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[PDF] CHAPTER 4 ACCOUNTING RATIOS Aspirations Institute
Operating cost and operating expenses are reperate concept shouldn't inter change Accounting Ratio: It is an arithmetical relationship between two accounting
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Calculation of ratios helps in determining and evaluating such aspects Page 3 ACCOUNTANCY ACCOUNTING RATIOS www topperlearning com 3
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This chapter covers the technique of accounting ratios for analysing the information contained in financial statements for assessing the solvency, efficiency
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The use of ratios in accounting and financial management analysis helps the management to know the profitability, financial position (liquidity and solvency)
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A ratio is a mathematical number calculated as a reference to relationship of two or more numbers and can be expressed as a fraction, proportion, percentage and
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31 mar 2022 · State the limitations of Ratio Analysis CHAPTER financial ratio or accounting ratio which is a mathematical Notes to Accounts
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e) Accounting standards and guidance notes ? TECHNIQUES USED FOR FINANCIAL STATEMENT ANALYSIS Following techniques are used for analyzing financial
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3 RATIO ANALYSIS Objectives: After reading this chapter, the students will be able to Profitability ratios measure the degree of accounting profits
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Fraction: As per this form, ratio is expressed in fraction • Meaning of Ratio Analysis: i It is a study of relationship among various financial factors in a business ii
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chapter covers the technique of accounting ratios It needs to be observed that accounting ratios exhibit relationship, if any, between Notes to Accounts Rs
[PDF] Analysis of Accounting Ratios - CA Sri Lanka
Ratio Analysis A popular tool used to conduct a quantitative analysis of information pertaining to company's financial statements Generally, accounting
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2154_6chapter4_analysisofaccountingratios.pdf Analysis of
Accounting Ratios
CA BUSINESS SCHOOL
EXECUTIVE DIPLOMA IN BUSINESS AND ACCOUNTING
SEMESTER 2: Interpretation of Financial StatementsM B G Wimalarathna
(FCA, FCMA, MCIM, FMAAT, MCPM)(MBAPIM/USJ)Ratio Analysis
A popular tool used to conduct a quantitative analysis of information pertaining to company's financial statements. Generally, accounting ratios are calculated from current year numbers and are then compared to previous years, other companies, the industry, or even the economy to judge the performance of the company.Key Categories of ratios are as follows;
Profitability.
Efficiency. From the View point of the
Liquidity. Company/Key Management.
Gearing/Capital Structure.
Investors/Market Performance. point of view.) 2 wimalProfitability Ratios
Profitability ratios Primary Secondary
Primary
1. ROE. (Return On Equity) NP. atri. O/SHS. x100
What? Avg. Equity How to calculate?2. ROA. (Return On Assets) EBIT x100
What? Avg. Assets How to calculate?3 wimal
What does this measure & indicate to users/Stakeholders?Secondary
1. GP Margin. (Gross Profit) ) GP x100
What? Total Sales How to calculate?2. OP Margin. (Operating Profit) ) OP x100
What? Total Sales How to calculate?3. NP Margin. (Net Profit) ) NP x100
What? Total Sales How to calculate?4 wimal
Efficiency Ratios
1. Asset Turnover Ratio Total Sales
Avg. total Assets What? (Times / x) How to calculate?2. Inventory/Stock Turnover Ratio
Cost of Sales What? Avg. Stock How to calculate?3. Debtors Turnover Ratio
Total Credit Sales What? Avg. Drs. How to calculate?5 wimal
What does this measure & indicate to users/Stakeholders?4. Stock Residency Period - Direct/Indirect
Avg. Stock x 365/50/12 What? Cost of Sales How to calculate?5. Debtors Collection Period - Direct/Indirect
Avg.Debtors x365/50/12 What? Total Credit Sales How to calculate?6. Activity Cycle
SRP + DCP What? How to calculate? If Figures are not available, how to calculate?6 wimal
Liquidity Ratios
What does this measure & indicate to users / stakeholders?1. Current Ratio. CA
CL What is best for the company??? What? How to calculate?2. Quick Asset/Acid Test Ratio. (CA - St.)
CL Traditional. Is this correct? What? How to calculate?3. Cash Flow Ratio.
NCF. OP. act CL What? How to calculate?7 wimal
Gearing/Capital Structure Ratios
1. Debt to equity Ratio/Gearing.
Total Liabilities x 100 What? Total Equity Is high or low, good? How to calculate?2. Debt Ratio.
Total Liabilities x 100 Total Assets What? How to calculate?8 wimal
What does this measure & indicate to users / stakeholders?3. Equity Ratio. Total Equity x 100
Total Assets What? How to calculate?4. Interest Coverage Ratio. EBIT
F/Cost Sometimes, efficiency. What? How to calculate?5. Debt Coverage Ratio. NCL
NCF.op.act What? How to calculate?9 wimal
Investors'/Market Performance Ratios
1. Net Tangible asset backing per share (OS/HE-IA)
O/SC What? How to calculate?2. EPS NP. atri.OSHs
WA. O/Sc What? How to calculate?3. Operating cash flow per share (NCF. op. - Pr. Divi)
WA. O/Sc What? How to calculate? 10 wimal
What does this measure & indicate to users / stakeholders?4. Dividend per share Divi. paid + proposed
WA. O/Sc What? How to calculate?5. PE Ratio MPS
EPS What? How to calculate? 11 wimal
DuPont analysis
A method of performance measurement that was started by the DuPont Corporation in the 1920s. With this method, assets are measured at their gross book value rather than at net book value in order to produce a higher return on equity (ROE).
It is also known as "DuPont identity".
DuPont analysis tells us that ROE is affected by three things: - Operating efficiency, which is measured by profit margin - Asset use efficiency, which is measured by total asset turnover - Financial leverage, which is measured by the equity multiplierROE = Profit Margin (Profit/Sales) * Total Asset Turnover (Sales/Assets) * Equity Multiplier (Assets/Equity)