Given 16% reduction in P/E ratio and 4% growth in the earnings

𝑀𝑎𝑟𝑘𝑒𝑡 𝑝𝑟𝑖𝑐𝑒 𝑜𝑓 𝑡ℎ𝑒 𝑠ℎ𝑎𝑟𝑒

P/E ratio = 𝐸𝑎𝑟𝑛𝑖𝑛𝑔𝑠 𝑝𝑒𝑟 𝑠ℎ𝑎𝑟𝑒

16% reduction in P/E ratio indicates a 16% decline in the ratio hence -16% (Ratio)
(P/E ratio compares a company's current share price to its earnings per share (EPS). Reduction in the P/E
ratio means that the investor pays less for every rupee/dollar of earnings received from investing in that
share.)
4% growth in Earnings indicates a 4% increase in the earnings hence +4% (Denominator)
The corresponding value @-16% and +4% from Table 2 is -12.64%. (Ratio and Denominator are
given so Table 2)

Which means that “A 12.64% decrease in the value of the share price of the company along with a 4%
increase in the earnings would result in a 16% reduction in the P/E ratio of the company.”
Given 8% increase in Revenue per employee ratio and 2% increase in the revenue
𝑅𝑒𝑣𝑒𝑛𝑢𝑒
Revenue per employee ratio = 𝑁𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 𝑒𝑚𝑝𝑙𝑜𝑦𝑒𝑒𝑠

8% increase in Revenue per employee ratio indicates a 8% increase in the ratio hence +8%
(Ratio)
(Revenue per employee indicates the share of revenue for each employee. Increase in the Revenue per
employee ratio means that there is an increase in the revenue per each employee.)
2% growth in Revenue indicates a 2% increase in the Revenue hence +2% (Numerator)
The corresponding value @+8% and +2% from Table 1 is -5.56%. (Ratio and Numerator are given so
Table 1)

Which means that “A 5.56% decrease in the number of the employees along with a 2% increase in the
Revenue would result in a 8% increase in the Revenue per employee ratio of the company.”
Given 20% increase in Return on Equity ratio and 4% increase in the total shareholder’s equity.
𝑁𝑒𝑡 𝐼𝑛𝑐𝑜𝑚𝑒
ROE ratio = 𝑆ℎ𝑎𝑟𝑒ℎ𝑜𝑙𝑑𝑒𝑟 ′ 𝑠 𝐸𝑞𝑢𝑖𝑡𝑦

20% increase in Return on Equity ratio indicates a 20% increase in the ratio hence +20%
(Ratio)
(Return on Equity indicates the share of profit/Net income per each shareholder. Increase in the Return on
Equity ratio means that there is an increase in the profit per each shareholder.)
4% growth in shareholder’s equity indicates a 4% increase in the Equity component in the capital hence
+4% (Denominator)
The corresponding value @+20% and +4% from Table 2 is +24.80%. (Ratio and Denominator are
given so Table 2)

Which means that “A 24.80% increase in the Net Income along with a 4% increase in the stockholder’s
equity would result in a 20% increase in the Return on Equity ratio of the company.”
8. It wants to improve inventory days by 20%; while sale is expected to increase by 8%, what should be the
inventory to achieve.

Given 20% improvement in Inventory days ratio and 8% increase in the sales.
𝐼𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑦
Inventory Days ratio = 𝐷𝑎𝑦 𝑠𝑎𝑙𝑒𝑠

20% improvement in Inventory days ratio indicates a 20% decrease in the ratio hence -20%
(Ratio)
(Inventory Days means the average amount of days a corporation keeps inventory before selling it.
Improvement in the Inventory days means that the number of days of keeping the inventory is less i.e. the
company converts its inventory into sales in fewer days.)
8% growth in sales indicates a 8% increase in the sales hence +8% (Denominator)
The corresponding value @-20% and +8% from Table 2 is -13.60%. (Ratio and Denominator are
given so Table 2)

Which means that “A 13.60% decrease in the Inventory along with a 8% increase in the sales would result in
a 20% improvement in the Inventory Days ratio of the company.”
9. EBIT ratio to be improved by 16%, while sales is expected to increase by 4% only

Given 16% improvement in EBIT ratio and 4% increase in the sales.

𝐸𝐵𝐼𝑇
EBIT ratio = 𝑆𝑎𝑙𝑒𝑠

16% improvement in EBIT ratio indicates a 16% increase in the ratio hence +16% (Ratio)
(EBIT ratio improvement means an increase in the EBIT of the company sales remaining constant i.e. the
company earns more the sales made.)
4% growth in sales indicates a 4% increase in the sales hence +4% (Denominator)
The corresponding value @+16% and +4% from Table 2 is +20.60%. (Ratio and Denominator are
given so Table 2)

Which means that “A 20.60% increase in the EBIT along with a 4% increase in the sales would result in a
16% improvement in the EBIT ratio of the company.”