Financial Statement Analysis

Numerical Examples

Balance Sheet

Assets Rs. 000s Liabilities and Equity Rs. 000s

Current Assets Current Liabilities
Cash 100,000 Accounts Payable 50,000
Accounts Receivable 100,000 Accrued Expenses 50,000
Inventory 80,000 Total Current Liabilities 100,000
Prepaid Rent 20,000 Long Term Liabilities
Total Current Assets 300,000 Bank Loans 100,000
Fixed Assets Long Term Finance Lease 50,000
Land 100,000 Total Long Term Liabilities 150,000
Plant and Equipment 100,000 Equity
Machinery 50,000 Common Equity 250,000
Total Fixed Assets 250,000 Retained Earnings 50,000
Total Assets 550,000 Total Liabilities & Equity 550,000

Income Statement

Rs. 000s Rs. 000s

Sales 1,000,000
Less: Cost of Goods Sold 700,000
Gross Profit 300,000
Less: Operating Expenses
Salaries Expense 100,000
Depreciation Expense 50,000
Utilities Expense 50,000
Total Operating Expenses 200,000
Operating Income 100,000
Less: Interest Expense @ 10% 15,000
Profit Before Tax 85,000
Less: Tax Expense @ 30% 25,500
Net Income 59,500

Find the following ratios.

1. Current Ratio
2. Quick Ratio
3. Cash Ratio
4. Debt to Equity Ratio
5. Debt to Assets Ratio
6. Time Interest Earned Ratio
7. EBITDA Ratio
8. Receivable Turnover Ratio
9. Average Collection Period
10. Payable Turnover Ratio (Purchases are four times the ending inventory)
 11. Payable Turnover in Days
12. Inventory Turnover Ratio
13. Inventory Turnover in Days
14. Cash Conversion Cycle in Days
15. Gross Profit Margin
16. Operating Profit Margin
17. Net Profit Margin
18. Return on Asset
19. Return on Equity
20. Return on Capital Employed

Ratios Formula Answer

Current Ratio
Current Asset / Current Liabilities 3
Quick Ratio
(Current Assets – Inventory) / Current Liabilities 2.2
Cash Ratio
Cash / Current Liabilities 1
Debt to Equity Ratio
Total Debt / Total Equity 0.5
Debt to Assets Ratio
Total Debt / Total Assets 0.27
Time Interest Earned Ratio
Operating Income / Interest Expense 6.67
EBITDA Ratio (Operating Income – Depreciation –
3.33
Amortization) / Interest Expense
Receivable Turnover Ratio
Sales / Accounts Receivable 10
Average Collection Period
365 / Receivable Turnover 36.5
Payable Turnover Ratio
Purchases / Accounts Payable 6.4
Payable Turnover in Days
365 / Payable Turnover 57
Inventory Turnover Ratio
Cost of Goods Sold / Inventory 8.75
Inventory Turnover in Days
365 / Inventory Turnover 41.7
Cash Conversion Cycle in Days Receivable Turnover (Days)+ Inventory Turnover
21
(Days) – Payable Turnover (Days)
Gross Profit Margin
Gross Profit / Sales 70%
Operating Profit Margin
Operating Income / Sales 10%
Net Profit Margin
Net Profit / Sales 8.5%
Return on Asset
Net Income / Total Assets 15%
Return on Equity
Net Income / Total Equity 28%
Return on Capital Employed
Net Income / (Total Assets – Current Liabilities) 19%