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# RATIO ANALYSIS A statistic has little value in isolation. Hence, a profit figure of Rs.

100 million is meaningless unless it is related to either the firms turnover (sales revenue) or the value of its assets. Accounting ratios attempt to highlight the relationships between significant items in the accounts of a firm. inancial ratios are the anal!sts microscope" the! allow them to get a better view of the firms financial health than #ust loo\$ing at the raw financial statements Ratios are used b! both internal and e%ternal anal!sts &nternal uses ' (lanning ' )valuation of management * )%ternal uses ' +redit granting ' (erformance monitoring ' &nvestment decisions ' ,a\$ing of policies CATEGORIES OF FINANCIAL RATIOS -he accounting ratios can be grouped in to five categories. 1. /i0uidit! Ratios shows the e%tent to which the firm can meet its financial obligations. 1. Asset ,anagement Ratios shows that how effectivel! the firm is managing its assets. 2. 3ebt ,anagement Ratios shows the e%tent to which a firm uses debt financing or financial leverages. 4. (rofitabilit! Ratios relates profits to sales and assets. 5. ,ar\$et 6alue Ratios are a measure of the return on investment.

LIQUIDITY RATIOS Current Ratio: +urrent Ratio shows a firms abilit! to meet current liabilities with its current assets. ormula. +urrent ratio 7 2012 +urrent ratio 7 2013 +urrent ratio 7 149:241 1491;54 1489212 82:549 +urrent Assets +urrent /iabilities

Anal !i!: -he current ratio is lower in 100; as compared to 1009.-here is an increase in all the current assets e%cept other receivables which decreased in 100;. -he net current assets increased b! 111 million in 100; and at the same time the net current liabilities increased b! 14: million in 100;.

Qui"# Ratio A"i\$ Te!t Ratio: Acid -est Ratio or <uic\$ Ratio shows a firms abilit! to meet current liabilities with its most li0uid assets. ormula. <uic\$ Ratio 7 +urrent Assets = &nventories +urrent /iabilities

2012 <uic\$ ratio 7 2013 <uic\$ ratio 7 149:241 = 14;;15: 1491;54 1489212 * :11480 82:549

Anal !i!: >e have seen that the compan! had a lower current ratio in 100; and was unable to meet its short term obligations as compared to 1009. >hereas the 0uic\$ ratio identifies the role pla!ed b! the inventories in this conte%t. -herefore the ratio shows that in !ear 100; it has decreased as compared to 1009 due to the fact that the investment in inventories is increased b! :: million onl! and current liabilities have increased b! 14: million. -he compan! is still not able to meet its short term obligations. %or#in& Ca'ital Ratio ormula. >or\$ing +apital Ratio 7 +urrent Assets = +urrent /iabilities ?ales

## 1489212 * 82:549 ;11;119 149:241 = 1491;54 ::;5114

ASSET (ANAGE(ENT RATIO In)entor Turno)er Ratio ormula. Receivables -urnover Ratio 7 2012 Receivables -urnover Ratio 7 2013 Receivables -urnover Ratio 7 Anal!sis. ::;5114 ;88:; ;11;119 111412 -otal ?ales Account Receivable

Da ! Sale! Out!tan\$in&: ormula. 3a!s ?ales @utstanding 7 2012 3a!s ?ales @utstanding 7 2013 3a!s ?ales @utstanding 7 295 Receivable -urnover 295 Receivable -urnover 295 Receivable -urnover

Anal !i!: 3?@ in !ear 1009 was 12.89 da!s which has now decreased to 11.8 da!s which shows that the compan! is more effective in collecting receivables now in comparison of previous !ear, even the sales has increased b! 2;9 million on the other hand receivables decreased which resulted /ower 3?@.

In)entor Turno)er Ratio: ormula. &nventor! -urnover Ratio. 2012 &nventor! -urnover Ratio 7 2013 &nventor! -urnover Ratio 7 +@A? &nventor! 9048424 :11,480 ;55884; 14;;15:

In)entor Turno)er in Da !: ormula. &nventor! -urnover in 3a!s. 2012 &nventor! -urnover in 3a!s 7 2013 295 &nventor! -urnover Anal !i!: -he inventor! turnover ratio in the !ear 1009 was 5.55 which indicate that 5.55 times in a !ear the inventor! of the firm is converted into receivables or cash. However, in 100;, the inventor! turnover ratio slightl! decreased to 5.1. -his was due to the fact that the compan!, in 100;, invested more than 1.4 times the inventor! in 1009. Fi*e\$ A!!et Turno)er: ormula. i%ed Asset -urnover 7 295 &nventor! -urnover 295 &nventor! -urnover

1489212

## 111;:58 2013 i%ed Asset -urnover 7 149:241 1155:54

Anal !i!: According to the calculations above the productivit! of fi%ed assets in !ear 100; is better than it was in previous !ears. &n 1009, it was 5.04 times and now it has been slightl! increased to 5.1 times. -his change was brought about b! increase in total sales b! 21C, whereas the fi%ed assets increased onl! b! 18.;C.

Total A!!et Turno)er: ormula. -otal Asset -urnover 7 2012 -otal Asset -urnover 7 2013 -otal Asset -urnover 7

## ?ales -otal Assets 1489212 1921;12

149:241 292;142

Anal !i!: According to the calculations above the productivit! of assets in !ear 100; is not as good as it was in previous !ears. &n 1009, it was 1.15 times and now it has been decreased to 1.1 times. -his change was brought about b! increase of 24C in the total assets, whereas the total sales onl! increased b! 21C.

LEA+ERAGE RATIO DE,T (ANAGE(ENT RATIO De-t Ratio: ormula. 3ebt Ratio 7 2012 3ebt Ratio 7 2013 -otal 3ebt -otal Assets 82:549D41428D12;::9 1921;12

3ebt Ratio 7

1491;54D49221D151814 292;142

Anal !i!: -he debt ratio in 1009 was 0.52 which shows that 52C of the firms assets are debt financed and 4;C are b! e0uit! finance. &n 100; the debt ratio increased to 0.55 which means that 55C of the firms assets are debt financed and 45C are e0uit! financed. -he compan! assets are alread! in more debt finance however the ratio of debt financing has increased in 100;. De-t to E.uit Ratio: ormula. 3ebt to )0uit! Ratio 7 2012 3ebt to )0uit! Ratio 7 2013 3ebt to )0uit! Ratio 7 1491;54D49221D151814 292;142 -otal 3ebt -otal )0uit! 82:549D41428D12;::9 1921;12

## 2012 &nterest +overage Ratio 7 2013 &nterest +overage Ratio 7

;58545 98:89

::1:44 58849

Anal !i!: -imes &nterest )arned ratio was 4.; in 1009 which have increased to 9.5 in 100; therefore the compan! is

able to cover the interest e%pense at a higher margin of safet!. -his was due to the fact the compan! increased the short term borrowing and decreased its long term borrowing from 40 million to Fero. As a result the net profit increased b! 49 million whereas the interest charges onl! increased b! 4.1 million. -hus it shows an intelligent move made b! the compan! to borrow less and depend more on the investment through other financing techni0ues.

/ROFITA,ILITY RATIO Gro!! /ro0it (ar&in: ormula. Aross (rofit ,argin 7 2012 Aross (rofit ,argin 7 2013 Aross (rofit ,argin 7 121519; 149:241 Aross (rofit ?ales 119;9:1 1489212

Anal !i!: -he profit margin has increased from 2.41C in 1009, to 5.5C in 100;. According to the figures, compan! has been successful in raising their ?ales b! 21C in 100; but the increases in net income available common stoc\$ holders was 111C which leaded to an increase in the profit margin.

Net /ro0it (ar&in: ormula. Bet (rofit ,argin7 2012 Bet (rofit ,argin7 2013 Bet (rofit ,argin7 5:1112 149:241 B& before e%tra*ordinar! items ?ales 4:9014 1489212

Anal!sis. -he profit margin has increased from 2.41C in 1009, to 5.5C in 100;. According to the figures, compan! has been successful in raising their ?ales b! 21C in 100; but the increases in net income available common stoc\$ holders was 111C which leaded to an increase in the profit margin.

## 4:9014 1921;12 5:1112 292;142

Anal !i!: -he Return on Assets graduall! rose in !ear 100;, to 11.5C from ;.24C, in !ear 1009. -his was due to the fact as the Bet income b! 111.;C whereas total asset onl! increased b! 24.1;C. Atlas Eatteries has been able to use its total assets more efficientl! over these !ears and have been successful in raising net profit as well.

Return on E.uit : ormula. Return on )0uit! 7 2012 Return on )0uit! 7 )arnings available for common stoc\$ holders before e%tra*ordinar! items +ommon stoc\$ holders e0uit! 4:9014 +ommon stoc\$ holders e0uit!

## 5:1112 +ommon stoc\$ holders e0uit!

Anal !i!: According to the figures, Atlas Eatteries shows a favorable trend to the shareholders, initiall! being at 15.91C and then rising b! 10.2:C to 19C. -his again has been due to 111.;C increase in Bet income. -hough shareholders e0uit! has also increased as the compan! is increase debt financing, but the increase in shareholders e0uit! is lower relative to the increase in net profit.

Earnin& /o1er:

;58545 1921;12

## 2013 )arning (ower 7 ::1:44 292;142

Anal !i!: -he E)( has increased from 14.84C in 1009, to 18.1C in 100;. -his increase was due to increase in )E&- b! ;1.9C and the total assets increased b! #ust 24.1;C which leaded to increase in the E)(.

(AR2ET +ALUE RATIO /ri"e Earnin&! Ratio: ormula. (rice )arnings Ratio 7 2012 (rice )arnings Ratio 7 2013 (rice )arnings Ratio 7 22:.0 40.15 ,ar\$et (rice per ?hare )arnings per ?hare 101.; 40.11

Anal !i!: -he ratio shows how much the investors are willing to pa! per Rupee of reported profits. &t can be seen from calculations that in !ear 100; the ratio has increased from 8.5 to 11.;. -his was due to the fact that the earnings per share over the !ear is increased with great difference due to which the mar\$et price increased as a result of demand of shares. However a higher (rice )arnings ratio shows high growth prospects due to which the income has therefore increased in the !ear 100;.

Earnin& Yiel\$ Ratio: ormula. )arning Gield Ratio 7 2012 )arning Gield Ratio 7 )arnings per ?hare ,ar\$et (rice per ?hare 40.11 101.;

## 2013 )arning Gield Ratio 7 Anal !i!: 40.15 22:.0

Di)i\$en\$ Yiel\$ Ratio: ormula. 3ividend Gield Ratio 7 2012 3ividend Gield Ratio 7 2013 3ividend Gield Ratio 7 Anal !i!: 1014 22:.0 7 2.0 3ividend per ?hare ,ar\$et (rice per ?hare 100:.5 101.; 7 5.0

(ar#et to ,oo# Ratio: ormula. ,ar\$et to Eoo\$ Ratio 7 ,ar\$et (rice per ?hare Eoo\$ value per ?hare

2012 ,ar\$et to Eoo\$ Ratio 7 2013 ,ar\$et to Eoo\$ Ratio 7 22:.0 Eoo\$ value per ?hare 101.; Eoo\$ value per ?hare

Anal !i!: &t can be seen from calculations that in !ear 100; the ratio is more than doubled from 0.;1 to 1.49. -his was due to the fact that the price per share over the !ear has increased with great difference of 82.8 per share whereas boo\$ value per share increased b! #ust 11.;C.