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Ratio Analysis

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yashpal01

This document discusses ratio analysis, which involves comparing financial metrics like profitability, leverage, liquidity, and payout ratios across time periods, companies, or industries to analyze a company's performance and financial position. Various ratios are calculated from the balance sheet, income statement, and cash flow statement for years 2007 and 2006 for a single company. The conclusion states that ratio analysis is a basic tool for financial analysis and an important part of business planning as it allows easy profiling of a company from its annual report.

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RATIO ANALYSIS Introduction Comparison of ratio between two consequent years of one company Comparison of ratio between two companies for the same year Conclusion
WHAT IS RATIO ANALYSIS? It is NOT just comparing different numbers from the balance sheet, income statement, and cash flow statement. It is about comparing the number against previous years, other companies, the industry, or even the economy in general. Ratios look at the relationships between individual values and relate them to how a company has performed in the past, and might perform in the future.
Profitability Ratios for Ratio Formula Mar’07 Mar’06 Gross profit margin (%) Revenue – COGS x100 Revenue 28.57 28.58 Net profit margin (%) Net profit x 100 Revenue 28.05 26.17 Adjusted return on net worth(%) Net income x100 Avg. stockholder’s equity 33.47 36.21 Return on long term funds (%)  EBIT x 100 Long term funds 36.64 40.62
Per Share Ratios for Ratio Formula Mar’07 Mar’06 Adjusted EPS (Rs.) EBIT-Adjustments Total No. of Shares 65.42 90.65 Dividend per share (Rs.) Total Dividend Total No. of Shares 11.50 45.00 Operating profit per share (Rs.) Operating profit Total No. of Shares 73.98 108.51 Net operating income per share (Rs.) Net Operating Income Total No. of Shares 230.20 327.63 Free reserves per share (Rs.) Total free reserves Total No. of Shares 190.30 245.07
Leverage Ratios for Ratio Formula Mar’07 Mar’06 Long term debt/ Equity Long Term Debt Equity 0 0 Total debt/ equity  Total Debt Equity 0 0 Owners fund as % of total source  Equity *100 Total Funds 100 100 Fixed assets turnover ratio  Sales Fixed Assets 3.38 3.18
Liquidity Ratios for Ratio Formula Mar’07 Mar’06 Current ratio  Current Assets Current Liabilities 4.96 2.75 Quick ratio Current Assets-Inventories Current Liabilities 4.91 2.73
Payout Ratios for Ratio Mar’07 Mar’06 Dividend payout ratio (net profit)  19.85 58.32 Dividend payout ratio (cash profit)  17.66 49.89 Earning retention ratio  79.91 43.48 Cash earnings retention ratio  82.15 51.43
Per Share Ratio for the year 06-07 Ratio Adjusted EPS 65.42 6.68 Dividend Per Share 11.5 2.00 Operating Profit per share 73.98 12.91 Net Operating income per share 230.20 59.04 Free Reserves per share 190.30 54.23
Profitability Ratios for the year 06-07 Ratio Operating Margin(%) 32.13 21.87 Gross Profit Margin(%) 28.57 17.72 Net Profit Margin(%) 28.05 14.48 Adjusted Return On Net worth(%) 33.47 16.91 Return on long term funds(%) 36.64 6.81
Leverage Ratios for the year 06-07 Ratio Long Term Debt/Equity 0 1.75 Total Debt/Equity 0 1.79 Owners Fund as % of total source 100 35.88 Fixed assets Turnover Ratio 3.38 2.96
Liquidity Ratios for the year 06-07 Ratio Current Ratio 4.96 3.24 Quick Ratio 4.91 3.03
Payout Ratios for the year 06-07 Ratio Formula Dividend payout Ratio (net profit) Dividends (yearly) /Net Income 19.85 32.63 Earning Retention Ratio Net Income-Dividends / Net Income 79.91 62.61
CONCLUSION Ratio Analysis is the basic tool of financial analysis and Financial analysis itself is an important part of any business planning process as SWOT ,being basic tool of the strategic analysis plays a vital role in a business planning process and no SWOT analysis would be complete without an analysis of companies financial position. In this way Ratio Analysis is very important part of whole business strategic planning.
As Companies Dispatch their long annual report once a year, the financial ratio help us to profile a company easily.

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Ratio Analysis

  • 1. RATIO ANALYSIS Introduction Comparison of ratio between two consequent years of one company Comparison of ratio between two companies for the same year Conclusion
  • 2. WHAT IS RATIO ANALYSIS? It is NOT just comparing different numbers from the balance sheet, income statement, and cash flow statement. It is about comparing the number against previous years, other companies, the industry, or even the economy in general. Ratios look at the relationships between individual values and relate them to how a company has performed in the past, and might perform in the future.
  • 3. Profitability Ratios for Ratio Formula Mar’07 Mar’06 Gross profit margin (%) Revenue – COGS x100 Revenue 28.57 28.58 Net profit margin (%) Net profit x 100 Revenue 28.05 26.17 Adjusted return on net worth(%) Net income x100 Avg. stockholder’s equity 33.47 36.21 Return on long term funds (%)  EBIT x 100 Long term funds 36.64 40.62
  • 4. Per Share Ratios for Ratio Formula Mar’07 Mar’06 Adjusted EPS (Rs.) EBIT-Adjustments Total No. of Shares 65.42 90.65 Dividend per share (Rs.) Total Dividend Total No. of Shares 11.50 45.00 Operating profit per share (Rs.) Operating profit Total No. of Shares 73.98 108.51 Net operating income per share (Rs.) Net Operating Income Total No. of Shares 230.20 327.63 Free reserves per share (Rs.) Total free reserves Total No. of Shares 190.30 245.07
  • 5. Leverage Ratios for Ratio Formula Mar’07 Mar’06 Long term debt/ Equity Long Term Debt Equity 0 0 Total debt/ equity  Total Debt Equity 0 0 Owners fund as % of total source  Equity *100 Total Funds 100 100 Fixed assets turnover ratio  Sales Fixed Assets 3.38 3.18
  • 6. Liquidity Ratios for Ratio Formula Mar’07 Mar’06 Current ratio  Current Assets Current Liabilities 4.96 2.75 Quick ratio Current Assets-Inventories Current Liabilities 4.91 2.73
  • 7. Payout Ratios for Ratio Mar’07 Mar’06 Dividend payout ratio (net profit)  19.85 58.32 Dividend payout ratio (cash profit)  17.66 49.89 Earning retention ratio  79.91 43.48 Cash earnings retention ratio  82.15 51.43
  • 8. Per Share Ratio for the year 06-07 Ratio Adjusted EPS 65.42 6.68 Dividend Per Share 11.5 2.00 Operating Profit per share 73.98 12.91 Net Operating income per share 230.20 59.04 Free Reserves per share 190.30 54.23
  • 9. Profitability Ratios for the year 06-07 Ratio Operating Margin(%) 32.13 21.87 Gross Profit Margin(%) 28.57 17.72 Net Profit Margin(%) 28.05 14.48 Adjusted Return On Net worth(%) 33.47 16.91 Return on long term funds(%) 36.64 6.81
  • 10. Leverage Ratios for the year 06-07 Ratio Long Term Debt/Equity 0 1.75 Total Debt/Equity 0 1.79 Owners Fund as % of total source 100 35.88 Fixed assets Turnover Ratio 3.38 2.96
  • 11. Liquidity Ratios for the year 06-07 Ratio Current Ratio 4.96 3.24 Quick Ratio 4.91 3.03
  • 12. Payout Ratios for the year 06-07 Ratio Formula Dividend payout Ratio (net profit) Dividends (yearly) /Net Income 19.85 32.63 Earning Retention Ratio Net Income-Dividends / Net Income 79.91 62.61
  • 13. CONCLUSION Ratio Analysis is the basic tool of financial analysis and Financial analysis itself is an important part of any business planning process as SWOT ,being basic tool of the strategic analysis plays a vital role in a business planning process and no SWOT analysis would be complete without an analysis of companies financial position. In this way Ratio Analysis is very important part of whole business strategic planning.
  • 14. As Companies Dispatch their long annual report once a year, the financial ratio help us to profile a company easily.