This website uses cookies to ensure you have the best experience. Learn more

Financial Ratio Analysis

576 words - 3 pages

Interpretation of the Ratios
1) Current Ratio-It is a test of solvency or of short-term financial strength of a concern. It is an index of working capital and shows the ability of the concern to meet its obligations and also the capacity to carry on effective operations. Generally, if current assets are twice that of current liabilities, the concern’s working capital position is considered to be satisfactory.
2) Quick Ratio-It shows the amount of cash available to meet immediate payments. Stock-in –trade is deducted from current assets because it is not considered that stock will supply cash as readily as debtors or bills receivable. Bank overdraft is deducted from current liabilities as it is normally considered to be a simple particular way of financing an enterprise and as such is not considered liable to be called in on ...view middle of the document...

The ratio should be compared against industry averages. A low turnover implies poor sales and therefore excess inventory. A high ratio implies either strong sales or ineffective buying.
4) Debt-Equity Ratio-This ratio compares external liabilities with internal liabilities. The interpretation of this ratio depends upon the financial and business policies of the organization.
5) Debt-Asset Ratio-It indicates what proportion of the company’s assets are being financed through debt. It is similar to the debt-equity ratio. A ratio of less than 1 implies that a majority of assets are financed through equity , above 1 means they are financed more by debt.
7) Gross Profit Ratio Margin-It is a ratio of the gross profits earned to the net sales or turnover. It plays an important role in the trading results of the business enterprise.
8) Net Profit Ratio-It shows what portion of the sales is left to the proprietors after all costs, charges and expenses have been deducted. It is useful to proprietors as it helps in cost control and sales promotion.
9) Return on Equity-It shows the earning power of the proprietor’s funds invested in the business and is therefore of practical interest to the proprietors. It enables the earning capacity of the enterprise to be contrasted with the earning capacity of other investments. It gives an idea as to whether adequate returns are being achieved for the risks has.
10) Assets Turnover ratio-It measures a firm’s efficiency at using its assets in generating sales or revenue-the higher the number the better. It also indicates pricing strategy. Companies with low profit margins tend to have high asset turnover while those with high profit margins have low asset turnover.
11) Return on Capital employed-indicates the efficiency and profitability of a company’s capital investments. ROCE should always be higher than the rate at which the company borrowings; otherwise any increase in borrowing will reduce shareholder’s earnings.

Other Papers Like Financial Ratio Analysis

Financial Ratio Quarterly Trend Analysis

2058 words - 9 pages FIN 6406 A Financial Ratio Quarterly Trend Analysis of: The Boeing Company BA Listed on New York Stock Exchange Prepared for: Dr. Deanne Butchey Corporate MBA Program Florida International University By: Justin Papcun Computations Financial Trend Comparison Liquidity: The Boeing Company financial data shows that the company is in place to settle up its obligations in the short term business strategy. As it appears right now

Johnson And Johnson Financial Ratio Analysis

1691 words - 7 pages markets products for hospitals, diagnostic laboratories and clinics.According to the company's own website,, it has more than 250 Johnson and Johnson operating companies which employs approximately 120,500 men and women in 57 countries and sell products throughout the world. Johnson and Johnson was ranked 32nd on the 2006 Fortune 500.Below is an analysis of Johnson and Johnson's financial ratio analysis:Long Term Debt ratio is a

Inter Company Financial Ratio Analysis

655 words - 3 pages Inter Company Analysis Britannia can be compared with its competitor on the basis of various ratios as mentioned below Current Ratio Britannia has a current ratio of 1.054 in comparison to HUL which has a current ratio of of 0.79.The high current ratio mainly is because of a more than proportionate increase of the Current Assets when compared to the Current Liabilities. Debt Equity Ratio There is a stark comparison between the two

Financial Ratio

1963 words - 8 pages ISOM 249 Functions and Purposes of Financial Ratios I. Functions of Financial Ratios Financial ratios can be used to show a company’s: • Position in its industry (industry comparisons) • Accomplishment of objectives (objective comparisons) • Vulnerability in the economy (time-series/trend analysis) • Future borrowing power and growth potential (leverage ratios

Ratio And Financial Ratio Analyisis

1753 words - 8 pages Ratio and Financial Statements Analysis Kimberly Y. Gruber University of Maryland University College Dr. Sunando Sengupta 07/25/2013 Turnitin Score: 23% Executive Summary The purpose of this paper is to examine ratio and financial statement analysis. Such analysis is a useful tool for managers and stakeholders to evaluate a company’s financial health in order to identify opportunities for growth and areas of weakness so as to

ACCT 504 Accounting and Finance Managerial Use and Analysis

1091 words - 5 pages ACCT 504 Accounting and Finance Managerial Use and Analysis Follow Link Below To Get Tutorial Description: ACCT 504 Week 1 , An Overview of Financial Statements and the Environment of Financial Reporting What is GAAP? What is the purpose of GAAP? What is the purpose of a Balance Sheet? What information does it provide? ACCT 504 Week 2, The

Analizing Financial Statement

2027 words - 9 pages Analyzing Financial Statements Concepcion De Los Rios HSM/260 October 3rd, 2015 Professor: Arin Norris Analyzing Financial Statements Calculating Ratios  Current Ratio: 2003 Current ratio=Current assets Current liabilities Current ratio =82,058.00 93,975.00 Current ratio =0.87 Long-term solvency ratio: Long-term solvency ratio =Total assets Total liabilities Long-term solvency ratio =359,863.00 259,979.00 Long

American Corporation Analysis

1937 words - 8 pages American Corporation Analysis ACC/561 Sep 10, 2015 American Corporation Analysis Comparative and ratio analyses are two ways that companies look at their own growth and that of their competitors. Comparative analysis is a way for businesses to look over several accounting periods and find emerging trends and see how the business is progressing in areas. Ratio analysis is a financial technique that allows companies to quickly see how they

Finance Paper

1324 words - 6 pages Financial Management Essay Benjamin Gray University of Maryland University College 7/31/16 Executive Summary The function of this essay is to examine why ratio and financial statement analysis are useful to any corporations. The ratio analysis is a useful tool for managers and investors that would like to evaluate the company’s financial health. By using this analysis companies are


615 words - 3 pages , balance sheets, and statement of cash flows. The use of ratios helps to analysis the financial data to help forecast where the company is headed. There are several different ratios that should be used. Ratios can be classified as a coverage ratio which measures ability to meet obligations, a return ratio that measures net benefit to used resources, turnover ratios measures gross benefit to used resources, and component percentage the ratio of one

Memo to Ceo

1421 words - 6 pages Industry data came in at 66% for the high, 45% for the mid, and 30% for the low. Since our 2012 debt ratio was lower than all three measurements of the Industry data, we will consider this a strength of the company. A low debt ratio shows financial institutes that we are a good financial risk. Times-interest-earned ratio is another analysis that was completed for Company G. This ratio measures the number of times our operation income can cover

Related Essays

Financial Ratio Analysis

789 words - 4 pages Financial Ratio Analysis of Home Depot Liquidity Ratio: This ratio measures the company’s ability to meet its short-term obligations. The various ratios that tells about the liquidity position of the company are: 1. Current Ratio – Current assets/Current liabilities 2013. 1.34 2012. 1.55 The ratio has deteriorated this year compared to the last year 2. Quick Ratio – (Current assets – inventories)/Current

Financial Ratio Analysis

2574 words - 11 pages is going to evaluate the financial performance of the two companies. From the perspective of Profitability, from the analysis in above, the overall situation of profitability for the Tesco Plc and Sainsbury Plc seriously decreased. Even though the absolute ratio of sales per employee steadily increased by 0.32% and 3.15% for Tesco Plc and Sainsbury Plc from 2011 to 2012, sales to capital employed could not conceal the interior performance of

Financial Ratio Analysis

2664 words - 11 pages Example Finance EssayFinancial Ratio Analysis - Harry's Hamster LimitedFinancial statements are useful as they can be used to predict future indicators for a firm using the financial ratio analysis. From an investor's perspective financial statement analysis aims at predicting the future profitability and viability of a company, while from the management's point of view the ratio analysis is important as it helps anticipate the future conditions

Financial Ratio Analysis Of Colgate

2595 words - 11 pages Financial Reporting Analysis Ratio Analysis Of Colgate Palmolive (INDIA) Limited Submitted to: Dr. T. P. GHOSH Submitted by: Group I 1. Apurva Shahi 2. Deepali Agarwal 3. Konda Moulika 4. Mallipati Manoj 5