Liquidity Ratio Analysis What It Measures Liquidity ratios are a set of ratios or figures that measure a company’s ability to pay off its short-term debt obligations. This is done by measuring a company’s liquid assets (including those that might easily be converted into cash) against its short-term liabilities. There are a number of different liquidity ratios‚ which each measure slightly different types of assets when calculating the ratio. More conservative measures will exclude assets that
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expense a good indicator of the cost of using those buildings and equipment? Compare that situation to a company with new buildings and equipment where there will be large amounts of depreciation expense. The remainder of our explanation of financial ratios and financial statement analysis will use information from the following income statement: Example Corporation Income Statement For the year ended December 31‚ 2011 | | Sales (all on credit) | $500‚000 | Cost of Goods Sold | 380
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evaluate how well it is performing‚ one of those tools is the debt ratio calculation. The debt ratio shows the proportion of assets financed with debt‚ liabilities. It is calculated by the companies total liabilities divided by its total assets and is used as a percentage. Total assets and total debts can be found on the balance sheet. “It can be used to evaluate a business’s ability to pay its debt” (Nobles p. 89). The debt ratio can be used to evaluate a business’s ability to pay it’s debts.
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The Golden Ratio By : Kaavya.K In mathematics and the arts‚ two quantities are in the golden ratio if the ratio of the sum of the quantities to the larger quantity is equal to the ratio of the larger quantity to the smaller one. The golden ratio is an irrational mathematical constant‚ approximately 1.6180339887. Other names frequently used for the golden ratio are the golden section and golden mean. Other terms encountered include extreme and mean ratio‚ medial section‚ divine
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Financial Reporting II Review of Ratio Analysis Ratio analysis is a useful tool for analyzing financial statements. Calculating ratios will aid in understanding the company’s strategy and in understanding its strengths and weaknesses relative to other companies and over time. They can sometimes be useful in identifying earnings management and in understanding the effect of accounting choices on the firm’s reported profitability and growth. Finally‚ the ratios help in obtaining a better understanding
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INTERPRETATION OF FINANCIAL STATEMENTS Ways of interpreting financial statements - Using individual items contained in financial statement. - Using ratios computed from items contained in Financial Statement (Ratio analysis) Reasons for interpreting accounts Accounts have to be analyzed and interpreted for the following logical points (1) Evaluation of the trading performance of a firm in order to have a measure of the quality of management running it. (2) Appraisal and monitoring
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Ratio Worksheet 1. a. Split £10 into the ratio 2 : 3 c. Split 50 sweets into the ratio 9 : 1 e. Split 2.50m into the ratio 3 : 2 g. Divide 56kg into the ratio 2 : 5 : 1 i. Divide 75 birds into the ratio 8 : 5 : 2 k. Split 3kg 600g into the ratio 1 : 2 : 3 b. Split £48 into the ratio 3 : 5 d. Change 250ml into the ratio 7 : 3 f. Change £6.60 into the ratio 5 : 6 h. Split £100 into the ratio 5 : 4 : 1 j. Divide 1.20m in the ratio 2 : 3 : 4 l. Split 1 hr 20 mins into the ratio 1 : 4
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1) Current Ratio The ratio is mainly used to give an idea of the company’s ability to pay back its short-term liabilities (debt and payables) with its short-term assets (cash‚ inventory‚ receivables). The higher the current ratio‚ the more capable the company is of paying its obligations. 2) Quick Ratio An indicator of a company’s short-term liquidity. The quick ratio measures a company’s ability to meet its short-term obligations with its most liquid assets. For this reason‚ the ratio excludes inventories
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Ratio Analysis Formulas 1) Financial ratios S.no | Ratio | Formula | Ideal ratio | comments | 1 | Current ratio | Current assetsCurrent liabilities | 2:1/1.33:1 | Indicates firm’s commitment to meet financial obligations.Avery heavy ratio is not desirable as it indicates less efficient use of funds | 2 | Quick ratio | Quick assetsCurrent liabilities | 1:1 | This ratio also indicates short term solvency of a firm | 3 | Debt –Equity ratios | long term debtequity | 1:2 | Indicates long
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Provisions 1.92 1.67 1.56 1.45 Net Current Assets -0.88 -1.09 -0.63 0.09 Miscellaneous Expenses 0 0 0 0 Total Assets 3.27 3.61 4.61 5.88 Contingent Liabilities 1.3 1.3 1.31 1.31 Book Value (Rs) -23.01 -26.19 -25.62 -25.09 Comparison & Ratio Analysis of two FMCG (Fast-Moving Consumer Goods) Companies. 1. Tarai Foods Limited. 2. Tata Global Beverages. Tata Global Beverage (Rs. In Crores) Mar ’13 Mar ’12 Mar ’11 Mar ’10 Sources Of Funds Total Share Capital 61
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