RATIO ANALYSIS

RATIO ANALYSIS

RATIO ANALYSIS—THE FOUNDATION OF FUNDAMENTAL ANALYSIS—HELPS TO

GAIN A DEEPER INSIGHT INTO THE FINANCIAL HEALTH AND THE CURRENT AND
PROBABLE PERFORMANCE OF THE COMPANY BEING STUDIED. FOR THIS
INSIGHT, THE ANALYSTS USE THE QUANTITATIVE METHOD WHERE THE
INFORMATION RECORDED IN THE COMPANY’S FINANCIAL STATEMENTS ARE
COMPARED AND ANALYZED.
TYPES OF RATIO ANAYLSIS

LIQUIDITY RATIOS THIS TYPE OF RATIO HELPS IN MEASURING THE ABILITY

OF A COMPANY TO TAKE CARE OF ITS SHORT-TERM DEBT OBLIGATIONS. A
HIGHER LIQUIDITY RATIO REPRESENTS THAT THE COMPANY IS HIGHLY RICH IN
CASH.
WORKING CAPITAL RATIOS TURNOVER RATIOS ARE USED TO DETERMINE
HOW EFFICIENTLY THE FINANCIAL ASSETS AND LIABILITIES OF AN
ORGANIZATION HAVE BEEN USED FOR THE PURPOSE OF GENERATING
REVENUES.
CAPITAL STRUCTURE RATIO CAN BE DEFINED AS A TYPE OF RATIO THAT IS
USED TO EVALUATE WHETHER A COMPANY IS SOLVENT AND WELL CAPABLE OF
PAYING OFF ITS DEBT OBLIGATIONS OR NOT.
• PROFITABILITY RATIOS THIS TYPE OF RATIO HELPS IN MEASURING
THE ABILITY OF A COMPANY IN EARNING SUFFICIENT PROFITS.
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WORKING CAPITAL RATIOS CAPITAL STRUCTURE
LIQUIDITY RATIO INVENTORY TURNOVER RATIO RATIOS
CURRENT RATIO DEBTORS TURNOVER RATIO DEBT EQUITY RATIO
DEBT COLLECTION RATIO PROPRIETORY RATIO
QUICK RATIO AVERAGE PAYMENT PERIOD
CAPITAL GEARING RATIO
CREDITORS TURNOVER RATIO
ABSOLUTE LIQUID DEBT SERVICE RATIO
WORKING CAPITAL TURNOVER
RATIO RATIO
FIXED ASSESTS TURNOVER RATIO
CAPITAL TURNOVER RATIO
PROFITABILTY RATIOS Overall profitability ratio
1. GROSS PROFIT RATIO
• Overall profitability ratio
2. OPERATING COST RATIO
3. OPERATING PROFIT RATIO
4. NET PROFIT RATIO
5. RETURN ON INVESTMENT RATIO
6. RETURN ON CAPITAL EMPLOYED RATIO
7. EARNINGS PER SHARE RATIO
8. DIVIDEND PAY OUT RATIO DIVIDEND PER EQUITY
9. EARNING PER EQUITY SHARE
10. DIVIDEND YIELD RATIO
11. PRICE EARNINGS RATIO
12. NET PROFIT TO NET WORTH RATIO