Académique Documents
Professionnel Documents
Culture Documents
Table of Contents
1. Ratio Analysis ...................................................................................................................................... 3 2. Profitability Ratios ............................................................................................................................... 3 2.1 Return on Capital Employed (ROCE) ............................................................................................. 3 2.2 Return on Net Worth (RONW) ...................................................................................................... 3 2.3 Return on Assets (ROA) ................................................................................................................. 4 2.4 Net Profit Margin (NPM) ............................................................................................................... 4 3. Liquidity Ratios .................................................................................................................................... 5 3.1 Quick Ratio .................................................................................................................................... 5 3.2 Current Ratio ................................................................................................................................. 5 3.3 Current liabilities to Net worth Ratio ............................................................................................ 5 3.4 Total liabilities to Net worth Ratio ................................................................................................ 6 3.5 Fixed assets to Net worth Ratio .................................................................................................... 6 4. Efficiency ratios ................................................................................................................................... 7 4.1 Inventory turnover ........................................................................................................................ 7 4.2 Days sales of inventory (DSI) ......................................................................................................... 7 4.3 Asset turnover............................................................................................................................... 7 4.4 Working capital turnover ratio ..................................................................................................... 8 4.5 Debtors velocity ............................................................................................................................ 8 4.5 Creditors velocity .......................................................................................................................... 8 5. References .......................................................................................................................................... 9
1. Ratio Analysis
Ratio Analysis is a tool used by financial analysts to conduct a quantitative analysis of information in a company's financial statements. Generally, ratios are used in two ways: for internal analysis of items in a balance sheet; and/or for comparative analysis of a companys ratios at different time periods and in comparison to other firms in the same industry. Ratios can be classified into three groups: Liquidity Ratios Efficiency Ratios Profitability Ratios
2. Profitability Ratios
They are used to measure how well a company performs and analyze how profit was earned relative to sales, total assets and net worth.
Formula: RONW =
Net income is for the full fiscal year (before dividends paid to common stock holders but after dividends to preferred stock.) Shareholder's equity does not include preferred shares.
Some financial analysts calculate it as ROA = Net Income + Interest Expense Interest Tax Savings Total Assets In this case, it measures how profitable a company is before leverage.
3. Liquidity Ratios
They are used to measure the financial soundness of a business and how well the company can satisfy its short- and long obligations. They are also called solvency ratios.
4. Efficiency ratios
They measure the quality of the firms receivables and how efficiently it uses and controls its assets, how effectively the firm is paying suppliers, and whether the firm is overtrading or undertrading on its equity (using borrowed funds).
5. References
www.dnb.com/product/contract/ratiosP.htm www.investopedia.com www.wikipedia.com