Chapter no 3

Ratio Analysis
 1. Total assets turnover ratio:
• It shows how efficiency a company can use its assets to generate sale.
• 1.25:1
• Sales : Assets.
• If we purchase assets of one Dollar then our sale will increase by 1.25
 2. Net profit margin

• Net profit Per dollar of sales 7%.

• When we sold one unit of $1 then we will get 7% profit.
3. Earning power or Return on investment
or Return on assets (ROA).
• If we invest $1 in assets then our income will increase by 9%.
• It show that a firm has enough resources to meet its short term
obligation.
• 2.26: 1
• 2.26 represents as assets and 1 represents as liability.
• It means we have solvency position.
• Ability of company to pay rapidly cash.
 • A/R * 360
Cr. Sales
• Answer in days. Suppose : 37 days.
• When we sold goods on credit bases, money will recover within 37
days.
• Ans: 4.58 Times.
• How many times the inventory of company have been sold during the
year.
• It show the percentage of revenue that exceed the CGS.
 • 0.19 : 1
• If we invest $1 equity in our business our return will be 0.19.
• It judge either company is in a position to pay interest on loan or not.
• 1.07: 1
• 1.07 represent at debt and 1 represent as equity.