FINANCIAL

RATIO
ANALYSIS
Helmi Salam S C1H017001
Carissa Sandra S C1H017007
Salma Meidiana C1H017018
 01. The Importance of Financial Ratio
Analysis

02. Comparison Basic of Financial

Ratio

03. Classification of Financial

Ratio
Sub – Chapter
04. Interpreting Financial
Ratio

05. Limitations of Financial

Ratio

06. Illustration of Financial Ratio

Analysis
The Importance of
Financial Rasio
Analysis
One technique used to analyze FS is financial ratios.
This rasio analysis tool can be useful for guidance and
planning as well as making good finansial control.

The ratio describes the relationship or the balance (mathematical

relationship) between a certain number with another number.
With this analysis tool will be able to explain or give an overview
to the analyst about the good or the bad things of a company's
financial position, especially if the ratio is compared with the
benchmark ratio used as a standard.

For example, by linking the elements of assets to

liabilities on the BS at a certain moment can be
obtained many descriptions of the position or the fin.
condition of a company.
Comparison Basic of
Financial Rasio
 01.
By using the ratio
analysis can be
determined the level of
liquidity, solvency,
operational effectiveness
and profitability.
To determine or measure
those ratios, it would
require a comparison tool
& industrial ratio. 03.
This ratio is called the standard industry
ratio.
Standard ratio is not an ideal comparison
rate or a certain measurement, but the
standard ratio can be a guide. Beside the
standard ratio, an analyst must also
consider the percentage of historical
trends.
02. (budgeted)
Compared with the planning ratio
Compared with competitor
Classification Basic
of
Financial Rasio
There are amount of financial ratios numbers,
because the ratio can be made according to the needs of analysts.
However, roughly the ratio numbers can be classified into two groups.

 The first group are on the basis of financial data sources which are
elements of the ratio
 The second group are based on goals of respective analyst.

Balance Sheet ratios

Based on the data source, Income Statement

the ratios are divided into: ratios

Interstatements ratios
 Financial ratios, according to the purpose,
can be divided into five classifications as follow:

01 02 03 04 05

Liquidity Leverage Ratio Activity Profitability Stock Ratio

Ratio Ratio Ratio
which measures (Debt Ratio), is the ratio measures which measures (valuation ratio),
the ratio of the the ratio used to how effective the the ratio of how which shows the
company's ability measure how firm uses resources, much the ratio of corporate
to meet short- much company’s or the extent to company's ability earnings, dividends
term financial asset financed which the efficiency to obtain and so on that
obligations. by long-term of firms in using earnings related to the stock.
debt. assets to sale. associated with
sales, assets and
 CALCULATION
RATIO EXPLANATION
METHOD
Ability to pay current debt with
current assets. The higher the
ratio, the greater the ability.

FORMULAS The ability to pay short-term

debt with current assets that are
LIQUIDITY more liquid
RATIO Ability to pay short-term debt
with cash & securities

Calculates how much excess

current assets are above current
debt
 RATIO CALCULATION METHOD EXPLANATION
Measuring assets financed by
debt. The greater this ratio,
the greater the risk

Part of each rupiah of capital

which is the guarantee for
total debt. Safe DER <50%.
FORMULAS The smaller the better.

The amount of guaranteed

LEVERAGE profits to pay the burden of
long-term debt
RATIO Ability
Ability to
to cover
cover fixed
fixed costs
costs
including
including paying
paying dividend
dividend of
of
preferred stock, interest, loan
installments & rent

Ability
Ability to
to meet
meet fixed
fixed expenses
expenses
including
including installments on
installments on loan
loan
principal
principal
 Interpreting
Financial Rasio
 The ratio that has been calculated,
only can be understood by way to
interpret these ratios and then applied
in managing the company more
effective and efficient.

To take advantage from ratio

analysis, companies have to
compare the ratio with the ratio
of other similar companies
(vertical) & view the trend from
time to time (horizontal).
Limitations of
Financial Rasio
 First,
First,the
the calculation
calculation isis based
based on
onthe
the ratio
ratio of
of
accounting records and accounting
accounting records and accounting
reports,
reports,sosothat
thatwhen
when compared
comparedto tothe
the
ratio
ratio of
of one
one company
company by by another
another can
can lead
lead
to
todifferent
different interpretations.
interpretations.

Although the
tool can be very Second,
Second,anananalyst
analystcancan not
notsay
say that
thataa
useful, company's
company's ratio
ratioisis better
better than
thanothers
others
without in deep analysis. For example,
without in deep analysis. For example,
but the ratio of high
highinventory
inventory turnover
turnover isis not
not
necessarily
necessarilyaagood
goodsupply
supply effectiveness.
effectiveness.
analysis has
some
limitations:
Third,
Third,the
themanagement
managementcan can manipulate
manipulatethe
the
ratio
ratiolegitimately
legitimately(valid
(valid manipulation),
manipulation),because
because
the
the ratio
ratio isisshort-term
short-termanalysis,
analysis,i.e.
i.e.by
byshifting
shifting
the
the numbers
numbers of ofaccounting
accountingpermitted.
permitted.
Illustration of
Financial Rasio
 The following are:
- Balance Sheet data (figure 4-1)
- Income Statement (figure 4-2)
of company PT. NEO Jakarta Tbk,
as a source of financial ratio calculations, ratio
analysis and interpretation.

Additional data for Leverage

Ratio
1. Lease payments to be 2. Installment of 3. Tax rate 40%
paid Rp 15.000.000,- Principal loan
Rp 20.000.000,-

 In this case there is no payment for preferred stock dividend.

 Market price of shares in 2018 amounted to Rp 650 per share and in
year 2019 Rp 2450 per share.
ILLUSTRATION
Figure 4-1.
PT. NEOS Jakarta
Balance Sheet
Per 31 December
ILLUSTRATION
Figure 4-1.
PT. NEOS Jakarta
Income Statement
 NO  RATIO 2018 2019 INTERPRETASI TAHUN 2018

Each current debt is Rp. 1, -

1 Current Ratio 196.65% 228.48% guaranteed by a current asset of
Rp 1.97
Each current debt is Rp. 1, -

ANALYSIS
2 Quick Ratio 88.78% 101.68% guaranteed by a quick asset of
Rp 0.89
Each current debt is Rp. 1, -
LIQUIDITY 3 Cash Ratio 17.00% 20.96% guaranteed by cash and
securities Rp 0.17
RATIO
The difference in current assets
Net Working
4 246,670,000 268,200,000 above current liabilities is Rp
Capital
246,670,000.

From the four components above, can generally be said that the
condition of a company in the liquid state.
It means the company will be able to meet short-term liabilities by
using existing current assets.
The Ratio also showed an improvement in the liquidity ratio in 2019
compared with the year 2018.
  NO RATIO 2018 2019 Interpretasi Tahun 2018
Each rupiah of total assets is
1 Debt Ratio 58.03% 57.76% guaranteed as a debt of Rp
0.58
Every rupiah of its own capital
2 Debt To Equity Ratio 138.28% 136.73% is guaranteed as a debt of Rp
1.38
ANALYSIS 3
Time Interest Earned Ratio ( X
3.65 8.45
Every rupiah long-term debt
interest is guaranteed by a
)
profit of Rp 3.65
LEVERAGE Every rupiah interest expense
4 Fixed Charge Coverage ( X ) 3.47 7.04 is guaranteed by profit, rent
RATIO and interest of Rp 3.47
Every fixed interest expense
rupiah including loan principal
5 Debt Service Coverage ( X ) 1.44 3.70
installments is guaranteed by
a profit of Rp 1.44

Viewed from the percentage of DR & DER, it is relatively safe &

indicates that it fall in the next year. Three ratios later show a
company's ability to handle the obligation. The numbers seem grow
from year to year. Thus, firms have a greater ability to obligation
such as interest, rent & installment of principal.
QnA
QUIZ
 PT. AL – Right
Balance Sheet
In Rupiah
For Year Ending Dec 31, 2019
PT. AL – Right
Income Statement
For Year Ending Dec 31, 2019
 CALCULAT
E
 DEBT TO ASSET RATIO (with
 CURRENT RATIO (with interpret)
interpret)  DEBT TO EQUITY RATIO (with
 QUICK RATIO (with interpret)
interpret)  TIME INTEREST EARNED RATIO
 CASH RATIO  FIXED CHARGE COVERAGE RATIO
 NET WORKING CAPITAL  DEBT SERVICE COVERAGE
Principle loan Rp 8.400.000
THANK YOU