T O P I C :- C O M P A R A T IV E

A N D R A T I O A N A L Y S IS

Subject : Financial Management

MBA Sem.2
Rollno:32
Prepared By: Prakash chodingala
Guided By: Dr.Vedant Pandya
 Meaning of comparative:

he item-by-item comparison of two or more

comparable alternatives, processes, products,
qualifications, sets of data, systems, or the like. In
accounting, for example, changes in a financial
statement's items over several accounting periods
may be presented together to detect the emerging
trends in the company's operations and results. See
also comparability analysis.
 Advantages

Comparison:
Horizontal Analysis:
Trend Analysis:
Measuring Financial:
 Disadvantages

Inflationary Effect:
Ascertaining Correct Trend:
Supply Misleading Information:
Uniformity in Principle:
 Meaning of Ratio Analysis:

Ratio analysis is the process of determining and

interpreting numerical relationships based on
financial statements. A ratio is a statistical yardstick
that provides a measure of the relationship between
two variables or figures.
 DEFINITION

RATIO ANALYSIS is a form of Financial Statement

Analysis that is used to obtain a quick indication of a
firm’s financial performance in several key areas.
 Advantages:

1. Forecasting and Planning

2. Budgeting
3. Measurement of Operating Efficiency
4. Communication
5. Control of Performance and Cost
 Limitations:

1. Limitations of Financial Statements

2. Historical Information
3. Different Accounting Policies
4. Lack of Standard of Comparison
5. Quantitative Analysis
 Classification of Ratio

1. Liquidity Ratios
2. Profitability Ratios
3. Activity Ratios
4. Solvency Ratios
 Liquidity Ratios

1) Current Ratio = Current Asset

Current Liabilities

2) Quick Ratio = Liquid assets

Current liabilities
 Example 1

On December 31, 2016, the balance sheet of Marshal

company shows the total current assets of
$1,100,000 and the total current liabilities of
$400,000. Your are required to compute current
ratio of the company.
Solution
Current ratio = Current assets/Current liabilities
= $1,100,000/$400,000
= 2.75 times
 Example 2

 The following are the current assets and current liabilities of PQR
Limited:
 Current assets: Current liabilities:
 Cash: $2,400 Accounts payable: $11,600
 Accounts receivable: $12,000 Accrued parables: $1,800
 Inventory: $16,000 Notes payable: $600
 Prepaid expenses: $600 Calculate quick ratio
Solution:
 Liquid assets: = (Total current assets) – (Inventories + Prepaid expenses)
=$31,000 – ($16,000 + $600)
= $31,000 – $16,600
= $14,400
 Current liabilities: = $11,600 + $1,800 + $600 = $14,000
Liquid assets / Current liabilities = 14,400/14,000 = 1.03
Profitability Ratios
Example
 Solution:

 Gross Profit = Gross Profit / sales * 100

= 16147/53553*100 = 30.15%

 Net Profit = Net Profit / Sales*100

= 3044/53553*10 = 5.68%

 Earnings Per share = Net Profit / Total no of shares outstanding

= 3044/2346
= 1.30
 Activity Ratios

1 ) Inventory Turnover Ratio= Cost of goods sold

Average Inventory
Example:
2) Receivables Turnover Ratio=Net Credit Sales
Average Trade Receivable

Example:
 Solvency Ratios

1)

Example:
Example:
 CONCLUSION

RATIO ANALYSIS HELPS IN COMPARISION OF

FINANCIAL POSITION OF A COMPANY WITH
THE STANDARD ONE .
IT HELPS IN IDENTIFICATION AND
CORRECTION OF STRENGTH AND WEAKNESSES
Thank you..