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Return On Net Assets Pait/Net Assets X 100
Return On Net Assets Pait/Net Assets X 100
BASIC CLASSIFICATION
SUB CATEGORY SUB ANALYSIS RATIOS FORMULAE IMPACTS / IMPLICATIONS
OBSERVATIONS ANS DERIVED IN
I. EARNINGS RATIO (i) PRINCIPAL RATIOS %
Measures the overall
effectiveness of the
management in
generating
profits with its
available
1. RETURN ON NET ASSETS PAIT/NET ASSETS X 100
resources %
Indication of good
financial
health and the
managements
ability to earn a
satisfactory profit and
return on
2. NET PROFIT MARGIN PAIT/SALES X 100 investments %
Indicates a company
with
which it is able to use
all Higher the Net asset Turnover,
its assets & resources more the assests are
3. NET ASSET TURNOVER SALES / NET ASSETS to generate sales efficiently used NO/. OF TIMES
Measures the returns
earned on owners
(both preference and
equity capitals)
investments using Higher the returns, better the
4. RETURN ON EQUITY PAITPD/(EQ.SH.CAP+RES)
normal values. position of the owners
Dividends are
(PAITPD - RETAINED
company's evidence to
EARNINGS) / NO. OF
prove its ability to
SHARES ELIGIBLEprovide return for its
V. INVESTORS RATIO 23. DIVIDEND PER SHARE FOR DIVIDEND share holders
This is a direct
comparision between
the return provided for
the share holders as a
percentage of the
market value of their
share holdings and the
DIVIDEND PER SHARE interest yields from
/ loan stocks and gilts
MARKET PRICE PER and other investment
24. DIVIDEND YIELD SHARE X 100 opportunities. %
It is a measure of a
company's
performance and is
PAITPD / NO. OF particularly useful
SHARES when it is compared
ELIGIBLE FOR with the results of
25. EARNINGS PER SHARE DIVIDEND previous several years. CURRENCY
It measures the
relationship between
MARKET VALUE PER the market value of
SHARE / the company's shares
EARNINGS PER and the earnings from
26. PRICE EARNING RATIO SHARE those shares. NO/. OF TIMES
This indicates the
proportion of
distributable profits for
the year that is being
retained by the
company & the level of
risk that the company
will not be able to
maintain the same A high dividend cover means a
EARNINGS PRE dividend payments in high
SHARE / future years should proportion of profits are
27. DIVIDEND COVER DIVIDEND PER SHARE the earnings fall. retained NO/. OF TIMES
EARNINGS PER The earnings yield should be
SHARE / Earnings yield can be greater
MARKET VALUE PER matched against the than the share holders
SHARE investors required rate opportunity
28. EARNINGS YIELD X100 of return cost (required rate of return) %
NET PROFIT / SHARE
HOLDERS
29. RETURN ON EQUITY BOOK VALUE X 100 %
VED IN
ITEMS DEFINITIONS / FORMULAE COMMENTS
SPOT RATE Rate available for buying or selling a currency immediately
Profit made on difference between spot buy rate
and
SPREAD spot sell rate
* The home country
exporters will
suffer as their receipts (if
invoiced
raised in foreign currency)
value
will fall down.
* The home country
importers will
enjoy as their payments ( if
invoice
are settled in foreign
currency) value will fall
CURRENCY FLUCTUATIONS
If Home Currency gets stronger down
* The home country
exporters will
enjoy as their receipts (if
invoiced
raised in foreign currency)
value
will increase.
* The home country
importers will
suffer as their payments ( if
invoice are settled in foreign
currency) value will
If Home Currency gets Weaker increase.
Where,
F0 = Forward rate or
expected
Future Spot rate of
Base
currency
S0 = Spot rate of Base
currency
ic = Interest rate of foreign
currency (to be found)
ib = Interest rate of Base
country
INTEREST RATE PARITY
F0 = S0 X (1+ic)/(1+ib) currency
Where,
F0 = Forward rate or
expected
Future Spot rate of
Base
currency
S0 = Spot rate of Base
currency
hc = Inflation rate of foreign
currency (to be found)
hb = Inflation rate of Base
country
PURCHASING POWER F0
PARITY
= S0 X (1+hc) / (1+hb) currency
THE ECONOMIC ENVIRONMENT FOR BUSINESS
MACRO ECONOMICS Economics that deals with the structure, Performance and behaviour of an economy as a whole.
The trends of the economy are analysed with the focus on
*National income (gross national product)
*Inflation
*unemployment
*Interest rates
*Foreign exchange currency rates
*International Trade
*Investments
MICRO ECONOMICS Study of workings and behaviour of individual economic units such as markets & firms
Eg: Study of
* perfect competition
* Monopoly
* Oligopoly etc
Policy framed by the Government so as to influence the performance and
behaviour of the
MACRO ECONOMIC POLICY National economy as a whole
are :
* Increase or sustain Economic Growth
* Avoid Extreme Economic Fluctuations
* Maintain Price Stability
* achieve Full employment or eradicate unemployment
* healthy Balance of payments
POLITICAL ECONOMIC AIMS * eradicate extreme poverty
1. Demand Inflation - occurs when the demand and purchasing power outstrips
(exceeds) the rate of output. Options for Govt. To reduce demand are - increasing
taxation, lowering govt. expenditures & increasing interest rates.
2. Cost Inflation - Increase in cost because of the shortage of factors (money,
material, labour etc) of supply.
3. Imported Inflation
4. Money supply Inflation
INFLATION - 5 TYPES 5. 'Expectations' effect Inflation
An effect in economy in which an increase in spending produces an increase in
national income and
MULTIPLIER EFFECT consumption greater than the initial amount spent.
FORMULAE