MANUFACTURING COMPANIES

The analysis of similar companies will concentrate on ratios such as the following.

1. Performance Ratios:
 Leverage ratio
 Liquidity ratio
 Cost of personnel
 Turnover days of inventory
 Col-Lection period and payment period
 Fixed asset turnover ratio

2. Profitability ratios:
 Return on equity
 Return on total assets
 Net profit margin
 Payout ratio
 Operating Profit margin

3. Market/valuation ratios:
 Book value per share
 Earnings per share
 Price earning multiplier
 Yield ratio

TRADING COMPANIES
Financial ratios for analysis of such trading companies include.

1. Balance sheet ratios:

 Current ratio
 Quick ratio
 Debt-equity ratio
 Interest coverage ratio.

2. Profit ratios:
 Net profit margin
 Return on investment
 Dividend payout ratio

3. Value ratios:
 P/E multiplier
 Earnings per share
 Yield ratio
 Book value per share.
SERVICE COMPANIES
The following ratios can be used to analyse the financial statements of service companies.

1. Profitability Ratios:
 Net profit ratio
 Return on investments
 Return on capital
 Dividend payout ratio.

2. Liquidity Ratios:
 Current ratio
 Quick ratio.

3. Leverage Ratio:
 Debt/equity ratio.

4. Value Ratios:
 Book value per share
 Earnings per share
 Price earnings multiplier
 Yield ratio.

FINANCIAL COMPANIES (BANKING):

Financial statement analysis of banking companies should include

1. Profitability Ratios:
 Interest Expenses/Total Income
 Non-interest Expenses/Totul Income
 Non-interest Income/Non-interest Expenses
 Interest Income/Total Assets
 Interest Expenses/Total Assets.

2. Performance Ratios:
 Net Interest Margin (NIM) = Net Interest Income (NII) Total Assets
 Profit Margin = Net Profit/Total Income
 Asset Utilization = Total Income/Total Assets
 Other Income/Total Assets
 Equity Multiplier = Total Assets/Equity
 Return on Assets = Net Profit/Total Assets
 Return on Equity = Net Profit/Equity.

3. Sustenance Ratios:
 Capital to Risk Weighted Assets (CRAR) = Total Capital/(RWAs)
  Core CRAR = Tier 1 Capital/RWAs
 Adjusted CRAR = (Total Capital-Net NPAs)/RWAS-Net NPAA).

4. Staff Productivity:
 Net Total Income/Number of Employees
 Profit per Employee = Net Profit/Number of Employees
 Business per Employee = (Advances + Deposits)/Number of Employees,
 Break even Volume of Incremental Cost per Employee = Cost per Employee/NIM.

5. Asset Quality:
 Gross NPAs/Gross Advances
 Gross NPAs/Total Assets
 Net NPAs/Net Advances
 Net NPAs/Total Assets
 Provisions for loan losses/Gross Advances
 Incremental RWAs/Incremental Total Assets
 Provisions for loans and investments/Total Assets.

FINANCIAL COMPANIES (INSURANCE)

The following ratio should be considered while carrying out a financial analysis of insurance companies.

1. Profitability Ratios:
 Adjusted net profit margin
 Cash profit margin
 Gross profit margin
 Operating profit margin
 Profit before interest and tax margin
 Return on capital employed
 Return on net worth

2. Spread Ratios:
 Premium ceded/total funds
 Premium income/total funds
 Net premium income/total funds
 Net profit/total funds
 Other income/total funds
 Operating expense/total funds
 Profit before provision/total funds

3. Management Efficiency Ratios:

 Fixed assets turnover ratio
 Loans turnover ratio
 Asset turnover ratio
 Total income/capital employed.
 4. Profit and Loss account Ratios:
 Premium ceded/Premium carned
 Other expense/total income
 Other income/total income.

5. Liquidity and solvency Ratio:

 Debt equity ratio
 Long term debt equity ratio.

6. Balance sheet Ratios:

 Advance/total funds.

EFFICIENCY RATIO
1. Pure loss ratio:
 [Expense (excluding losses, loss adjusting expenses and policyholders dividends
learned premium]

2. Expenses ratio or loss adjustment ratio:

 [expected incurred expenses/expected written premium]

3. Divided ratio:
 [policyholder dividends/earned premiums]

4. Combined Ratio:
 [Pure loss ratio Expenses ratio dividend ratio]

5. Growth Ratios:
 Cash growth ratio
 Credit growth ratio
 Investment ratio.