Ratio Analysis,

Common Size
Analysis,
Percentage
Change
Analysis,
Market Value
Analysis
Instructions for use

What Is Ratio Analysis? Ratio analysis is a quantitative

method of gaining insight into a
company's liquidity, operational
efficiency, and profitability by
studying its financial statements
such as the balance sheet and
income statement. Ratio
analysis is a cornerstone of 
fundamental equity analysis.

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 Current Ratio = Current Assets
____________________ x 100
Current Liabilities

2022
1,095,201.83
___________
126,447.46
CR = 8.7:1.0

2023
2,013,212.07
___________
209,827.67
CR = 9.6 : 1.0

Quick Ratio = Current Assets – Inventories

_______________________
Current Liabilities

= 1, 095, 201. 85 – 0
_______________
126, 447, 46
QR = 8.7 : 1.0

Cash Ratio= Cash and Cash Equivalent + Short Term Investments

___________________________________________
Current Liabilities

= 1, 095, 201.85 + 0
_______________
126, 447.46
CR = 8.7 : 1.0

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 659, 342,.39 + 32,132.00
____________________________
126, 447.39

= 691, 474.39
___________

126, 447.46

SR = 5.5%
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 2022 2025

Gross Profit Margin = Gross Profit Margin 1, 826, 417.00 2, 232, 599.00

________________x 100 ____________x 100 ____________X 100

Sales 2, 886, 495.00 3, 533, 820.00

= 0.6327 x 100 0.6317 X 100

GPM = 63.3% 63.2%

Net Profit Income = Net Income 639, 342,.39 999, 483.01

________________x 100 ____________x 100 ____________X 100

Sales 2, 886, 495.00 3, 533, 820.00

= 0.2284 X 100 0.2828 X 100

NPM = 22.8% 28.3 %

Return On Assets = Net Income 699, 342.39 999, 483.01

________________x 100 ________________x 100 ________________x 100

Assets 1, 235, 789.85 2, 118, 653.07

= 0.5659 X 100 0.4717 X 100

ROA = 56.6% 47.2%

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RETURN ON EQUITY

2022 2025

Return On Equity = Net Income 659, 342.39 999, 483.01

________________ _______________ ________________

Share Holders Equity 1, 109, 342.39 1, 908, 825.40

ROE = 0.5943 or 0.59 0.5236 or 0.52

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What is Common Size Analysis?
▪ Common size analysis, also
referred as vertical analysis, is a
tool that financial managers use
to analyze financial statements.
It evaluates financial statements
by expressing each line item as
a percentage of the base
amount for that period. The
analysis helps to understand the
impact of each item in the
financial statement and its
contribution to the resulting
figure.
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▪ The technique can be used
to analyze the three primary
financial statements, i.e.,
balance sheet, income
statement, and cash flow
statement. In the balance
sheet, the common base
item to which other line
items are expressed is total
assets, while in the income
statement, it is total
revenues.
Balance Sheet Common Size Analysis

▪ The balance sheet common size analysis

mostly uses the total assets value as the base
value. On the balance sheet, the total assets
value equals the value of total liabilities and 
shareholders’ equity. A financial manager or
investor uses the common size analysis to see
how a firm’s capital structure compares to
rivals. They can make important observations
by analyzing specific line items in relation to
the total assets.
▪ For example, if the value of long-term debts
in relation to the total assets value is too
high, it shows that the company’s debt levels
are too high. Similarly, looking at the retained
earnings in relation to the total assets as the
base value can reveal how much of the
annual profits are retained on the balance
sheet.
▪ Let’s take the example of ABC Company
whose balance sheet for 2017 is as follows:
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Income Statement Common Size Analysis

▪ The base item in the 

income statement is usually the
total sales or total revenues.
Common size analysis is used to
calculate net profit margin, as well
as gross and operating margins. The
ratios tell investors and finance
managers how the company is doing
in terms of revenues, and they can
make predictions of future
revenues. Companies can also use
this tool to analyze competitors to
know the proportion of revenues
that goes to advertising, research
and development, and other
essential expenses.
▪ We can compute common size
income statement analysis for ABC
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Company for 2017.
What Is Percentage Change?
▪ Understanding Percentage
▪ Percentage change is a Change
simple mathematical ▪ Percentage change can be
concept that represents applied to any quantity that
the degree of change you measure over time. Let's
over time. It is used for say you are tracking the 
quoted price of a security. If
many purposes in the price increased, use the
finance, often to formula [(New Price - Old
represent the price Price)/Old Price] and then
change of a security. multiply that number by
100. If the price decreased,
use the formula [(Old Price -
New Price)/Old Price] and
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multiply that number by
100. 
Calculating Percentage Change Step-by-Step
▪ To calculate a percentage increase, first
work out the difference (increase)
between the two numbers you are
comparing:
▪ Increase = New Number - Original
Number
▪ Next, divide the increase by the original
number and multiply the answer by 100:
▪ % increase = Increase ÷ Original Number
× 100.
▪ If the answer is a negative number, that
means the percentage change is a
decrease.
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▪ Calculate Percentage Decrease:
▪ First, work out the difference (decrease)
between the two numbers you are
comparing.
▪ Decrease = Original Number - New
Number
▪ Next, divide the decrease by the original
number and multiply the answer by 100.
▪ % Decrease = Decrease ÷ Original
Number × 100
▪ If the answer is a negative number, this is
a percentage increase.
▪ If you wish to calculate the percentage
increase or decrease of several numbers,
it's best to use the formula for calculating
percentage increase. Positive values
indicate a percentage increase whereas
negative values indicate the percentage
decrease.
Example of Calculating Percentage Change

▪ As an example of ▪ To solve this calculation,

first calculate the difference in hours
calculating percentage between the new and old
numbers. 45.5 - 35 hours = 10.5
change in a real-life hours more hours worked by Bob in
scenario, consider Bob, February. To work out the increase
as a percentage, divide the increase
who worked a total of 35 by the original (January) number:
hours in January. In ▪ 10.5 ÷ 35 = 0.3
February, he worked 45.5 ▪ Finally, to get the percentage we
hours, by what multiply the answer by 100. This
simply means moving the decimal
percentage did Bob’s place two columns to the right.
working hours increase in ▪ 0.3 × 100 = 30
February?  ▪ Therefore, Bob worked 30
percent more hours in February
than he did in January.
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What is Market Value?

▪ Market value is usually • Market value is usually used

used to describe how to describe how much an
asset or company is worth in
much an asset or a financial market.
company is worth in a • The market value of a good
financial market. Itis is the same as its market
mutually determined by price only when a fair market
market participants and exists.
is interchangeably used • Market value can be
for market capitalization expressed in the forms of
mathematical ratios such as
when dealing with
P/E ratio, EPS, market value
assets and companies. per share, book value per
share, etc.
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How is Market Value Expressed?

▪ Earnings per Share

Earnings per Share = End-of-Period Common Shares Outstanding
___________________________________
❏ Net Income − Preferred Dividends

(EPS): EPS is ▪ ​ ​ ​
calculated by
allocating a portion
of a company’s
profit to every
individual share of
stock. A higher EPS
denotes higher
profitability.
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How is Market Value Expressed?

▪ Book Value per Share: It is

calculated by dividing the
company’s equity by the total
number of outstanding shares.

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How is Market Value Expressed?
▪ Market/Book Ratio: The
market/book ratio is used to
compare a company’s market value
to its book value. It is calculated by
dividing the market value per share
by the book value per share
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▪ Interpreting the Ratio
▪ A low ratio (less than 1) could indicate that the
stock is undervalued (i.e. a bad investment), and
a higher ratio (greater than 1) could mean the
stock is overvalued (i.e. it has performed well).
Many argue the opposite and due to the
discrepancy of opinions, the use of other stock
valuation methods either in addition to or
instead of the Price to Book ratio could be
beneficial for a company.
▪ A low ratio could also indicate that there is
something wrong with the company. This ratio
can also give the impression that you are paying
too much for what would be left if the company
went bankrupt.
▪ The market-to-book ratio helps a company
determine whether or not its asset value is
comparable to the market price of its stock. It is
best to compare Market to Book ratios between
companies within the same industry.
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How is Market Value Expressed?

▪ Price-Earnings (P/E)
Ratio: The P/E ratio is
the current price of the
stock divided by the
earnings per share.

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Why Use the Price Earnings Ratio?

▪ Investors want to buy financially

sound companies that offer a good 
return on investment (ROI). Among
the many ratios, the P/E is part of
the research process for selecting
stocks because we can figure out
whether we are paying a fair price.
Similar companies within the same
industry are grouped together for
comparison, regardless of the
varying stock prices.  Moreover, it’s
quick and easy to use when we’re
trying to value a company using
earnings. When a high or a low P/E
is found, we can quickly assess what
kind of stock or company we are
dealing with.

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HIGH PE
Companies with a high Price Earnings
Ratio are often considered to be growth
stocks. This indicates a positive future
performance, and investors have higher
expectations for future earnings growth
and are willing to pay more for them.
The downside to this is that growth
stocks are often higher in volatility, and
this puts a lot of pressure on companies
to do more to justify their higher
valuation. For this reason, investing in
growth stocks will more likely be seen as
a risky investment. Stocks with high P/E
ratios can also be considered
overvalued.
 LOW P/E
Companies with a low Price Earnings Ratio
are often considered to be value stocks. It
means they are undervalued because their
stock price trade lower relative to its
fundamentals. This mispricing will be a great
bargain and will prompt investors to buy the
stock before the market corrects it. And
when it does, investors make a profit as a
result of a higher stock price. Examples of
low P/E stocks can be found in mature
industries that pay a steady rate of
dividends.
P/E Ratio Example
▪ If Stock A is trading at $30 and Stock B at
$20, Stock A is not necessarily more
expensive. The P/E ratio can help us
determine, from a valuation perspective,
which of the two is cheaper.
▪ If the sector’s average P/E is 15, Stock A
has a P/E = 15 and Stock B has a P/E = 30,
stock A is cheaper despite having a higher
absolute price than Stock B because you
pay less for every $1 of current earnings.
However, Stock B has a higher ratio than
both its competitor and the sector. This
might mean that investors will expect
higher earnings growth in the future
relative to the market. The P/E ratio is
just one of the many valuation measures
and financial analysis tools that we use to
guide us in our investment decision, and
it shouldn’t be the only one.

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