Todays Agenda

Ratio Analysis Group name submission

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mimrankhan79@hotmail.com Cell no: 03018278893

Common size statements

Common size statements are used to standardize financial statement components by expressing them as a percentage of relevant base Common size income statement: reflects every income statement head as a percentage of sales Common size balance sheet: reflects every balance sheet head as a percentage of assets

P.S: comparative analysis Exhibit 4.1 and 4.2 page # 115

Ratio Analysis

Ratio Analysis
Activity analysis (financial): Evaluates revenue and output generated by the firms assets Liquidity analysis: Measures the adequacy of a firms cash resources to meet its near term cash obligations Long term debt and solvency analysis (Gearing): Examines the firms capital structure, including the mix of its financing sources and the ability of the firm to satisfy its longer term debt and investment obligations Profitability analysis: Measures the income of the firm relative to its revenue and invested capital Investment/shareholders: Information to enable decisions to be made on the extent of the risk and the earning potential of a business investment

Activity analysis (financial)

Activity analysis (financial)

Short term (Operating) activity ratio
Inventory turnover ratio
Average No. Days inventory in stock

Receivables turnover
Average No. Days receivable outstanding

Payable turnover
Average No. Days payables outstanding

Working capital turnover

Activity analysis (financial)

Long term (Investment) activity ratio
Fixed assets turnover Total assets turnover

Liquidity Analysis

Liquidity Analysis
Cash conversion cycle Current ratio Quick ratio Cash ratio Cash flow from operations ratio Defensive interval ratio

Gearing

Long term debt and solvency analysis (Gearing)

Debt Covenants Debt to Equity
Interest coverage ratios
Time interest earned Fixed charge coverage Time interest earned (cash basis) Fixed charge coverage ratio (cash basis)

Capital Expenditure and CFO to Debt Ratio

Capital Expenditure ratio CFO to Debt

Profitability Analysis

Profitability Analysis
Return on sales
Gross Margin Operating Margin Margin Before Interest and Tax Pretax Margin Profit Margin Contribution Margin ROA ROTC ROE ROCE

Return on Investment

Profitability Analysis
Operating Leverage
Contribution Margin Ratio
Contribution /sales or 1-variable cost/sales

Operation Leverage Effect

Contribution margin ratio/return on sales or Contribution / operating income

Financial Leverage
Financial Leverage Effect
Operating income/net income

Total Leverage Effect

TLE =OLE*FLE

Investments/shareholders ratios

DuPont Analysis
3 stage DuPont analysis
Return on equity= (net profit margin)*(asset turnover)* (leverage ratio)

5 stage DuPont analysis

ROE= (net income/EBT)*(EBT/EBIT)*(EBIT/revenue)* (revenue/total assets) (total assets/equity)

Investments/shareholders ratios
Earnings per share EBITDA per share Book value per share Price to earnings Price to book value Dividend payout ratio Retention ratio

Industries specific ratios (discussion)

Banks Insurance Hotel Hospital Practice Pg 100 and 198 of reference book