LIQUIDITY RATIOS PROFITABILITY RATIOS

 Focuses on Balance Sheet  Focuses on Income Statement

 Focuses on CURRENT AND NON CURRENT ASSETS  Focuses on Operations UPPER PORTION OF EBIT

NAME OF RATIO FORMULA SIGNIFICANCE NAME OF RATIO FORMULA SIGNIFICANCE

1.) CURRENT RATIO/ BANKER’S CURRENT ASSETS / CURRENT Test ability to pay short term debts 1.) PROFIT MARGIN NET PROFIT / NET TOTAL SALES Measures profit generated after
RATIO/ WORKING CAPITAL RATIO LIABILITIES considering all costs and expenses
2.) QUICK RATIO/ ACID TEST QUICK ASSETS / CURRENT Test ability to pay short term debts without 2.) GROSS PROFIT RATE EBIT / NET TOTAL SALES Measures profit generated after
RATIO LIABILITIES inventory considering necessary production
(CASH, MARKETABLE SECURITIES, ACCOUNTS
RECEIVABLE)
costs
3.) CURRENT ASSETS TURNOVER NET SALES / CURRENT Measures current assets efficiency 3.) RETURN ON INVESTMENT EBIT x ATr / AVERAGE TOTAL Measures Earnings Gross to its
ASSETS ASSETS Investments employed
4.) INVENTORY TURNOVER COST OF GOODS SOLD / Measures firm efficiency in selling inventory 4.) RETURN ON ASSETS NET PROFIT / AVERAGE TOTAL Measures Firm’s ability to manage
AVERAGE INVENTORY ASSETS assets to generate PROFIT
5.) AVERAGE AGE OF INVENTORY/ AVERAGE INVENTORY / Measure # of days to averagely sell the 5.) RETURN ON EQUITY NET PROFIT / AVERAGE TOTAL Measures Rate of Return on
# OF DAYS SUPPLY OF (COST OF GOODS SOLD/365) inventory EQUITY Resources provided by Owners
INVENTORY 6.) RETURN ON ORDINARY PROFIT available to OS / AVERAGE Measures Rate of Return on
6.) RECEIVABLE TURNOVER NET CREDIT SALES / AVERAGE Mesures firm efficiency in collecting its EQUITY ORDINARY EQUITY Resources applicable to Ordinary
TRADE RECEIVABLES receivables Shares
7.) AVERAGE AGE OF AVERAGE TRADE Measures liquidity of a/r and evaluate # of 7.) RETURN ON SALES NET PROFIT / NET TOTAL SALES Measures Profit generated in
RECEIVABLES/ AVERAGE RECEIVABLES / days to average collect a/r per frim proportion to sales generated
COLLECTION PERIOD (NET CREDIT SALES/365) collection policy 8.) DEGREE OF OPERATING CONTRIBUTION MARGIN / EBIT Measures How volatile EBIT to change
8.) ACCOUNTS PAYABLE NET CREDIT PURCHASES / Determine if firm is efficient i paying its LLEVERAGE in sales Volume without changed in
TURNOVER AVERAGE TRADE PAYABLES payables Fixed Costs
9.) AVERAGE AGE OF ACCOUNTS AVERAGE TRADE PAYABLES / Measures number of days to pay its 9.) EARNINGS PER SHARE (NET PROFIT – applicable Pref. Div) / Peso Return of each Ordinary Share
PAYABLE/ PAYMENT PERIOD (NET CREDIT PURCHASES/365) currently maturing payables AVERAGE OS OUTSATNDING Outstanding. THE MOST AWAITED
10.) CASH TURNOVER OPERATING EXPENSES/ Meases availability of cash to meet daily RESULT OF ALL, AND INCLUDED IN
AVERAGE CASH BALANCE expenses THE PRESENTATION OF FS.
11.) DAYS CASH AVERAGE CASH BALANCE / # Of days of cash to be available to meet 10.) DILLUTED EARNNINGS PER (ADJ. NET PROFIT – applicable Pref. Peso Return of each Ordinary Share
(OPERATING EXPENSES/365) daily expenses SHARE Div) / OS OUTSTANDING AND Outstanding and potential Ordinary
12.) OPERATING CYCLE COLLECTION PERIOD + Measures number of days to convert POTENTIAL OS Shares
INVENTORY DAYS inventories into cash
13.) ASSET TURNOVER/ NET TOTAL SALES / AVERAGE Measures the efficiency of firm in managing
INVESTMENT TURNOVER TOTAL ASSETS it’s total assets
14.) EQUITY TURNOVER NET TOTAL SALES / AVERAGE Measures the ability of equity to generate SALIENT PONTS:
TOTAL EQUITY sales
15.) CAPITAL INTENSITY AVERAGE TOTAL ASSETS/ NET Measures how much assets needed to
RETURN - (NET PROFIT) Numerator
TOTAL SALES generate its sales
TURN OVER – (SALES, COGS, PURCHASES) Numerator
16.) WORKING CAPITAL NET TOTAL SALES / AVERAGE Measures the ability of working capital to
TURNOVER WORKING CAPITAL generate sales
DU PONT MODEL
EQUITY MULTIPLIER BOOK VALUE
SALIENT PONTS: RATIO PROFIT MARGIN ASSET TURNOVER (Leverage) PER SHARE
(Profitability) (Liquidity) (Growth)
Inventory Days Supply (INVENTORY) xxx TURN OVER – (SALES, COGS, PURCHASES) Numerator RETURN ON ASSETS (ROA) NET PROFIT / NET NET TOTAL SALES /
TOTAL SALES AVERAGE TOTAL
+Collection Period (RECEIVABLE) + xxx RETURN - (NET PROFIT) Numerator ASSETS
OPERATING CYCLE xxx RETURN ON EQUITY (ROE) NET PROFIT / NET NET TOTAL SALES / AVERAGE TOTAL
-Payment Period (PAYABLES) (xxx) TOTAL SALES AVERAGE TOTAL ASSETS / AVERAGE
NET CASH CYCLE xxx ASSETS TOTAL EQUITY
EARNINGS PER SHARE NET PROFIT / NET NET TOTAL SALES / AVERAGE TOTAL AVERAGE
TOTAL SALES AVERAGE TOTAL ASSETS / AVERAGE TOTAL
Techniques: ASSETS TOTAL EQUITY EQUITY/ # OF
ACCOUNTS PAIRED NOT PAIRED ORDINARY
SHARES
BALANCE SHEET ACCOUNTS AVERAGED NET
INCOME STATEMENT ACCOUNTS NET NET
 LEVERAGE RATIOS GROWTH RATIOS

 Focuses on NON CURRENT LIABILITIES AND EQUITY  Focuses on OUTSIDE INFORMATION AND MARKET PRICES and DIVIDENDS
 Focuses on LOWER PORTION OF EBIT  Focuses on Value of Shares and its Growth

NAME OF RATIO FORMULA SIGNIFICANCE NAME OF RATIO FORMULA SIGNIFICANCE

1.) TOTAL DEBT REATIO TOTAL LIABILITIES / TOTAL
ASSETS
2.) DEBT TO EQUITY RATIO TOTAL LIABILITIES / TOTAL
EQUITY
3.) EQUITY RATIO TOTAL EQUITY / TOTAL
ASSETS
4.) EQUITY MULTIPLIER AVERAGE TOTAL ASSETS /
AVERATE TOTAL EQUITY
5.) TIMES INTEREST EARNED EBIT / INTEREST EXPENSE
6.) FIXED EXPENSES EARNED EBT+FIXED CHARGES / FIXED
RATIO CHARGES
7.) DEGREE OF FINANCIAL EBIT / [EBIT – Interest Expense
LEVERAGE – Preferrence Dividend
GROSSED UP AFTER TAX]
8.) ASSET TO LIABILITY RATIO TOTAL ASSET / TOTAL
LIABOILITIES
9.) NON CURRENT ASSETS TO NON CURRENT ASSETS / NON
LONG TERM LIABILITY RATIO CURRENT LIABILITIES
COMPLETE MANAGEMENT INCOMENT STATEMENT
SALES P 100,000
LESS: VARIABLE COST (60,000)
CONTRIBUTION MARGIN 40,000
LESS: FIXED COST (30,000)
Earnings Before Interest and Tax (EBIT) 10,000
LESS: INTEREST EXPENSE (2,000)
Earnings Before Taxes (EBT) 8,000
LESS: 30%TAX (EBT x Tr) [8,000x30%] (2,400)
NET PROFIT 5,600
LESS: Applicable preferred Dividends (1,400)
PROFITS Available for O/S P 4,200
# of Ordinary Shares 1,000 shares
Earnings Per Share P 4.20 per Share
Measures % of Funds provided by 1.) PRICE PER EARNINGS RATIO MARKET PRICE of O/S / EARNINGS Measures Relationship between
Creditors PER SHARE Market Price of Shares over its
Earning Potential
Compares Resources provided by Creditors
over Investors and Owners 2.) DIVIDEND PAY OUT RATIO DIVIDEND PER O/S / EARNINGS Shows % of earnings Paid to
PER SHARE Investors
REFLECTS FINANCIAL STRENGTH OF
OWNERS AND INVESTORS 3.) DIVIDEND YIELD RATIO DIVIDEND PER O/S / MARKET PRICE Shows the rate Earned by
PER SHARE Shareholders from Dividends Relative
How many Times Assets is Multiplied by
to Current Price of Shares
Owner and Investor Funds
4.) DIVIDEND REINVESTMENT/ 1 – DIVIDEND PAY OUT RATIO Shows % of earnings Retained by
Measures How many Times we can cover
RETENTION RATE Company as REINVESTMENT
Interest Expense using EBIT
5.) DIVIDEND PER SHARE DIVIDENDS declared or Paid / # of Shows proportion of Net Income
Measures How many Times we can cover
O/S OUTSATNDING distributed to Investor on per share
our Fixed Charges
basis they owned.
Measures THE Ability of Firm to use DEBT
7.) BOOK VALUE PER Liquidating Value of PS xxx Value of One Preference share over its
as a leverage or multiply NET PROFIT
PREFERENCE SHARE + Applicable Dividend PS xxx Total Preference Shareholder’s Equity
Total Preference SHE xxx
Measures How much we can cover our
/ # OF PS / xx
Liabilities using our Assets
BV per PS xxx
Measures the Strength of our Non current
6.) BOOK VALUE PER ORDINARY Total Share Holder’s Equity xxx Value of One Ordinary share over its
Assets over its Non current Liabilities
SHARE Less: Total Preference SHE (xxx) Total Ordinary Shareholder’s Equity
Ordinary SHE xxx
/ # OF OS / xx
BV per OS xxx
7.) BOOK VALUE PER SHARES TOTAL SHE / # OF ORDINARY Value of One share over its Total
SHARES Shareholder’s Equity
8.) ECONOMIC VALUE ADDED NET PROFIT xxx A measure of Shareholder’s value of
[EVA] Less: TOTAL SHE x WACC (xxx) Creating Profits over its Relative Cost
Economic Value Added xxx of Investment or Capital
9.) MARKET PRICE BOOK RATIO MARKET PRICE of O/S / BV PER O/S Measure the Current Price of SHARE
over its own Book value.
SALIENT PONTS:
CONSIDERATION OF APPLICABLE DIVIDENDS FOR PREFERENCE SHARES EQUITY:
Type of Preference Share Current Dividend Dividends in Arrears
Cumulative INCLUDED INCLUDED IF PAID
Non Cumulative INCLUDED WHEN DECLARED EXCLUDED
IF silent INCLUDED EXCLUDED
RELATIONSHIP OF EPS TO DIVIDENDS AND SAVINGS:

EARNINGS DIVISION PURPOSE Amount RATE Short Term Long Term

PER of Name of Rate Investors Invstors
SHARE Partition
DIVIDENDS Distribution to inevstor/ P 1.00 40.82 Dividend Pay WANT WANT MORE
DIVIDEND RETAINED
P 2.45 owners of Shares % out Rate EARNINGS AND
MORE AND HIGH SAVNGS
SAVINGS Retained by the Company Retention/ LIQUIDITY RATE
and Saved in the Retained P 2.45 59.18 Reinvestment MV/ SHARE = MV/ SHARE =
Earnings for Reinvestment Rate DECREASE INCREASE
%