ACCOUNTI

NG-
ONLI
NELEARNI
NG[
0771125547]
▬▬▬▬▬▬▬▬▬▬▬▬▬▬▬▬▬▬▬▬▬▬▬
▬

RATI
OANALYSI
S[MRKAYBEE-
0771125547]
▬▬▬▬▬▬▬▬▬▬▬▬▬▬▬▬▬▬▬▬▬▬▬
◾ Ratioexpressesonefi
gur
einter
msofanother
l
ike(2:1)and*rati
onanal
ysi
s*i
nvol
vescompari
son
ofrat
iostoassessanyweaknessorstr
engt
hofa
company .
◾r at
ioanal
ysisprov
idesinfor
mationabouta
numberofdi
fferentr
elat
ionshi
psthatarenot
hi
ghli
ghtedi
nthecompany '
sfi
nancial
stat
ement
s

Rat
ioscanbecompar
edwi
thsi
mil
arr
ati
osof:
▬▬▬▬▬▬▬▬▬▬▬▬▬▬▬▬▬▬▬▬
◾ adi
ff
erentr
epor
ti
ngper
iodent
ryl
i
ke2019&2020
◾ anot
herent
ryf
ort
hesamer
epor
ti
ngper
iod
◾i
ndust
ryav
arager
ati
os

*NB:anal
ysi
sofrati
osi
snotanexactsci
ence:
t
herecanbenohar
dandfastr
ules*

REASONSOFINTERPRETATI
ONOFFI
NANCI
AL
STATEMENTS
▬▬▬▬▬▬▬▬▬▬▬▬▬▬▬▬▬▬▬▬▬
◾ Toanal
yset
hepastr
ecor
ds
◾t
oexami
net
hesol
vencyofbusi
ness
◾t
oev
aluat
ethegr
owt
hoft
hebusi
ness
◾t omeasur
etheprofi
tabi
l
ityoft
hebusi
ness
t
hroughpr
ofi
tabl
erati
os

BENEFI
TSOFRATI
OANALYSI
S
▬▬▬▬▬▬▬▬▬▬▬▬▬▬▬
◾ hel
ptocompar
ethebusi
ness'
sper
for
mance
◾t
heycanbeusedaspr
oduct
ionofi
nsol
vency
◾itcanbeusedasapoi
nterofar
easofweakness
andst
rengt
h
◾i
tcanbeusedi
ntheassessmentofcr
edi
tri
sks
◾ hel
pst
oanal
yset
hepastr
esul
ts

DI
SADVANTAGESOFRATI
OANALYSI
S
▬▬▬▬▬▬▬▬▬▬▬▬▬▬▬▬▬▬▬▬▬
◾ Rati
osar
eaf
fect
edbyi
nfl
ati
onsorexchange
r
ates
◾ sev
eralf
ormul
ascanbeusedf
oroner
ati
o&
somearecompli
cat
ing
◾r esul
tsdependont
hequal
i
tyoff
inanci
al
st
atements

TYPESOFRATI
OSI
NACCOUNTI
NG
▬▬▬▬▬▬▬▬▬▬▬▬▬▬▬
Theareonly4t
ypesofr
ati
ost
hatmaybe
di
scussedbel
l
ow:
◾ Pr
ofi
tabi
l
ityr
ati
os
◾l
i
qui
dit
yrat
ios
◾ ef
fi
ciencyr
ati
os
◾i
nvest
ment
srat
ios

PROFI
TABI
LITYRATI
OS
▬▬▬▬▬▬▬▬▬▬▬▬▬▬▬

1]Gr
osspr
ofi
tper
cent
age[
grosspr
ofi
tper
cent
age]

✓i
tiscal
cul
atedas:
Gr
osspr
ofi
t
▬▬▬▬▬▬▬▬▬×100
Sal
es/t
urnov
er
✓Ahi ghgrossprof
itper
centagemeansgreat
er
tr
adingsuccessandhigherprof
its&thegr
ossprofi
t
marginmaybei mprovedbyincreasi
ngsel
l
ingpr
ices
orobtai
ningcheapersuppl
ies*
2]NetPr
ofi
tPer
cent
age
✓i
tmaybecal
cul
atedasf
oll
ows

Netpr
ofi
t
▬▬▬▬▬▬▬▬▬×100
Rev
enue/t
urnov
er

✓Thisindi
cat
eshowabusinessi
sabl
etocont
rol
i
t'
sexpensesoroper
ati
ngcost
s

3]
ROCE(
RETURNOFCAPI
TALEMPLOYED)
✓i
tiscal
cul
atedas:

Pr
ofi
tb4i
nter
est&t
ax
▬▬▬▬▬▬▬▬▬×100
Capi
tal
empl
oyed
✓Howt
ofi
ndcapi
tal
empl
oyed:
Capi
talemployed=i
ssuedshar
es+r
eser
ves+non-
cur
rentli
abi
l
iti
es
Ornoncurr
entnoasset
s+cur
rentasset
s-cur
rent
l
iabi
l
iti
es
✓Thi
sisi
mpor
tantr
ati
ononpr
ofi
tabi
l
ityr
ati
os*

4]RETURNONEQUI
TY
✓i
tiscal
cul
atedas:

PATI
P
▬▬▬▬▬▬▬▬▬×100
EQUI
TY

✓PATIPstandsforPr
ofi
tAf
terTax,
Int
erest&
Pr
efer
encedivi
dendspai
d
✓EQUI
TYi
sor
dinar
yshar
ecapi
tal
plusr
eser
ves

LI
QUI
DITYRATI
OS
▬▬▬▬▬▬▬▬▬▬▬▬

✓Liqui
dit
ysi
mpl
eany
timet
hati
seasi
l
yconv
ert
ed
i
ntocash
✓l
iqui
dit
yrati
oshel
ptoassesst
hecashposi
ti
on
wi
thi
nbusiness
✓iti
sanindicat
orofthewhet herthebusi
nesshas
t
hecapacit
yt opayi
tstradepay abl
es,expenses,
l
oansandothercurr
entliabi
l
ities
✓Li
qui
dit
yincl
udest
hef
oll
owi
ngr
ati
os:

1]
CURRENTRATI
O
▬▬▬▬▬▬▬▬▬▬▬
✓thisrat
iohel
pstodeci
dewhetherthecurrent
assetswil
lbeabl
etogener
atesuff
icientcashtopay
of
fthecur
rentl
i
abi
l
iti
esasandwhent
heyf
all
due
✓i
tiscal
cul
atedasf
oll
ows:
Cur
rentasset
s
-
▬▬▬▬▬▬▬▬▬▬▬▬
Cur
rentl
i
abi
l
iti
es

2]
CURRENTRATI
O
▬▬▬▬▬▬▬▬▬▬▬
✓usedtotestt
heav
ail
abl
eli
qui
dit
yposi
ti
onofa
company
✓i
tiscal
cul
atedasf
oll
ows

Cur
rentasset
s-i
nvent
ory
▬▬▬▬▬▬▬▬▬▬▬
Cur
rentl
i
abi
l
iti
es
Currentasset
sminusst
ock(
inv
ent
ory
)maybe
ref
erredasquickr
ati
os
✓ithelpsindecidi
ngwhethert
hequickassets,
that
i
s,yourcurrentasset
s-st
ock,oft
hecompanywi l
l
generatesuff
ici
entcashtopayof
fthecurrent
l
iabi
li
tiesasandwhent heyfal
l

3]
RATEOFSTOCKTURNOVER
▬▬▬▬▬▬▬▬▬▬▬▬▬▬
✓iti
ndi
cateshowmanyt
imest
hei
nvent
oryi
sbei
ng
t
urnedoveri
nay ear
✓i
tiscal
cul
atedas
Costofsal
es
▬▬▬▬▬▬▬▬▬
Av
eragei
nvent
ory

Howt
ocal
cul
ateav
eragei
nvent
ory
Op+cl
stock
▬▬▬▬▬▬
2
NB:
i
tismeasur
edi
nti
mes
4]ASSETTURNOVER
▬▬▬▬▬▬▬▬▬▬▬▬

✓i
sshowshowmuchr ev
enuei
sgener
atedbya
moneywor
thofasset
s

Sal
esr
evenue
▬▬▬▬▬▬▬▬▬▬▬
Tot
alasset
s
5]
TRADERECI
EVABLES COLLECTI
ONPERI
OD
▬▬▬▬▬▬▬▬▬▬▬▬
✓thi
sref
lect
sthenumberofday
sitt
akesf
ora
cust
omertopay
Debt
ors
▬▬▬▬▬×365(
day
s)
Cr
edi
tsal
es

6]
TRADEPAYABLESPAYMENTPERI
OD
▬▬▬▬▬▬▬▬▬▬▬▬▬▬▬▬▬▬

✓thi
srefl
ect
sthenumberoft
heday
sitt
akesf
ora
companyt
osettl
eit
sbi
ll
s
Cr
edi
tor
s
▬▬▬▬▬▬-
×365(
day
s)
Crpur
chases

7]UTI
LISATI
ONOFCAPI
TALEMPLOYED
▬▬▬▬▬▬▬▬▬▬▬▬▬▬▬▬▬▬▬▬
✓itshowshoweffecti
vel
ythecapi
tal
empl
oyedhas
beenusedtogenerat
esales

Sal
esr
evenue
▬▬▬▬▬▬▬▬▬▬
Capi
tal
empl
oyed

8]
STOCKTURNOVER(
DAYS)
▬▬▬▬▬▬▬▬▬▬▬▬▬
Av
eragei
nvent
ory
▬▬▬▬▬▬▬▬▬×365
Av
eragest
ock

9]
WORKINGCAPI
TALCYCLE(
orcashoper
ati
ng
cy
cle)
▬▬▬▬▬▬▬▬▬▬▬▬▬▬▬▬▬▬▬▬▬▬▬
=TradeRecei
vabl
esTurnover(
days)
+inv
ent
ory
tur
nover(day
s)-
tr
adepayables(day
s)

10]
NETWORKI
NGASSETSTOREVENUE
▬▬▬▬▬▬▬▬▬▬▬▬▬▬▬▬▬

Networ
kingasset
s
▬▬▬▬▬▬▬▬▬×100
Rev
enue

(
Networki
ngasset
s=i
nvent
ori
es+t
rader
ecei
vabl
es
-
tr
adepayabl
es)

I
NVESTMENTRATI
OS
▬▬▬▬▬▬▬▬▬▬▬▬▬▬▬▬▬▬▬▬▬▬

✓Sharehol
ders*i
nvest*i
nacompanyinor
dert
oget
*
div
idends*onthei
rinv
estmentandt
heyal
somake
capi
tal
gai
nwhenmar
kerpr
iceoft
he*
shar
es*wi
l
l
ri
se
✓Thisgr
oupofrat
ioscommonlyusedbyli
sted
compani
estoassi
stinv
est
orswit
hmor e
i
nfor
mati
on.

*Youshoul
dknowt
hedef
ini
ti
onofabov
ebol
ded
words*
✓invest-
---
>Istocommi
tmoneyi
nthehopeof
f
inancialgain
✓divi
dend--
--
--
->paymentofmoneybyacompanyt
o
i
tssharehol
der
s, usual
l
ymadeperi
odical
l
yi.
e
annual
lyormonthly
✓share-
--
--
--
>apor
ti
onofsomethi
ngmost
lybased
onasset
sall
ott
edtosomeone

Ty
pesofi
nvest
mentr
ati
os
▬▬▬▬▬▬▬▬▬▬▬▬▬▬▬
▪
int
erestcov
er
▪
ear
ningpershar
e
▪
pri
ceear
ningsr
ati
o
▪
Div
idendcov
er
▪
div
idendy
iel
d
▪
Div
idendpershar
e
▪
Gear
ingr
ati
o
▪
ear
ningy
iel
d

Thesetypesofr
ati
osmost l
yandcommonlytendt
o
tr
oublesomeofourstudent
salotandaclear
expl
anati
onhavebeengivenoneachrat
io

1]
INTERESTCOVER
▬▬▬▬▬▬▬▬▬▬
✓Thisr
ati
oshowstheabi
li
tyoft
hecompanyto
cov
erit
'sl
ongter
m bor
rowi
ngoutofcur
rentpr
ofi
ts
✓i
tismeasur
esi
temsandi
t'
sint
eresti
sonl
ybased
ont
hel
ongt
erml
i
abi
l
iti
essuchasdebent
ures

Pr
ofi
tbef
orei
nter
estandt
ax
▬▬▬▬▬▬▬▬▬▬▬
I
nter
estchar
ges

Don'
tfor
getuni
tst
omeasur
ethati
s(t
imes)

2]EARNI
NGSPERSHARE
✓Thisrat
ioshowsoftenusedbypot enti
ali
nvest
ors
whendecidi
ngwhetherthereturnonthei
r
i
nvestmenti
sworththerisktaken,

Netpr
ofi
t-
int
erest
-t
ax&pr
efer
encedi
vi
dend
▬▬▬▬▬▬▬▬▬▬▬▬▬▬▬
Numberofor
dinar
yshar
es
✓Earni
ngspershar eshowshowmuchpr
ofi
taft
er
taxandpreferencedi
vi
dendi
satt
ri
but
abl
etoeach
ordi
naryshares

3]
PRI
CEEARNI
NGSRATI
O
▬▬▬▬▬▬▬▬▬▬▬▬▬▬▬
✓thi
sonlymeasuresthenumberofti
mesthe
cur
rentmarketpr
iceexceedsorov
erv
aluet
he
cur
rentear
ningspershare
✓itshowshowmanyti
mescurr
enty
ear'sdi
vi
dends
wouldbeneededt
opur
chaset
hesharesatt
oday'
s
pr
ice
I
tiscal
cul
atedasf
oll
ows™

Mar
ketpr
ice
▬▬▬▬▬▬▬▬▬▬
Ear
ningspershar
e
4]
DIVI
DENDCOVER
▬▬▬▬▬▬▬▬▬▬
✓Thisrat
ioi
ndi
cat
esthenumberoft
imescur
rent
di
vi
dendscanbepai
doutofthepr
ofi
ts
✓i
tiscal
cul
atedasf
oll
ows:

*
Prof
it
-i
nter
est
-t
ax-
prefdi
vi
dends*
▬▬▬▬▬▬▬▬▬▬▬▬▬
*
Ordi
nar
ydi
vi
dendpai
d*

▪i
tismeasur
edi
nti
mes

✓dividendcovershowshowmanyt i
mest he
or
dinarydivi
dendcanbepaidoutofprof
it
saf t
ert
ax,
i
nterestandprefer
encedi
vi
dends.
5]
DIVI
DENDYI
ELD
▬▬▬▬▬▬▬▬▬▬
✓itisexpr
essestheshar
ehol
dersdi
videndasa
percent
ageofthemarketval
ueofshares
✓i
tshowst
hei
nvest
orsr
etur
noni
nvest
ment

✓i
tmaybecal
cul
atedas:

Nomi
nal
val
ueofshar
e
▬▬▬▬▬▬▬▬▬▬×100
Mar
ketpr
iceofshar
e

ORMAYBECALCULATEDAS:
Di
vi
dendpershar
e
▬▬▬▬▬▬▬▬▬(
%)
Mar
ketpr
ice
◾ Divi
dendyiel
dist
hereturnashar
ehol
deri
s
cur
rentl
yexpecti
ngonsharesofacompany.
◾ Alowdiv
idendyiel
dmayencourageinvest
orst
o
di
sposet
heirshar
esandinv
esttheproceeds
el
sewher
e

Decl
aredr
ateofdi
vi
dendi
sfoundby:
▬▬▬▬▬▬▬▬▬▬▬▬▬▬▬▬▬▬

Or
dinar
ydi
vi
dendpai
d
▬▬▬▬▬▬▬▬▬▬×100
Numberofor
dshar
es

6]
DIVI
DENDPERSHARE
▬▬▬▬▬▬▬▬▬▬▬
✓Thisrati
osconcer
nedwithdi
vi
dendpai
dinan
account
ingperi
odpershar
e
Or
ddi
vi
dendpai
d
▬▬▬▬▬▬▬▬▬▬×100
Tot
al#ofor
dshar
es

7]
EARNI
NGSYI
ELD
▬▬▬▬▬▬▬▬▬
✓Thi
srat
ioexpr
esstheearni
ngsofthecompanyas
aper
cent
ageofmarketpri
ceofi
tsshare

Pr
ofi
t-i
nter
est
-pr
efdi
vi
dend-
tax
▬▬▬▬▬▬▬▬▬▬▬▬▬
Mar
ketpr
ice×numberofshar
es

Or
Di
vi
dendy
iel
d×di
vi
dendcov
er
8]
GEARI
NGRATI
O
▬▬▬▬▬▬▬▬▬
✓Maybecal
cul
atedas

Fi
xedcostcapi
tal
▬▬▬▬▬▬▬▬▬×100
Tot
alcapi
tal
.

▪Fi
xedcostcapit
al=longt
erml
oans+debent
ures
+pref
erenceshares
▪
tot
alcapi
tal
=fi
xedcostcapi
tal
+equi
ty
▪
Equi
ty=or
dinar
yshar
es+al
lreser
ves

Thanky
ou
▬▬▬▬▬▬▬▬▬▬▬▬▬
◾ WESI
NKBLACK
◾ TNOPEDZABHORA
◾ SI
YAQEDAUMDLALO

Joi
_ nmrkay
bee-
onl
i
nel
ear
ning@0771125547_