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Ratio Analysis

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Dingci Lai

on 23 November 2016

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Transcript of Ratio Analysis

Ratio Analysis
Liquidity Ratios
Current Ratio. IN :
Efficiency Ratios
Profitability Ratios
Be target-minded: what do you want to find out?
Defind the ratios and benchmark them:
Establish trends
Compare against competitors
Meet the objectives
Return on Capital Employed (ROCE), or Net Assets. IN %
Any long-term $$ invested in the firm
Product of Profit Margin and Asset Turnover
Return on Equity (ROE)
Return available to the ordinary shareholders.
Gross Profit Margin, Net Profit Margin.IN %
Pre-tax profits
Acid Test Ratio. IN :
Cash Ratio. IN :
Test of short-term liability affordability
Exclude inventory
A more stringent test
1:1 indicates problems
Test of paying liabilities using cash
Fixed assets turnover
Asset turnover
Inventory turnover
Trade Receivables collection period
Trade payables collection period
Test of non-current assets' efficiency to generate sales
Test of assets' efficiency to generate sales
Test of inventory holding time
Test of average period to get money from customers
Take note of credit sales and cash sales
Test of average period to pay money to creditors
Take note of purchases and cash &credit
Test of labour productivity
Solvency Ratios
Gearing Ratio
Interest Cover
Measure of degree of financial leverage
Investment Ratios
Earnings per Share (EPS)
Price/Earning Ratio
Profits available to ordinary shareholders, after preference dividend
Basic, Diluted and Adjusted
Cash from Operations per share
A better guide to the ability to pay dividends/undertake planned expenditure.
Measure of market confidence about the firm's future
Full transcript