Ratio Analysis and its Formula

A ratio analysis is a mathematical analysis  of financial statement of the company. Ratio analysis is based on balance sheet  and profit and loss account statement.  Ratio analysis is used to evaluate various aspects of a company’s operating and  financial performance such as its efficiency,  profitability ,liquidity etc. These relationships between the financial statement accounts help investors, creditors, and internal company management understand how well a business is performing and areas of needing improvement.

Ratios are also compared  for different year of the same company or  different companies in the same sector to see how they perform during the period up, and to get an idea of comparative analysis.

Ratio analysis can broadly divided between

1. Profitability ratio
2. Liquidity ratio
3. Balance sheet ratio

Following are the main Ratio , their formula and what the ratio Indicate

Sr No	Type of ratio	Formula	What Indicate
Profitability Ratios( Income statement Ratio)
1	Gross Profit Ratio	Gross Profit/Net Sales	Gross Profit Generated By each dollar of Sales
2	Operating Profit ratio	Operating Profit/Net Sales	Operating  Profit Generated By each dollar of Sales
3	Net Profit Margin (Return on Sales)	Net Income/ Net Sales	Net Profit Generated By each dollar of Sales
4	Return on Investment Ratio	Net Profit After Interest  And Taxes/ Shareholders Funds or Investments	Income earned on Investment
5	Return on Capital Employed Ratio	Net Profit after Taxes/ Gross Capital Employed	Return On Capital Invested
6	Dividend Pay Out Ratio	Dividend Per Equity Share/Earning Per Equity Share	Dividend Received
7	Earning Per Equity Share	Net Profit after Tax & Preference Dividend / No. of Equity Share	Earning Per Share
8	Dividend Yield Ratio	Dividend Per Share/ Market Value Per Share	Yield of Dividend Comparative to Market Price
9	Price Earnings Ratio	Market Price Per Share Equity Share/ Earning Per Share	company’s share price to its per-share earnings
10	Du Pont Return on Assets	(Net Income /Sales)   x (Sales/Assets)   x (Assets/Equity)	Indicate how the company generates its return
Liquidity Ratios
11	Working Capital	Current Assets- Current Liabilities	Indicate Working Capital of the company
12	Current Ratio	Current Assets/Current Liabilities	Indicate firm’s ability to pay off its liabilities with its Current Assets
13	Quick Ratio	Liquid Assets/Current Liabilities	Indicate firm’s ability to pay off its liabilities with its with quick Cash Assets
14	Acid Test or Quick Ratio	Cash + Marketable Securities + Accounts Receivable/ Current Liabilities	Indicate firm’s ability to pay off its liabilities with its with quick Cash Assets
15	Cash Ratio	Cash Equivalents + Marketable Securities/Current Liabilities	Cash balance of the company comparative to its current Liability
Balance sheet ratio
16	Inventory Ratio	Net Sales / Inventory	How many time Company’s inventory is sold
17	Total Debts to Assets	Total Liabilities / Total Assets	Proportion of there company’s Assets finance by the debt
18	Debtors Turnover Ratio	Total Sales /  Account Receivables	Indicate the number of times average debtors are turned over during a year
19	Debt Collection Ratio	Receivables  x Months or days in a year / Net Credit Sales for the year	Indicate approximate amount of time that it takes for company to receive its receivable
20	Creditors Turnover Ratio	Net Credit Purchases / Average Accounts Payable	How Effectively Company pay its supplier
21	Average Payment Period	Average Trade Creditors / Net Credit Purchases X 100	Indicate approximate amount of time that it taken by company to pay its Supplier
22	Working Capital Turnover Ratio	Net Sales / Working Capital	Indicate Company’s effectiveness in Using its Working Capital
23	Fixed Assets Turnover Ratio	Cost of goods Sold / Total Fixed Assets	Indicate Company’s effectiveness in using its Fixed assets to generate revenue
24	Capitalization Ratio	Long-Term Debt  /  Long-Term Debt + Owners’ Equity	Indicate debt component of a company’s capital structure
25	Capital Turnover Ratio	Cost of Sales / Capital Employed	Indicate Company’s effectiveness in using its Capital to generate revenue
26	Debt Equity Ratio	Total Long Term Debts / Shareholders Fund	Indicate relationship between the capital contributed by creditors and the capital contributed by shareholders
27	Proprietary Ratio	Shareholders Fund/ Total Assets	Indicate proportion of shareholders’ equity to total assets
28	Capital Gearing ratio	Equity Share Capital / Fixed Interest Bearing Funds	Indicate the Financial Leverage
29	Debt Service Ratio	Net profit Before Interest & Taxes / Fixed Interest Charges	availability of Cash to serving its Debt Charges

 

 

 

 

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Commerce stream is always an evergreen stream  to study and for making a career .In the today’s world of globalization and  with the positive changing scenario around the world’s economy the importance of the commerce stream increasing. The main subjects of commerce stream are Account,Finance,Business and economics.

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Various Carrier Option

Accountant

The basic duty of Accountant is to prepares asset, liability, and capital account entries by compiling and analyzing account information. He prepare the Documents financial transactions by entering account information and Recommends financial actions by analyzing accounting options.

Cost Accountant

The Main Task of cost Accountant is to Construct data accumulation systems for a cost accounting system and create and review the controls needed for data accumulation and reporting systems. He review standard and actual costs for inaccuracies. Perform cost accumulation tasks as a member of the target costing group

Commerce Manager

Main Duty of commerce manager is create company objectives and implement strategies in order to maximize profits and gain global market share. He should update policies accordingly and may be responsible for securing the appropriate government approvals and licenses. For this position in most of the company, you should have Master of Business Administration (MBA) Degree

Finance Specialist

This is the another option for Commerce stream student. finance professionals create models to evaluate business opportunities and assist in creating global operating plans. He should implement and oversee budgets as well as review business proposals, including mergers and acquisitions. For this position in most of the company, you should have Master of Business Administration (MBA) Degree

Compliance Attorney

Compliance Attorney will follow trade legislation and help assess regulatory risk. Attorneys work closely with compliance departments and provide legal support and expertise on international audits and regulations Employers require candidates to have a Juries Doctor (J.D.)

 

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CMA data required for bank loan or working capital loan or for seeking CC limit. But the question is that what is CMA data and How to prepare it? Why bank or financial institute required CMA data? so here is your answer

First of all let us understand what is CMA Data

CMA is short form of Credit Monitoring Arrangement data.CMA data report presented to bank to Show your past, prasent and future Financial position.

CMA covers 7 statement which are as follow

1 Existing and Proposed Funds Limit

In this statement one must show present fund and non fund based credit limit .of the borrower ,their usage limit and history. Which means you should show current financial condition, borrowed fund and proposed fund are covered. In the case , business is new, there is no past records so you need to give proposed data.

2 Operating statement:

In this Second statement one should  required to show past 2 years and future 3  to 5 years ( Proposed) operating statements. You should show Profit before and after Tax and  projection of Sales ,Expenses and profit  for 3 to 5 year as per requirement.

3 Analysis of Balance sheet

In this  third statement one should  required to show past years and future  years projection Data of Balance Sheet. In this statement you should give detailed analysis of Current Assets ,Non current Assets, Fixed Assets ,Cash and Bank Position ,Current liability ,Non Current Liability etc.

4 Comparative statements of current assets and liabilities:

In this  fourth statement you need to show comparative analysis of Current Assets and Current liability . This statement is for working Capital Cycle  for the project period  and capacity of the borrower to meet the future working capital requirement

5 Calculation of MPBF:

MPBF means maximum permissible bank finance. In this calculation you should show the capacity of the borrower to borrow the money, This Calculation is done by two method

1 In the first method lending will allowed  the MPBF 75% of net working Capital GAP

2 In the Second  method lending will allowed  the MPBF 75% of Current Assets less Current Liability

6Fund flow statements:

In this statement you required to give details of the fund flow for current and future projected period. This statement show borrower fund position with the  reference of the working capital analysis given in the MPBF. It shows the Funds Movement of the borrower.

7 Ratio analysis:

This statement is long and important statement of CMA data. It gives Key ratio to the banker and  Based on CMA data prepared  and submitted to the bank . Generally this covers GP ratio ,NP ratio ,Current Raton, DP limit Net worth ,Quick Ratio, turnover ratios,  Debt equity ratios, DSCR etc.

Views : 757

 

Five steps to get Success

For getting success you need to raise your standards and avoid being a useless slob. The best way to get success is to force yourself to become conscious of your standards, and then to redefine them. There are many useless slob in this world so don’t be one of them. To become successful you need to raise your slandered

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Understand that failure is not dead end but always keep hoping and trying. Remember that there is always one door open when rest of door are closed. Always try to come out with  creative solutions in you problem

 

 

 

 

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Hi every one,

Microsoft excel is very helpful tool for any work. In today’s competitive e world you must be faster and you must know the shortcut keys to operate excel faster and successfully.

Following are Few Excel shortcut that will be helpful in your day to day life

Shortcut	Details
F2	To edit and select the cell
F3	After a Name has been created, F3 will Paste the  names.
F4	To repeat last action.
F5	Go to a specific cell. For example, D7.
F7	To spell check selected text or document.
F11	To create the chart  for selected Data
Ctrl + Shift + ;	To enter the current time.
Ctrl + ;	To enter the current date.
Alt + Shift + F1	To insert the new worksheet
Alt + Enter	To move the  next line while typing the data in the cell, allowing for multiple lines of text in one cell.
Ctrl + 1	To open the Format Cells window.
Ctrl + A	To select all contents of the worksheet.
Ctrl + B	Bold highlighted selection content
Ctrl + I	To Italic highlighted selection Content.
Ctrl + K	To insert the link
Ctrl + S	To Save the open worksheet.
Ctrl + U	To underline highlighted selection.
Ctrl + P	To bring up the print dialog box to begin the printing process.
Ctrl + Z	Undo last action.
Ctrl + F6	To switch between open workbooks or windows.
Ctrl + Page up	Move between work sheets in the same document.
Ctrl + Page down	Move between work sheets in the same document.
Ctrl + Tab	Move between Two or more open Excel files.
Alt + =	To create a formula to sum all of the above cells.
Ctrl + ‘	To insert the value of the above cell into the cell currently selected.
Ctrl + Shift + 1	To format number in comma format.
Ctrl + Shift + 4	To format number in currency format.
Ctrl + Shift + 3	To format number in date format.
Ctrl + Shift + 5	Format number in percentage format.
Ctrl + Shift + 6	Format number in scientific format.
Ctrl + Shift + 2	Format number in time format.
Ctrl + Arrow key	Move to next section of text.
Ctrl + Space	To selece the entire column
Shift + Space	To selece the entire Raw
Ctrl + –	To delete the selected column or row.
Ctrl + Shift + =	To insert a new column or row.
Ctrl + Home	To move to cell A1.

Views : 1606