Professional Documents
Culture Documents
ACCOUNTING
Session 18
3
The Capital Structure is determined by the Debt-Equity (D/E) Ratio
4
UTILIZATION
OF ASSETS
Utilization of Assets are measured by Activity / Turnover Ratio which
measure the briskness of business activities of an organization;
The focus here is on Sales i.e. Net Operating Revenue and the
investments in assets which generate such revenue;
Assets for this purpose mean Total Fixed Assets and Net Working
Capital;
5
The following five Turnover Ratio are usually calculated:
7
Turnover Ratio of ABC Inc, DEF Inc & GHI Plc
Particulars for 2013 Cognizant Infosys TCS
8
DEBT SERVICING CAPACITY
Coverage Ratio measures the ability of the organization to service its debts
for the relevant accounting period. This ratio has two varieties i.e. Debt
Service Coverage Ratio (DSCR) and Interest Service Coverage Ratio (ISCR).
The oldest of the stocks that currently make up the Dow Jones
Industrial Index, is the E. I. du Pont de Nemours and Company
which is most commonly known as Du Pont;
ROE is derived from the Post-Tax Net Profit (Net Income) and Equity.
The assets of the organization i.e. the Fixed Assets and Working
Capital generate Revenue. Net Income is derived by deducting the
expenses from the Revenue.
Less:
EXPENSES
POST-TAX NET
RETURN ON EQUITY PROFIT
The Structure:
ROE = Post-Tax Net Profit (PAT) / Equity
∑Assets / Equity
PAT / ∑Assets
(Equity Multiplier)
(ROA )
PAT / SALES
SALES / ∑Assets
(Profit Margin ) X
(TAT )
(Revenue – Cash
Operating Costs – SALES / [Fixed Assets +
Non-Cash Costs – (Inventory + Receivables +
Interest – Cash + Other Current Assets –
Taxes) / SALES Current Liabilities)]
3 Component Decomposition of ROE
ROE =
ROE =
X =
PAT / ∑ ASSETS ∑ ASSETS / EQUITY 15.78% x 92.% = 14.52%
X =
PAT* / SALES SALES / ∑ ASSETS** 27.33% x 57.73% = 15.78%
PAT* = REVENUE (39,335) – CASH ∑ ASSETS** = FIXED ASSETS (10,078) + WORKING CAPITAL#
(58,064)
OPERATING COSTS (22,548) –
NON-CASH COSTS (655) –TAXES Working Capital # = Receivables (7,280) + Cash (54,710) +
(5,381) Other Current Assets (5,260) – Current Liabilities (9,186)