCIAL RATIOS
INA

2. (1) Liquidity Ratios:
xxxx
(1) Liquidity Rati
A - Current ratio = Current assets / Current Liabilities
If x/y =2
Every unit of the denominator (liab.) is covered /backed up / financed /
yield by 2 unit of the nominator (asset)
B - Quick or Acid ratio = (Current assets – Inventory) /
Current Liabilities
C- Cash ratio = (CA – INV. – AR – S.T. Invest) or cash in kind /
CL

3. Liquidity of AR:
- Average Collection Period (ACP) = (Balance of AR X
360) / Credit Sales
If credit sales not given, assume all sales are on credit
Liquidity of Inventory:
- Average selling Period (ASP) + Average Collection
Period (ACP)
ASP = (Inventory X 360) / COGS
The larger the Liquidity of INV, the greater the need for
cash to finance operations

4. Condition for using ratios
1) Current ratios = both ACP + ASP can be
liquidated in less than 360 days for a good
ratio.
2) Quick ratio = liquidation of AR (ACP) < 360
Liquidation of Inventory > 360
3) Cash ratio = ACP > 360
ASP > 360

5. (2) Debt Management Ratios:
A - Debt ratio = Total Debts / Total assets
B - Debt / Equity ratio = Total Debts / Equity
The Higher the ratios the more risky the Company is
C - Capital structure ratio (CSR) = LTL / (LTL + ME)
D - Interest Coverage Ratio = EBIT (Earning
before Interest & Tax) / I

6. (3) Assets utilization / management
(activity /efficiency ratios):
A - Total Assets Turnover (TAT) = Sales / Total assets
B - Fixed Assets Turnover (FAT) = Sales / FA
C - Current Assets Turnover (CAT) = Sales / CA
For:
(1) Cash To = Sales / Cash
(2) AR To = Credit Sales / AR
(3) Inventory To = COGS / Inventory
To = Turnover
D & E - Liquidity of AR & Liquidity of Inventory;
Same as before

7. (4) Profitability ratios:
A- sales:
1) GPM gross profit margin = GP / sales
2) OIM operating income margin = OI / sales =
( Sales-COGS -Others) / sales
3) NIM net income margin = NI / Sales
B- Financial performances:
Return on assets (investment) ROI = EBIT / Total Assets
Return on Equity (ROE) = EBT / Equity
C- ROBF = {ROI – (Interest / BF) {x (BF/OE)
D- ROE = ROI + ROBF

8. Dupont system of ratios
(ROI= EBIT/Total assets) x sales / sales
ROI =EBIT/Sales x Sales/ Total assets
ROI = x
Profitability x Efficiency
Net Profit
Margin TATO

9. Modern tech. of analysis
MVA
Market value added =
(No. of shares x
market value of shares) –
total O/E
EVA
Economic value added=NP - total cost
of capital
Long term bonds :Interest
Preferred shares : p.s. dividends
Common shares : dividends
R/E : assuming in the bank / opp. Cost =
10%