Om Namah Shivaya CA MONK’S Reading Material for Ratio Analysis By CA Shivam Palan (1IMI) Reading Material for CA Monk Finance Masterclass Website: - www.camonk.comRatio Analysis || CA Monk What is ratio analysis and why it is important? Answer: Ratio analysis is a financial tool that uses ratios to evaluate a company's financial performance. It helps identify strengths and weaknesses, assess the ability to meet financial obligations, and compare performance with competitors. It is important because it provides stakeholders with valuable insights into a company's financial health, helping them make informed decisions. Before we do the ratio analysis, we need to understand in detail about the company and various sends of the company. Hence (0 understand that we will do Vertical, Horizontal & Trend Analysis. 1. Company Trend A, Vertical Analysis Vertical analysis is a ratio analysis thaycompares each item in a company's financial statements to a base figure, such as otal sales or {otal assets, (6 determine the proportion of that item in relation to the base figure. The results of this analysis are expressed asia pereentage. For example, in a vertical analysis of an income statement, each line item, such as revenue, cost of ‘goods sold, and operating expenses, isexpressed asa percentage Of total sales. This allows analysts to identify trends and changeSin the relative proportion of different items over time, and compare the financial performance of different companies, Vertical analysis is useful for identifying significant changes in a company’s financial statements and, assessing the impact of those changes on the eompany’s overall financial performance, It can also help identify areas of a company’s operations that may require attention or improvement, The formula for Vertical Analysi Income statement formula = (Income statement Item/ Total Sales) *100 Balance sheet = (Balance Sheet Item/Total Asset(Liability))* 100 B. Horizontal Analysis Horizontal analysis, also known as trend analysis, is a financial analysis technique that compares financial data or performance over a period of time. It involves analyzing and comparing financial statements, such as income statements or balance sheets, from consecutive periods to identify trends, changes, and patterns, ‘The purpose of horizontal analysis is to assess the changes in financial data over time and gain ‘ghts into a company's performance, growth, and financial stability. It helps in identifying areas of provement, potential risks, and evaluating the effectiveness of financial management strategies. Formuta and Calculation: Horizontal analysis is typically performed by calculating the percentage change in financial figures between two periods. The formula for calculating the percentage change is as follows Finance Master Class || By CA Shivam Palan 2Ratio Analysis || CA Monk Percentage Change = (Current Year Figure - Previous Year Figure) / Previous Year Figure * 100 C, Trend Analysis Trend analysis isa statistical technique used to analyze and identify patterns oF trends in data over a specific period of time. It involves examining historical data points to understand the direction and magnitude of ‘change in a variable of interest, such as sales, revenue, o market trends Multiple Types of trends are being identified: ‘+ Upward Trend: This suggests growth, improvement, or increasing values in the variable being analyzed, + Downward Trend: This suggests decline, deterioration, or decreasing valves in the variable being analyzed. «Flat or Stable Trend: This suggests stability, consistency, or no significant change in the variable being analyzed, 2. Liquidity Ratio Liquidity ratios are financial ratios that asséss'a ¢ompany's ability fo meet its short-term obligations and measure its overall liquidity or cash position: These ratios provide insights into a company's ability to generate cash, manage its current liabilities, and cover immediate financial needs. A. Current Ratio ‘The current Ratio is a financial ratio that measures the ability of a company to meet its short-term obligations by comparing its current assets to. its current liabilities. It provides insights into the company's liquidity position and its capacity to eover its immediate payment obligations. Current Ratio = Current Assets (Current Liabilities “This suggests that the company has relalively healthy liquidity position and Current Ratio >1 | is capable of meeting jts short-term obligations. However, too high of a current ratio also suggests that the company is leaving too much exeess cash unused, rather than investing the cash into projects for company growth. Current Ratio=1 | This suggests that the company's liquidity position is balanced, with sufficient assets to cover its immediate payment obligations. The company may not have enough liquid assets to cover its immediate Current Raito <1 | payment obligations. It suggests a higher risk of defaulting on short-term debts. Disadvantages of the Current Ratio: Timing of Liabilities: The current Ratio treats all current liabilities as due immediately, even if they have longer payment terms. This can lead to misleading interpretations, particularly when considering accounts payable and other short-term obligations. 4 It does not consider the quality of assets: Finance Master Class || By CA Shivam Palan 3Ratio Analysis || CA Monk ‘Company A Company B Cash 500 Cash 0 Accounts Receivable 0 ‘Accounts Receivable 0 Inventory 0 Inventory 500, Prepaid 0 Prepaid 0 Total of | 500 Total of CA 500 Current Lial 350 Current Liabi 350 Current Rati 1.43 Current Ratio 1.43 Looking at the above details, we can see that Company B has « longer cash eyete than Company 4 ‘+ Manipulation of current assets & current liability can be easily done. What will happen if CA or CL increases or decrease with the same amount? "A= 500 CI 350 Current Ratio = 1.43 If'we Increase CA & CL by Rs. 100. CA= 600 CL = 450 Current Ratio = 1.33 B. Quick Ratio or Acid Test Ratio Itis a financial ratio that measures a company's ability to theet its short-term obligations using its most liquid assets. It provides insights into a company's immediate liquidity position, excluding inventory and other less liquid asscts. Quick Ratio = (Cash + Cash Equivalents + Short-Term Investments + Accounts Receivable) / Current Liabilities Or Quick assets = Current Assets = Inventory ~ Prepaid expenses While a quick ratio of 1 or higher is generally considered healthy, it's important to consider industry norms, historical trends, and company-specific factors when interpreting the quick ratio. C. Cash Ratio ‘The Cash Ratio is 2 financial ratio that measures a company's ability to cover its short-term obligations using only its cash and cash equivalents. It provides insights into the company’s immediate liquidity position and its ability to pay off its current liabilities without relying on other assets, Cash Ratio = (Cash + Cash Equivalents) / Current Liabilities Creditors prefer a higher crash ratio as it indicates the company can easily pay off its debt. There is no ideal figure but a ratio between 0.5 to | is usually preferred. As with the current and quick ratios, too hiigh of a cash ratio indicates that the company is holding onto too much cash instead of utilizing its excess cash to invest in generating retums or growth. Finance Master Class || By CA Shivam Palan 4Ratio Analysis || CA Monk 3. Turnover Ratio A. Accounts Receivable Turnover Ratio: [Higher the Better ‘The accounts receivable turnover ratio, sometimes known as the debtor's tumover ratio, measures the number of times over a specific period that a company collects its average accounts receivable. Accounts Receivable Turnover Ratio = Net Credit Sales / Average Accounts Receivable Net Cre it Sales: 1 represents the total credit sales during a specific period, excluding any cash sales. Average Accounts Receivable: It is the average of the beginning and ending accounis recewable balances during the same period. ‘+ Higher Ratio: A higher Accounts Receivable Tumover Ratio indicates that the company i collecting its receivables quickly, which is generally a positive sign. It suggests efficient credit and collection management and good liquidity. ‘© Lower Ratio: A lowerratio may indicate a longer collection period or potenti policies or customer paymenls, It could Suggest poor liquidity or difficulties in collecting outstanding amounts Accounts Receivable Days: Accounts receivable days. ate the number of days"on average'that ittakes a company to collect on credit sales from its customers, issues with credit Accounts Receivable days=365/ Accounts Receivable Turnover Ratio Interpretation: It takes the company X days of average to collect its accounts receivables. “Check the Industry Ratiorand then decide whether the company Weeds-Improvement or not. B, Fixed Asset Turnover Ratio: /Figlier the Better] It assesses how effectively a company utilizes its assets to generate sales. Asset Turnover Ratio = Net Sales / Average Total Asset ‘* Higher Ratio: A higher Asset Tumover Ratio indicates that the company generates more sales revenue relative to its asset base, It suggests efficient asset utilization and effective revenue ‘generation. ‘* Lower Ratio: A lower ratio may indicate the underutilization of assets, ineflicient operations, or challenges in generating sales from the asset base. Finance Master Class for a better understanding of all the concepts in detail; click on the below link and register for the course: https://www.camonk.com/courses/finance-masterclass Finance Master Class || By CA Shivam Palan 5Ratio Analysis || CA Monk G The inventory turnover ratio measures how many times a business sells and replaces its stock of goods in a given period of time, ventory Turnover Ratio Inventory Turnover Ratio = Cost of Goods Sold / Average Inventory + Higher Ratio: A higher Inventory Turnover Ratio indicates that the company is selling its ventory quickly and efficiently. It suggests effective inventory management, strong demand for products, and lower carrying costs. ‘+ Lower Ratio: A lower ratio may indicate slower inventory tumover, excess inventory levels, obsolete or slow-moving inventory, or challenges in managing inventory efficiently. Inventory Turnover Days /Lower the Better] Inventory Tumover Days are the number of days on average it takes to sell a stock of inventory. Inventory Turnover Days = 365 / Inventory Turnover Ratio It takes the company X days on average f0 sell an entire stock of inventory. Lower Days: A lower Inventory, Tumover Days indicates that'inventory is sold quickly, leading to a shorter cash-to-cash cycle and efficient inventory managerient. (Beginning Inventory + Addition in Liventohy) — (Cost of goods Sold Ending Inventory) D. Accounts Payable Turnover Ratio Accounts Payable Tumover Ratio is a financial metric that measures how efficiently a company ‘manages its accounts payable by paying its suppliers and vendors. It assesses the frequency with which a company pays off its creditors during a specific period, ‘+ Higher Ratio: A higher Accounts Payable Tumover Ratio indicates that the company pays off its creditors more frequently, It suggests efficient, management of trade credit, strong vendor relationships, and effective working capital management, ‘+ Lower Ratio: A lower ratio may indicate longer payment cycles, delays in paying off suppliers, or challenges in managing accounts payable efficiently. Accounts Payable Turnover Ratio = Total Purchases / Average Accounts Payable wable Day’ Payable Days = 365/ Accounts Payable Turnover Lower Days: A lower Days Payable Outstanding indicates that the company pays its suppliers and vendors more quickly, which can be a sign of strong cash flow management or favorable payment terms negotiated with creditors, “Days Payable Outstanding should consider industry benchmarks, historical data, and the company’s specific circumstances. Finance Master Class || By CA Shivam Palan 6Ratio Analysis || CA Monk Cash Conversion Cycle The Cash Conversion Cycle (CCC) is a financial metrie that measures the time it takes for a company to convert it rents in inventory into cash flows from sales. It provides insights into the efficiency of managing working capital and cash flow: Cash Conversion Cyele = Days Inventory Outstanding + Day Sales Outstanding - Days Payable Outstanding + Positive Cycle: A positive Cash Conversion Cycle indicates that a company’s operating cycle is longer than its payables cycle. It means that the company needs to finance its working capital requirements before receiving cash inflows. It may suggest a need for additional funding or working capital management improvements. + Negative Cycle: A negative Cash Conversion Cycle implies that a company's payables eycle is longer than its operating cycle. It means that the company can use suppliers’ credit to finance its working capital needs, resulting in improved cash flow and liquidity. 4. Leverage Ratio Leverage ratio refers to a financial metrie that assesses the level of debt a company uses to finanee its ‘operations and investments. The leverage ratio evaluates the extent to which a company relies on borrowed funds compared to its equity. A. Debt to Equity Ratio Debt to Equi Ratio =Total Debt / Total Equity ‘Total Debt: It represents the Sum of a €ompany!s short-term and long-term debt obli ‘Total Equity: It inchudes the company’s shareholders" equity or net worth, which represents the residual interest inthe company’s assets after deducting liabilities B. Debt Ratio: (rower the Beier) Debt Ratio =Total Debt / Total Assets “The debt rato compares a company’s foal debt to its total asses. Itshows the percentage of asets financed by debt. A higher debt ratio implies higher Financial risk sit indicates a larger portion ofthe company’s assets is funded by debt. * Higher Ratio: A higher debt ratio suggests a higher level of financial risk. It indicates that a larger proportion of the company's assets is financed by debt, which can inerease interest exponses and the company’s vulnera also limit a company's challenges. + Lower Ratio: A lower debt ratio may indicate that the company has a strong eapital structure with a significant portion of its assets funded by equity. This can imply that the company is less reliant on. debt to finance its operations and is better positioned to handle financial downturns or economic uncertainties. ty to changes in interest rates or economic conditions. High levels of debt can ity (0 invest in growth opportunities or cope with unexpected financial Finance Master Class || By CA Shivam Palan 7Ratio Analysis || CA Monk C. Equity Ratio: /Higher she Bower] Equity Ratio = Sharcholders' Equity / Total Assets The equity ratio is the complement of the debt ratio. It represents the proportion of a company's assets financed by equity. A higher equity ratio suggests a lower level of financial risk, as it indicates a larger portion of the company's assets is funded by shareholders’ equity, + Higher Ratio: A higher equity ratio indicates that the company has a greater cushion of ownership funds to cover its obligations and potential financial downturns. It suggests that the company has a more solid financial position and may be better equipped to handle unexpected challenges ot fluctuations in the business environment. ‘+ Lower Ratio: A lower equity ratio suggests a higher level of financial risk. A lower equity ratio means that a larger proportion of the company’s assets is financed by debt. This can increase the company's vulnerability to changes in interest rates, economic conditions, or other financial challenges, D. Debt to EBITDA Rati Total Debt (EBITDA, [Lower the Better] Debt to EBITDA Rati ‘This ratio compares a company’s total) debt 16 its Gamnings before interest, taxes, depreciation, and amortization (EBITDA). It measures how many years it would fake for a company to repay its debt using its EBITDA. A higher ratio indicates higher financial risk, as it suggests the company has a larger debt burden relative to its earnings, + Higher Ratio: A higher Debt to EBITDA ratio indicates & higher evel of financial risk A higher ratio suggests that the company a8 a larger debs burden relative to its earnings. This may indicate that a significant portion of the company’s earnings is being Used to service its debt, leaving less cash flow available for other purposes such as reinvestment Or growth, + Lower Ratio: A lower Debt to EBITDA ratio indicates that the company has more earnings available to cover its interest expenses and debt repaymients. It suggests a stronger financial position, greater flexibility in allocating cash HOW, ad reduced Vulnerability to economie downturns or unexpected financial challenges. E, Interest Coverage Ratio: /Higher the Better) Interest Coverage Ratio = EBIT (Earnings Before Interest and Taxes) /Interest Expenses ‘The interest coverage ratio assesses a company’s ability to cover its interest expenses with its earnings. It is calculated by dividing the company's EBITDA or operating income by its interest expenses. A higher ratio indicates a better ability to meet interest obligations and lower financial risk, ‘© Higher Ratio: A higher interest coverage ratio signifies that a company has a greater cushion or margin of safety to handle its interest payments. It indicates that the company has a healthier financial position, better cash flow generation, and reduced vulnerability to financial distress. A higher ratio also implies a lower risk of defaulting on debt payments. ‘© Lower Ratio: A lower interest coverage ratio suggests a higher risk of being unable to meet interest obligations. A ratio below 1 indicates that a company’s earings are not sufficient to cover its interest expenses. This raises concerns about the company's ability to service its debt and may indicate a higher level of financial risk Finance Master Class || By CA Shivam Palan 8Ratio Analysis || CA Monk 5. Profitability Ratio Profitabil from its operations. These ratios provide i ratios are financial metries used to evaluate a company's ability to generate profits ;hts into the company’s profitability and efficiency in uilizing its resources. A. J Gross Profit Margin: /Higher the Better] Gross Profit Margin = (Gross Profit / Revenue) x 100 Gross profit margin is a financial ratio that measures the profitability of a company’s core operations by assessing the percentage of revenue left after deducting the direct costs associated with producing or delivering goods or services. It represents the portion of sales revenue that remains as gross profit. ‘© Higher Margin: A higher gross profit margin is generally preferred, as it suggests that a company has effective cost management aind is:generating a higher proportion of revenue as gross profit. It implies'that the company has a/higher potential to cover operating expenses, reinvest in the business, or distribute profits to shareholders, + Lower Margin: A low. gross profit margin indicates that a company is generating a relatively smallet proportion of revenue as gross profit after accounting for the direct costs associated with producing goods of delivering services, B. Net Profit Margin: /Higher the Better) Net Profit Margin = (Net Profit / Revenue) x 100 Net profit margin is afinaneial ratio that measures the profitability of a company by evaluating the percentage of revenue’ that remains a8 net profit after accounting for all expenses, including operating expenses, interest, taxes, and other non-operating costs. ‘© Higher Margin: A higher net profit margin is generally preferred, as it suggests that 4 company is generating a larger pereentage of revenue as net profit, It indicates { cost management, effective revenue generation, and a higher potential to nterest payments, and provide returns. to cover operating expenses, taxes, shareholders. + Lower Margin: A low net profit margin may indicate several factors, including high expenses, pricing pressure, low pricing power, or inefficiencies in the company’s operations. join Finance Master Class for a better understanding of all the concepts in detail; click on the below link and register for the course: https://www.camonk.com/courses/finance-masterclass Finance Master Class || By CA Shivam Palan 9Ratio Analysis || CA Monk C. Return on Assets (ROA): [Higher the Better] ROA-= Net Income /Averuge Total Assets Return on Assets (ROA) is a financial ratio that measures a company's profitability in relation to its {otal assets. It indicates how effectively a company utilizes its assets to generate profits, ‘© Higher Return: A higher ROA indicates that a company is generating a higher level of profit relative to its total assets. This suggests that the company is effectively utilizing its assets to generate profits and is more efficient in its operations. ‘+ Lower Return: A lower ROA generally indicates lower profitabi assets to generate profits. It suggests that the company is generating relatively less profit in relation to its total assets. D. Return on Equity: /Higher the Better] ROE measures a company’s profitability by calculating the retum generated on the shareholders’ ‘equity. It evaluates how efficiently «company, generatés profits from the capital invested by its shareholders. ROE = (Net Income / Average Shareholders" Equity) x 100 A higher ROE suggests that the company is effectively employing its resources, managing its assets, and generating higher returns for its shareholders, It reflects strong profitability and is often seen as a positive indicator of a company's fifiancial performance: E, Earnings per Share (EPS): /Higher the Better] EPS = Earnings attributable to Eq ry Shareholders / Average Outstanding Shares Return on Assets (ROA) is a financial ratio that measures a company's profitability in relation to total asscts. It indicates how effectively a company utilizes its assets to generate profits, ‘+ Higher EPS: A higher EPS indicates that a company is generating more earnings per outstanding share of common stock. ‘+ Lower EPS: A lower EPS indicates that a company is generating lower earnings per outstanding share of common stack. 6. Market Ratio: A. Price-to-Earnings-Ratio: /Higher the Bewer] P/E ratio = Market Price per Share / Earnings per Share (EPS) The P/E ratio, or Price-to-Eamings ratio, is a financial metric used to evaluate the relative value of a ‘company's stock. It compares the market price per share to the earings per share (EPS) generated by the company. Finance Master Class || By CA Shivam Palan 10Ratio Analysis || CA Monk ‘© Higher Ratio: A higher P/E ratio suggests that investors have higher expectations for future earnings ‘growth, and they are willing to pay a premium for the stock. It could indicate that the stock is relatively ‘expensive compared to its earnings potential © Lower Ratio: A lower P/E ratio may indicate that the stock is undervalued or that investors have lower ‘expectations for future earnings growth. It could suggest that the stock is relatively cheaper compared to its earings potential. he P/E ratio is calculated by dividing the market price per share of & company's stock by its earnings per share (EPS). The formula is a8 follows: P/E ratio = Market Price per Share / Earnings per Share + Interpretation: The P/E ratio indicates the market's perception of the company’s earings and growth prospects. A higher P/E ratio suggests that investors are willing to pay a premium for the company's earnings, indicating higher growth expectations. Conversely, a lower P/E ratio suggests lower growth cexpeciations or undervaluation + Valuation: In financial Modeling, the PIE ratio ean Be used to estimate the value of a company’s stock. By applying a P/E ratio to theyprojected future earings fer shave, aalysts can estimate the intrinsic value of the stock. This helps inetérmining whether wStock is oyérvalued or undervalued. + Comparisons: The P/E tatio is most usefulrwhen comparing i to other companies in the same industry oor the overall market. I provides a relative valuation metrics allowing for comparisons between companies of different sizes or growth Tales, By comparing Weompany’s P/E ratio to its peers, analysts can assess its valuation relative to industry norms, + Growth and Risk: The P/E ratio takes into account the company's earnings growth prospects and risk profile, High-growth companies often have higher P/E ratios as investors anticipate future earnings. ‘growth, On the other hand; companies with lower growth prospects or higher risk may have lower P/E ratio + Limitations: The P/E ratio has Gertain limitations. It dogs hot consider other factor like debt, cash flow, or the company's competitive position. Moreover, different industries mey have different average P/E ratios due to variationS if BFOWth rates, risk profiles, oF capital TAtENSity, + Sensitivity Analysis: Financial models often include sensitivity analysis of the P/E ratio to assess the impact of changes in earnings, market conditions, or growth assumptions. This helps in understanding the sensitivity of the stock's value to different factors and scenarios B. — Price-to-Sales-Ratio: //igher the Better] PIS ratio = Market Ps “¢ per Share / Revenue per Share The Price-to-Sales ratio (P/S ratio) is a financial metric used to evaluate the valuation of « company's stock relative to its revenue or sales. It compares the market price per share to the company’s revenue per share. Higher Ratio: A higher P/S ratio generally indicates that investors are willing to pay a higher premium ‘for each dollar of revenue generated by the company, It suggests thatthe stock is relatively more expensive compared to its revenue potential. Finance Master Class || By CA Shivam Palan uwRatio Analysis || CA Monk ‘= Lower Ratio: A lower P/S ratio may indicate thatthe stock is undervalued or that investors are Less ‘optimistic about the company’s revenue growth prospects. [t suggests that the stock is relatively cheaper ‘compared to its revenue potential Join Finance Master Class for a better understanding of all the concepts in detail; click on the below link and register for the course: https://www.camonk.com/courses/finance-masterclass C. Price-to-Book-Ratio: /Higher the Better] P/B ratio= Market Price per Share / Revenue per Share The Price-to-Book ratio (P/B ratio) is a financial metric used to assess the valuation of a company's stock in relation to its book value, It compares the market price per share to the book value per share, ‘= Higher Ratio: A higher P/B ratio suggests that investors are willing to pay a higher premium for each dollar of book value owned by the company. Tt cOUld indicate that the slock is relatively expensive compared to its book vale iwer Ratio: A lower P/Btatio thay tndivate thatthe stock is UderValued or that investors are Tess ‘optimistic about the company’s boOK value. It suggests thatthe stock is relatively cheaper compared 10 its book value, D. Dividend Yield: Dividend Yield = (Annual Dividend per Share / Stork Price) “100, Dividend yield isa financial ratio that measures the annual dividend payment of a company relative toi stock price. It indicates the peteentage Féturn on investment that an investor Cad expect to receive from dividends alone. ‘© Higher Yield: A higher dividend yield indicates a higher return on investment from dividends, making it more attractive for income-seeking investors. ‘© Lower Yield: A lower dividend yield is a relatively low percentage of retumn on investment from dividends compared to the stock price. It means that the company is paying a smaller dividend in relation to its stock price. 7. Book Value Par Share: Itrepresents the value of a company’s equity divided by the number of outstanding shares Book Value per Share = Shareholder ' Equity / Number of Outstanding Shares ‘When will company use book value per share for valu: jon of company: Finance Master Class || By CA Shivam Palan 2Ratio Analysis || CA Monk 1, Valuing Asset-Intensive Companies: Companies that primarily hold tangible assets, such as ‘manufacturing or real estate companies, may use the book value method. In such cases, the book value of assets, such as property, plant, and equipment, can be a meaningful indicator of the company's value, ‘Valuing Distressed Companies: When a company is facing financial distress or is on the verge of bankruptcy, the book value method may be relevant. In these situations, the market, value of the company’s assets may be lower than their book value due to unfavorable market conditions or financial difficult 3. Valuing Holding Companies: Holding companies often hold investments in other companies, In such cases, the book value of these investments, combined with othe: can provide a basis for valuation. is and liabilities, 4. Valuing Non-profit Organizations: Non-profit organizations may rely on the book value ‘method as their primary objective is not profit generation. The focus is on managing and preserving the organization's assets and maintaining financial sustainability. ‘Valuing Companies with Stable and Predictable Earnings: In some cases, companies with stable and predictable earnings may use the book value method! as a conservative approach to valuation. This is particulatly:relevant when the market value exceeds the book value due to factors such as goodwill Or intangible assets 8. Return on capital employed (ROCE) RO financial ratio that measures the profitability and efficiency of a company’s capital investments, specifically the retum generated from all the capital employed in the business, including both equity and debt. ROCE = (Operating Profit / Capital Employed) x.100, Operating Profit represents the earings before interest and taxes (EBIT), and Capital Employed includes both equity and debt, stich as shareholders’ equity, long-term debt, and other long-term liabilities. Join Finance Master Class for a better understanding of all the concepts in detail; click on the below link and register for the course: https://www.camonk.com/courses/finance-masterclass Finance Master Class || By CA Shivam Palan 13‘Summary of Ratio Ratio Analysis || CA Monk Heading ‘Type of Ratio Formula 1. Company Trend iquidity Ratio Vertical Analysis Income Statement = (Income statement Item/ Total Sales) *100 Balance sheet = (Balance Sheet Item/Total Asset(Liability))* 100 Horizontal Analysis Percentage Change = (Current Year Figure - Previous Year Figure) / Previous Year Figure * 100 Trend Analysis Current Ratio It identifies patterns or trends in data over a specific period of time Current Ratio = Current Assets / Current Liabilities Quick Ratio or A Test Ratio Cash Ratio, Quick Ratio= (Cash + Cash Equivalents + Short-Term Investments. + Accounts Receivable) / Current Liabilities ‘Cash, Ratio = (Cash + Cash Equivalents) 7 Current Liabilities 3. Turnover Ratio Accounts Reeeivable Tumbver Ratio ‘Accounts Receivable Turnover Ratio = Net Credit Sales / Average Accounts Receivable ‘Asset Turnover Ratio ‘Asset Turnover Ratio= Net Sales /Average Total Asset Taventory Tumover Ratio Inventory Turnover Ratio = Cost of Goods | Sold Average Inventory Turnover Days Accounts” Payable | Accounts Payable Turnover Ratio = Total Tumover Ratio Purchases / Average Accounts Payable ‘Accounts Receivable | Accounts Receivable days= 365/Accounts Days Reccivable Turnover Ratio Inventory, Turnover | Inventory Turnover Days = Days 365 Inventory Tumover Ratio Payable Days Payable Days = 365/ Accounts Payable ‘Tumover 5. Leverage Ratio Debt to Equity Ratio Debt to Equity Ratio = ‘Total Debt / Total Equit Debt Ratio Equity Ratio Debt Ratio = Total Debt / Total Assets Equity Ratio= ‘Shareholders’ Equity / Total Assets Taterest Coverage Ratio Interest Coverage Ratio [EBIT (Earnings Before Interest and Taxes) / Interest Expenses Gross Profit Margin Gross Profit Margin = (Gross Profit / Revenue) x 100 Net Profit Margin ‘Net Profit Margit ‘Net Profit Margin = (Net Profit / Revenue) x 100 Retum on Assets ‘Return on Assets (ROA) = 6. Profitability Ratio (ROA) Net Income / Average Total Assets Return on Equity (Net Income 7 Average Shareholders” (ROE) Equity) x 100 Finance Master Class || By CA Shivam Palan 14Ratio Analysis || CA Monk (EPS) Earnings per Share [Earnings per Share (EPS) = Eamings attributable to Equity Shareholders / ‘Average Outstanding Shares Prive-to-Earnings Ratio (P/E Ratio) ‘Price-to-Earnings Ratio (P/E Ratio)= [Market Price per Share / Famings per Share (EPS) 7. Market Ratio (PIS Ratio) Price-to-Sales Ratio ’Price-to-Sales Ratio (P/S ratio) = Market Price per Share / Revenue per Share Price-to-Book Ratio (PIB Ratio) Price-to-Book Ratio (P/B Ratio) = Market Price per Share / Revenue per Share Dividend Yield Dividend Yield = (Annual Dividend per Share / Stock Price) * 100 Join Finance Master Class for a better understanding of all the concepts in detail; click on the below link and register for the course: Finance Master Class ‘ses/finance-masterclass || By CA Shivam Palan a