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ratio and vertical acs

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08/15/2013

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# PRESENTED BY

: 
JAIN KHUSHMAT CHANDYOKE AKSHI

Ratio

My bike s fuel has a ratio of
oil to petrol

1 : 25
Sounds complicated

Ratio?
 Ratio is a way of comparing two or more quantities  E.g.
± Number of Red Smarties in a box compared to Blue ± Number of girls in a class compared to boys

Count the number of red and green hearts 4 RED and 8 GREEN

Record the numbers using headings like this

Red : Green 4:8
The says to

:

Try to write the ratio in its simplest terms Red : Green 4:8 2:4 1:2
Divide ÷ by 2

The ratio of red to green is Red : Green 1:2 This tells you that there are 2 green hearts for every red heart

Copy and complete this chart
Ratio 12 : 16 24 : 32 27 : 36 28 : 40 Simplest terms

3:4 3:4 3:4 7 : 10

RATIO ANALYSIS
TYPES OF RATIO: REVENUE RATIO BALANCE SHEET RATIO COMBINE RATIO

 REVENUE RATIO : If both amounts from revenue statement is known as revenue ratio.  BALANCE SHEET RATIO : If both the amounts from balance sheet it will be termed as balance sheet ratio.  COMBINE RATIO : If one amount is from revenue and another from balance sheet then it will termed as combine ratio.

REVENUE STATEMENT
particulars Sales: Cash Credit Rs. Xxx Xxx -------XXXX XXX Xxx Xxx Xxx xxx ------Xxx XXX Xxx Xxx xxx ------Xxx

Less: Cost of goods sold opening stock +Purchases +Direct wages - return outwards - Closing stock COGS gross profit (SALES- COGS) Less operating expenses: 1)ADMINISTRATIVE EXPENSES 2)SELLING EXPENSES 3)FINANCIAL EXPENCES Operating expenses

particulars OPERATING PROFIT(GP-Operating exp) Add non operating income Profit on sale of assets

Rs. Xxx

Xxx ---XXX xxx ---Xxx xxx ---Xxx Xxx Xxx ----Xxx

LESS Non operating expenses Loss on sale of assets Net profit before tax Less Taxation Net profit after tax Less: Appropriation Transfer to General reserve Interim dividend Retained earning

1.GROSS PROFIT RATIO

GROSS PROFIT _________________________ X 100 =____% NET SALES
This ratio indicates trading profitability higher ratio means higher profit and vise-versa

2.NET PROFIT RATIO
NET PROFIT X 100 = _____ % NET SALES

___________________

This ratio indicates overall business profitability higher the ratio higher is the profit and vise-versa.

3.EXPENSE RATIO
_____________________

EXPENSES NET SALES

X 100 = ____%

This ratio indicate expenses in relation to sales higher ratio means higher expenses and lower profit and vise-versa

4.OPERATING RATIO
COGS +OP EXP ________________________ NET SALES

× 100 =_____%

This ratio indicates total cost of business operation in relation to net sales, higher the ratio higher is the cost and lower will be profit and vise-versa

5.STOCK TURN OVER RATIO
COST OF GOOD S SOLD ___________________________________ AVERAGE STOCK
AVERAGE STOCK = OPENING STOCK + CLOSING STOCK 2
_________________________________________

=_______TIME

This ratio indicates buying and selling efficiency more number of time means better efficiency .

VERTICAL BALANCE SHEET
Particulars
Sources of fund Shareholders fund Equity shares Preference shares

Amt

ADD: Reserve and Surplus General reserve P&l (dr) LESS: Fictitious assets P&l (cr) Properitors fund/net worth ADD: Long term liability 10%debentures Bank loan Total fund/Capital employed

Xxx Xxx Xxx Xxx Xxx ---------Xxx Xxx Xxx ---------xxx

Application of funds Fixed assets Land and building Furniture Machinery Goodwill Trademark Add: Trade Investment Add: Working capital Current assets Closing stock Bills receivable Prepaid exp Short term investment TCA Less: Current liabilities Bills payable Bank overdraft Outstanding exp TCL Working capital (TCA-TCL)

Xxx Xxx Xxx Xxx Xxx Xxx xxx Xxx Xxx Xxx Xxx Xxx Xxx Xxx Xxx Xxx Xxx Xxx ---------xxx

Total fund/Capital employed (FA +INV+WC)

II .BALANCE SHEET RATIOS
1. CURRENT RATIO

CURRENT ASSETS ____________________________ CURENT LIABILITY

= __:1

This ratio indicates short term solvency the standard 2:1 lower ratio indicate inadequate working capital and difficulty in payment to current liability .

2.QUICK RATIO/LIQUID RATIO/ ACID TEST RATIO
______________________________

QUICK ASSET

QUICK LIABILITIES

= _____:1

QUICK ASSET = CURRENT ASSETS - CLOSING STOCK - PREPAID EXPENSES. CURRENT LIABILITY = CURRENT LIABILITY - BANK OVERDRAFT.
This ratio indicates immediate solvency, the standard is 1:1 lower ratio indicate inadequate liability and difficulty in payment to immediate liability

3.STOCK - WORKING CAPITAL RATIO
CLOSING STOCK
___________________________

WORKING CAPITAL

X 1OO _____%

WORKING CAPITAL = CURENT ASSETS CURRENT LIABILITY This ratio prescribed closing stock as percentage to working capital, higher ratio means higher stock lower liquidity and vise-versa

4.PROPRITORY RATIO
PROPRITORS FUND _____________________________ X 100 ____% TOTAL ASSETS TOTAL ASSET = FIXED ASSED + INVESTMENT+ CURRENT ASSET.
This ratio indicates long term stability higher ratio means higher contribution by owners and better long term satiability and vise- versa.

5.DEBT- EQUITY RATIO
DEBT ____________ EQUITY = _____:1 

DEBT = Long term liabilities EQUITY = PROPRITORS FUND
This ratio indicate long term solvency, the standard is 2:1 lower ratio indicates under utilization of fund chance of expansion and lower returns to the owner higher ratio indicates chances of long term insolvency

6.CAPITAL GEARING RATIO
Debenture+ Prefer share +term loan
_____________________________________________________

=_____TIME

Proprietors fund Preference share

This ratio indicates fluctuation in equity dividend, more number of times means higher gearing higher risk higher profit and higher loss and vise-versa

III. COMBINE RATIOS
1.EARNING PER SHARE RATIO
NET PROFIT AFTER INTEREST TAX & DIVIDEND _____________________________________________ NO . OF EQUITY SHARES (ISSUED) = RS. ___PER SHARE

This ratio indicates profit available for share holders.

2.RETURN ON EQUITY CAPITAL RATIO

NET PROFIT AFTER INTEREST TAX & DIVIDEND ___________________________________________ EQUITY SHARE CAPITAL

X 100 =______%

3.RETURN ON CAPITAL EMPLOYED RATIO
NET PROFIT AFTER INTEREST TAX & DIVIDEND ___________________________________________ CAPITAL EMPLOYED

X 100 = ____%

This ratio indicates profit available for equity share holders.

4.RETURN ON PROPRITERS FUND/ SHARE HOLDERS FUND/NET WORTH RATIO
NET PROFIT AFTER TAX ____________________________________ PROPRITERS FUND

X

100 = ____ %

PROPRITERS FUND = EQUITY SHARES + PREFERANCE SHARES + RESERVES AND SURPLUSE
This ratio indicates profit available for proprietors fund.

5.DIVIDENT PAY OUT RATIO

DIVIDEND PER SHARE ________________________________ X 100 = _______% EARNING PER SHARE

Higher ratio means higher dividend pay out and lower transfer to reserves.

6. PRICE EARNING RATIO
MARKET PRICE PER SHARE _______________________________________ EARNING PER SHARE = ______ TIME

This ratio indicates market price in relation to earning per share more number of time means higher market price and share are to be sold and vise versa.

7.DEBTORS TURNOVER RATIO
CREDIT SALES =______TIME AVERAGE DEBTORS + AVERAGE BILLS RECEIVABLE
_______________________________________________________

AVERAGE COLLECTION PERIOD AVRG DEBTORS + AVRG BILLS RECEIVABLE ______________________________________________ CREDIT SALES = __________D/M/W. 365DAYS/12MON X THS/52 WEEKS

8.CREDIT TURNOVER RATIO
CREDIT PURCHASE = ___TIMES AVRG CREDITORS +AVRG BILLS PAYABBLE
___________________________________________________________

AVERAGE PAYMENT PERIOD
AVRG CREDITORS +AVRG BILLS PAYABLE 365D,12M _______________________________________________________ X ,52W CREDIT PURCHASE = ________D/M/W

Statement showing sources of fund and Application of fund
Sources of fund Amount(Rs) Application of fund Amount(Rs)

Decrease in working capital Issue of share Sale of investment Tax refund Sale of land and building Net operating profit

XXX XXX XXX XXX XXX XXX XXXX

Increase in working capital Redemption of share Purchase of land and building Tax paid Dividend paid Net operating loss

XXX XXX XXX XXX XXX XXX XXXX

PARTICULAR AMOUNT(Rs) PARTICULAR AMOUNT(Rs)

To provision for tax To depreciation on machinery

XXX XXX

By balance b/d By profit on sale of investment

XXX XXX

To reserve A/C

XXX

By profit on sale of machinery

XXX

To goodwill written off To net operating Loss

XXX XXX

By net operating profit

XXX

XXX

XXX

THANK YOU

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