Literature Review

Financial Ratios:

1. Liquidity ratios- A liquid asset is one that can be easily converted to cash

Without significant loss of its original value.

Current Ratio-

The ratio is calculated by dividing current assets by current liabilities.

Current ratio=current assets/ current liabilities

2.Asset Management- A set of ratios that measure how effectively a firm is

managing its assets.

Fixed asset turnover-

The ratio of sales to net fixed assets.

Total deposits / net fixed assets

Total assets turnover ratio-

The ratio calculated by dividing total deposits by total assets

Total deposits / total assets

3. Debt management-

Debt ratio =The ratio of total debt divided by total assets.

Debt ratio = total debt / total assets

Times interest earning ratio= Earnings before income tax divided

by interest charges.

4. Profitability – A group of ratios showing the effect of liquidity, asset

Management and debt management on operating results.

Profit margin of sales= Net income divided by total deposits

Return on the total asset= net income divided by the total assets

5. Market Value-A set of ratio that relates the firm’s stock price to its

Earning and book value per share.

Price/Earning= Market price per share divided by earning

per share

Market/Book= Market price per share divided by Book

Value per share.