➡️In services firms ratios are often higher because their cost is less.

Example bnu
Monthly fee is 45000
Students 100
Total fee 45,00,000
Teacher fee 5,00,000
Rents 2,00,000
Net profit 38,00,000
Net profit margin 84%

Vertical : b/s
➡️Equity/ Assets : It shows how many assets are equity financed.
Higher or lower : depends on the type of firm

➡️Horizontal Analysis: it shows how much sales have changed every year.
We can also year to year difference
Formula: 🔺% change =( New-old )/old ×100

➡️RATIO ANALYSIS
Ratios only have a meaning comparison. They are relative.

➡️Profitability ratios:

➡️Net profit margin

It varies from company to company. -Depends on the avg profit margin of that particular industry.

Examaple : If cement industry has avg profit margin of 10% and one cement company has 6% then it
would be considered low.

- Depends on the profit margin of previous

years.
Example: If your company had the profit margin of 2% but it rose to 6% so it'll be considered good and
high.

➡️Hbl had the highest profit this year which is 62 billion which 350M dollar.

➡️Profitability ratios: how much cost your company has as compared to sales.
1) Gross profit Margin
2) Ebitda Margin
3) Operating profit Margin
4) Net profit Margin

➡️Efficiency and productivity ratios: It shows how much efficient the company is.
➡️Liquidity ratios : It shows does company have enough liquid assets to pay the liabilities. How much
risk does the company have and it won’t default.

1) Current ratios : Shows that how much current assets does the company have to pay the current
liabilities. If it is 1 it means the company is safe because it has equal current liabilities and current assets.
The good or bad ratio also varies from company to company and it should be balanced. If the ratios are
1-2 it is considered good. Because it shows the company has more current assets to cover its liabilities.
And if current ratio is too high it showed that the company is not using its assets efficiently.

2) Quick Ratio:
We minus the inventory from current assets because it is a highly illiquid asset.

Example : Designer bags are highly illiquid assets because if you want to sell them anytime very few
people would be willing to buy such expensive bags.

➡️ROE
It is the most important ratio. It shows how much return you are receiving on your investment but we
have to maximize this formula in business.

Company A Company B
Roe: 5% 7%
Roa : 4% 3%
Equity: 100$. 100$
Net income: 5$ 7$
Assets : 350$. 250$

Exp: The company A has less roe Than company b but it has more assets . Roa is less because the
company has took debt because it has too much assets.