RATIO ANALYSIS

NAME: SARVESH RAJENDRA DHATRAK

ROLL NO. :14

CLASS: TY.BBA

SPECIALZATION: FAINACIAL MANAGEMENT

PROFESSOR: SUPRIYA PAWAR

SUBJECT: ANALYSIS OF FAINANCIAL STATEMENTS

 Ratio

MEANING
• Mathematical relationship between two items
• Expressed in quantitative formRatio

Defined as:
“relationships expressed in quantitative terms, between
figures which have cause and effect relationships or
which are connected with each other in some manner
or the other”
STEPS
• Selection of relevant information

• Comparison of calculated ratio

• Interpretation and reporting

ADVANTAGES
• Forecasting

• Managerial control

• Facilitates communication

• Measuring efficiency

• Inter firm comparisons

LIMITATIONS
• Practical knowledge

• Inter-relationships

• Accuracy of financial information

• Consistency of preparation of financial statements

• Time log
CLASSIFICATION
• Classification of ratios by statements

• Classification by users

• Classification based on relative importance.

• Classification of ratios by purpose/function.

EXAMPLE
• Following is the Profit and Loss Account of Samir Auto Ltd., for the year ended
31st March, 2016.
You are required to calculate:

(i) Gross Profit Ratio

(ii) Net Profit Ratio
(iii) Operating Ratio
(iv) Operating Profit Ratio
(v) Administrative Expenses Ratio

Solution:

(i) Gross Profit Ratio= Gross Profit X 100

Net Sales
= 2,01,000 X 100 = 35.9%
5,60,000

(ii) Net Profit Ratio= Net Profit After Tax X 100

Net Sales
= 80,000 X 100 = 14.3%
5,60,000
 (iii) Operating Ratio = Cost of Goods Sold + Operating Exp.
Net Sales
Cost of Goods Sold= Op.Stock + Purchases + Wages – Closing Stock
= 1,00,000 + 3,50,000 + 9,000- 1,00,000= Rs.3,59,000
Operating Expenses= Administrative Exp. + Selling and Distribution Exp. =
Rs.20,000 + Rs.89,000 = Rs.1,09,000
Operating Ratio = 3,59,000 + 1,09,000 X 100 =83.6%
5,60,000

(iv) Operating Profit Ratio= 100- Operating Ratio= 16.4%

(v) Administrative Expense Ratio= Administrative Exp X 100

Net Sales
= 20,000 X 100 = 3.6%
5,60,000