MATERIAL COSTING: INVENTORY CONTROL Setting of various stock levels: a.

Minimum level of inventory Re-order level - (Average rate of consumption x Average time of delivery) Maximum level of inventory Re-order level + Re-order quantity - (Minimum consumption x Minimum re-order period) Re-order level = Maximum re-order period x Maximum usage OR Minimum level + (Average rate of consumption x Average time to obtain fresh supplies) Average inventory level = Minimum level + 1/2 Re-order quantity OR Maximum level + Minimum level / 2 Danger level + Average consumption x Lead time for emergency purchases ECONOMIC ORDER QUANTITY: EOQ= √ 2AS C Annual usage units Ordering cost per order Annual carrying cos of one unit i.e. (carrying cost % x cost of one unit)

b.

A S C

o obtain fresh supplies) .

Expenses / Net Sales X 100 Selling & Dist. Expenses Ratio Net operating Profit Ratio = Cost of goods sold / Net sales X 100 = Gross Profit / Net Sales X 100 = = = Office & Admin. & Taxes / Net Sales X 100 = Net Profit / Net Sales X 100 PROFITABILITY RATIOS .BASED ON CAPITAL & INVESTMENT . Expenses Ratio b c Selling & Dist. Expenses / Net Sales X 100 Net operating profits / EBIT Net Sales Fixed Expenses / Net Sales X 100 Variable Expenses Ratio / Net Sales X 100 X 100 d e Fixed Expenses Ratio Variable Expenses Ratio = = 4 Operating Ratio Operating Ratio = = Operating Cost / Net Sales X 100 OR Cost of Goods Sold + Other Operating Exp. / Net Sales X 100 5 Net operating Profit Ratio Net operating Profit Ratio 6 Net Profit Ratio or Net Margin % Net Profit Ratio B = Operating Net Profit before Int.BASED ON SALES 1 Cost of Goods sold ratio: Cost of Goods sold ratio 2 Gross Profit Ratio or Gross Margin % Gross Profit Ratio 3 Expenses Ratio a Office & Admin.COST OF CAPITAL COST OF IRREDEMABLE DEBTS 1 WITHOUT TAX FINANCIAL STATEMENT ANALYSIS A. PROFITABILITY RATIOS .

& Taxes / Capital Employed X 100 8 Return on shareholders fund ratio Return on shareholders fund ratio 9 Return on Equity Return on Equity Ratio 10 Return on Operating Assets Return on Operating Assets 11 Return on Total Assets Return on Total Assets = Net Profit after Tax / Shareholder's Funds X 100 = Net Profit after Tax & PD / Equity Shareholder's Funds X 100 = NOPAT / Operating Assets X 100 = NOPAT / Total Assets excluding Fictitious Assets X 100 ACTIVITY OR PERFORMANCE OR TURNOVER RATIOS 1 Fixed Assets Turnover Ratio Fixed Assets Turnover Ratio 2 Total Assets Turnover Ratio Total Assets Turnover Ratio 3 Current Assets Turnover Ratio 4 Capital Turnover Ratio 5 Net Working Capital Turnover Ratio = Net Sales / Net Fixed Assets = = = = Net Sales / Total Assets Net Sales / Current Assets Net Sales / Capital Employed Net Sales / Net Working Capital 6 Debtors Turnover Ratio or Receivables Turnover Ratio Debtors Turnover Ratio = Net Credit Sales / Debtors 7 Stock or Inventory Turnover Ratio Stock or Inventory Turnover Ratio = Cost of Goods Sold / Cost of Sales Stock in trade / Finished goods inventory 8 Raw Materials Turnover Ratio Raw Materials Turnover Ratio 9 Work in Progress Turnover Ratio Work in Progress Turnover Ratio = Raw Materials Consumed / Inventory of Raw Materials = Net Factory Cost / Inventory of WIP .7 Return on Capital Employed or Return on Investment Return on Capital Employed = Operating Net Profit before Int.

10 Creditors or Accounts Payable Turnover Ratio Creditors Turnover Ratio = 11 Average Collection Period Average Collection Period Net Credit Purchases / Accounts Payable (Creditors + B/P) = = 360days or 12 months or 52 weeks / Debtors Turnover Ratio OR Average Debtors / Net Credit Sales X 360 days or 12 months or 52 wee 12 Average Inventory Conversio / holding Period Average Inventory Conversion Period= Avg.Stock in trade holding period = 360days or 12 months or 52 weeks / Stock Turnover Ratio OR Average Stock / Cost of Goods Sold X 360 days or 12 months or 52 wee 13 Raw Materials Inventory Conversion Period Raw Material Conversion Period = = 14 WIP Inventory Conversion Period WIP Inventory Conversion Period 360days or 12 months or 52 weeks / Raw Material Turnover Ratio OR Average Stock of RM/ RM Consumed X 360 days or 12 months or 52 we = = 360days or 12 months or 52 weeks / WIP Turnover Ratio OR Average Stock / Net Factory Cost X 360 days or 12 months or 52 weeks 15 Average Payment Period Average Payment Period = = 360days or 12 months or 52 weeks / Creditors Turnover Ratio OR AverageCreditors / Net Credit Purchases X 360 days or 12 months or 52 COVERAGE RATIOS 1 Interest Coverage Ratio Interest Coverage Ratio = EBIT / Interest on Long Term Debt 2 Preference Dividends Coverage Ratio Preference Dividends Coverage Ratio = 3 Equity Dividend Coverage Ratio Equity Dividend Coverage Ratio EAT / PD = = EPS / DPS OR Earnings available for Eq. Sharholders / Dividend to Eq. Sharhelders .

hold.of ES o/s.4 Total Dividends Coverage Ratio Total Dividends Coverage Ratio 5 Fixed Charges Coverage Ratio Fixed Charges Coverage Ratio 6 Debt Service Coverage Ratio Debt Service Coverage Ratio = EAT / Total Dividend = EBIT / Int. = Earnings avail.Sh.Sh.Sh. + Dep. + Other non cash expenses Int. For Eq.hold. Of ES 3 Book value per share / Net Asset Value per Share Book value per share = Eq./ No. / No.Hold Funds / No.on Long Term Debt + Installment of Principal MARKET TEST OR MARKET STRENGTH ANALYSIS OR INVESTOR ANALYSIS RATIOS: 1 Dividend Per Share or DPS Dividend Per Share or DPS 2 Earning Per Share or EPS Earning Per Share or EPS = Dividend Paid to Eq. of ES 4 Dividend Yield in Equity Shares Dividend Yield in Equity Shares 5 Earning Yield ratio Earning Yield ratio 6 Dividend Pay out Ratio Dividend Pay out Ratio 7 Retention Ratio Retention Ratio 8 Price Earning Ratio or P/E Ratio Price Earning Ratio or P/E Ratio = DPS / MPS X 100 = EPS / MPS X 100 = DPS / EPS X 100 = Earnings Retained / Earnings Available X 100 = MPS / EPS 9 Market Value to Book Value Per Share Market Value to Book Value Per Share = LIQUIDITY / SHORT TERM SOLVENCY RATIO 1 Current Ratio MPS / BPS .on Long Term Debt + (PD / 1-t ) = EAT + Int.

Sh. Funds = FA / Capital Employed 7 Ratio of Current Assets To Fixed Assets Ratio of Current Assets To Fixed Assets = CA / FA . 2 Debt to Total Funds Ratio / Debt Ratio Debt Ratio 3 Debt to Total Asset / Debt to value Ratio Debt to total asset ratio 4 Proprietary Ratio Proprietary Ratio 5 Capital Gearing Ratio Capital Gearing Ratio 6 Fixed Assets Ratio Fixed Assets Ratio = Debt / Debt + Equity = Debt / Total Assets = Sh.Current Ratio 2 Acid Test / Quick / Liquid Ratio Liquid Ratio Quick Ratio 3 Absolute Liquidity / Cash Ratio Cash Ratio = Current Assets / Current Liabilities = = Liquid Assets / Current Liabilities Quick Assets / Quick Liabilities = Cash in hand & at bank + Short term marketable securities Current Liabilities 4 Defensive Interval / Cah Interval Ratio Defensive interval ratio 5 Ratio of Inventory to WC Inventory to Working Capital Ratio LONG TERM SOLVENCY RATIOS 1 Debt .Equity Ratio D/E Ratio = Absolute Liquid Assets / Projected daily cash req. = Inventory / WC = = Debt / Equity Or Outsiders Funds / Sh.hold. & dividend bearing securities / Eq. Or Proprietors Fund or Net Worth.hold.Hold. Funds or Net Worth / Total Assets = Fixed int.

Sales X 100 s X 100 .

mployed X 100 nds X 100 .

Sharhelders .s + B/P) over Ratio 12 months or 52 weeks er Ratio 12 months or 52 weeks Turnover Ratio or 12 months or 52 weeks 2 months or 52 weeks nover Ratio ys or 12 months or 52 weeks o Eq.

.

d. Funds .ecurities Net Worth.