...LIQUIDITY RATIOS Interpretation of liquidity Ratios In order to survive, firms must be able to meet their short-term obligations—pay their creditors and repay their short-term debts. Thus, the liquidity of the firm is one measure of a firm's financial health. Two measures of liquidity are in common: Current ratio = current assets / current liabilities The main difference between the current ratio and the quick ratio is that the latter does not include inventories, while the former does. Which ratio is a better measure of a firm's short-term position? In some ways, the quick ratio is a more conservative standard. Quick ratio = (cash + marketable securities + net receivables) / current liabilities If the quick ratio is greater than one, there would seem to be no danger that the firm would not be able to meet its current obligations. If the quick ratio is less than one, but the current ratio is considerably above one, the status of the firm is more complex. In this case, the valuation of inventories and the inventory turnover are obviously critical. A number of problems with inventory valuation can contaminate the current ratio. An obvious accounting problem occurs because organizations value inventories using either of two methods, last in, first out (LIFO) or first in, first out (FIFO). Under the LIFO method, inventories are valued at their old costs. If the organization has a substantial quantity of inventory, some of it may be carried...
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...Important Ratios and Their Interpretation Type | Name of Ratio | Calculation | What it Tells You | Market Test | Price Earnings Ratio (PE Ratio) | Market price per share Earnings per share | A measure of expected company growth. A high PE Ratio means investors believe the company has a higher earnings potential | Profitability | Financial Leverage | Average Total Assets Average Stockholders Equity | How are assets financed? Higher number means higher debt | Profitability | Total Asset Turnover | Sales Average Total Assets | Measures sales generated per dollar of assets. Higher generally means more efficient use of assets in generating sales. | Profitability | Net Profit Margin | Net Income Net Sales | How much of each sales dollar ends up as profit? Varies by industry and efficiency. | Profitability | Return on Equity | Net Income Average Stockholders Equity | How much profit was generated for each collar of SH Equity | Profitability | Gross Profit Percentage | Net Sales-COGS (Gross profit) Net Sales | What percent of sales is left over after inventory costs and other costs are paid and have profit | Liquidity | Receivables Turnover | Net Sales Average Accounts Receivable | How many times were average receivables collected? Higher turnover is faster and fewer days. | Profitability | Return on Assets | Net Income + Interest Expense (net of tax) Average Total Assets (Cy + LY)/2 | Measures Profitability...
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...Strategies A. Asset Management Strategy B. Liability Management Strategy C. Funds Management Strategy Interest Rate Risk: One of the Greatest Asset-Liability Management Strategy Challenges A. Forces Determining Interest Rates B. The Measurement of Interest Rates 1. Yield to Maturity 2. Bank Discount Rate C. The Components of Interest Rates 1. Risk Premiums 2. Yield Curves 3. The Maturity Gap and the Yield Curve D. The Response of Banks and Other Financial Firms to Interest Rate Risk One of the Goals of Interest-Rate Hedging A. The Net Interest Margin B. Interest-Sensitive Gap Management 1. Asset-Sensitive Position 2. Liability-Sensitive Position 3. Interest-Sensitive Gap III. IV. 75 V. VI. VII. VIII. 4. Interest Sensitivity Ratio 5. Computer-Based Techniques 6. Strategies in Gap Management The Concept of Duration A. Definition of Duration B. Calculation of Duration C. Net Worth and Duration D. Price Risk and Duration E. Convexity and Duration Using Duration to Hedge Against Interest-Rate Risk A....
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...Liquidity ratio: Current ratio: ACI | Ind. Avg. | 1.13 | 1.43 | Interpretation: In the year 2008 the ACI’s current asset is 1.13 times higher than its current liabilities. In 2008 the company’s current ratio is low than its Industry average. But it’s not very low. So we can say that the company doesn’t keep an excess current asset in hand. So we can say that the current liquidity position of the company is not very bad. Quick ratio: ACI | Ind.avg | .72 | .63 | Interpretation: In the year 2008 the company’s current asset excluding inventory is .72 times higher than its current liabilities. The company’s quick ratio is higher than the industry average. In 2008 the industry average is .63 times whereas ACI have a quick ratio of .72 times. So we can say that the liquidity position of the company is good. Working capital: = current asset- current liabilities =4989161667-4400784166=588377501 ACI had a working capital of $588377501 in 2008. Evaluation: Looking at the above ratios we are certain the company had enough liquid asset to cover up its short term liabilities in 2008, however it is also visible that the company was holding up lot of liquid asset such as cash rather than investing it. Asset management Ratio: Inventory turnover: ACI | Ind . avg. | 2.18 | 3.67 | Interpretation: In the year 2009 the company had sold out and restocked its inventory 2.18 times. ACI’s inventory turnover ratio is lower than the industry average. This indicates...
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...Financial ratio analysis on Apex Adelchi Footwear Limited and Bata Shoe Company (Bangladesh) Limited Letter of Transmittal 14th March, 2 Dear respected Madam, We are really thrilled to submit the Report on Financial Ratios analysis of Apex Adelchi Footwear limited and Bata Bangladesh Limited. Our analysis was on Fiscal Yearly 2009, 2010, 2011. This report includes the financial ratios, Calculation, Statement Figure of two companies. Your directions have been firmly followed by us to build up a vibrant picture Of the company’s financial performance and profile for past 3 (three) fiscal Executive summary The task assigned to us was to study the financial Ratios of two companies. We selected Apex Adelchi Footwear Limited and Bata Bangladesh Limited for our term paper. Through this financial analysis, our aim was to understand the financial factors those influencing the company and its decision making. Later, we tried and evaluated the various ratios to appreciate their impact on company’s performance over the last three years, which are year 2009, 2010 & 2011. The financial statements of last three years are identified, studied and interpreted in light of company’s performance. Critical decisions were analyzed and their impact on the bottom line of the company is assessed. Finally, we studied the ratio analysis of the companies to analyze the financial position of the companies in last three years. Apex Adelchi Footwear Limited (AAFL) Apex Adelchi Footwear...
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...Ratio Analysis & Time Series Analysis Of 2.1 Ratio and time series analysis of Beximco Pharmaceutical 1. Inventory turnover: A ratio showing how many times a company's inventory is sold and replaced over a period. Formula: Inventory Turnover =Cost of goods sold/Average Inventory. The ratio and time series analysis of Inventory Turnover of Beximco Pharmaceutical from 2008-2012 is given below- | Inventory Turnover | 2008 | 1.346 | 2009 | 3.01 | 2010 | 3.50 | 2011 | 1.92 | 2012 | 2.07 | Interpretation: The companies ratio increases from 2008 to 2010, then decreases in 2011 and then again increases from 2012. 2. TIE ratio: Time interest earned ratio (TIE) also known as Interest coverage ratio, indicates how well a company can cover its interest payment on a pretext basis. The larger the time interest earned, the more capable the company is paying the interest on its debt. Formula: Earnings before interest and tax / Total interest ] The ratio and time series analysis of TIE Ratio from 2008-2012 given below- | Time Interest Earned | 2008 | 4.90 | 2009 | 4.03 | 2010 | 3.21 | 2011 | 3.50 | 2012 | 3.42 | Interpretation: The Ratio Increases from 2008 to 2012 to its highest level of 4.90 and then decreases in 2009 & 2010.Again ratio increase 2011. The ratio fluctuation is very high. 3. Gross Profit Margin: A financial metric used to assess a firm's financial health by revealing the proportion of...
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...ISOM 249 Functions and Purposes of Financial Ratios I. Functions of Financial Ratios Financial ratios can be used to show a company’s: • Position in its industry (industry comparisons) • Accomplishment of objectives (objective comparisons) • Vulnerability in the economy (time-series/trend analysis) • Future borrowing power and growth potential (leverage ratios) • Ability to react to unforeseen external changes (price/earnings ratio) II. Types of Ratios and Their Purposes • Profitability ratios indicate how well a company allocates its resources in relation to income generated. • Liquidity ratios measure whether a company is able to pay its bills. • Leverage ratios show how a company’s operations are financed. • Activity ratios measure a company’s productivity and efficiency. • Price/earnings (P/E) ratio reflects investors’ estimations of how well the company will be able to cope with unforeseen changes. III. Absolute Standards for Business Performance In many organizations, minimum financial ratios are used to serve as absolute standards for their performance as follows: • Profitability: net profit no less than 3% • Liquidity: current ratio greater than one • Leverage: long-term debt to total equity less than one • Activity: average collection period less than 60 days IV....
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...a. Acid-test ratio: (Cash + Accounts receivable) ÷ Total Current Liabilities = ($325+$3599) ÷ $3945 =0.99 Interpretation: The acid-test ratio assumes that all current liabilities are pay able immediately and that the debtor will convert the mast liquid assets to cash, the most liquid assets can cover current liabilities. b. Return on Assets: [Net income + Interest expense*(1-Tax rate)] ÷ Average total assets =[$1265+$78(1 - .40)] ÷ [($4,792 $8,058) ÷ 2] = 20.4% Interpretation: This ratio measures the return for each dollar invested in assets. Once you make the calculation of dividing EBIT by net operating assets, you come up with a percentage figure that can be used to see exactly how much the company earns for each dollar invested in it. c. Return on common equity: (Net income - Preferred dividends) ÷ Average common equity =($1,265 - $45) ÷{[($2,868 - $500)+($3,803 - $450)] ÷ 2} = 42.7% Interpretation: ROE measures the rate of return on the ownership interest f the common stock owners, return on each dollar invested by equity holders. d. Earnings per share: (Net income - Preferred dividends) ÷ Average common shares outstanding =($1265-$45) ÷ [(550+829) ÷2] =$1.77 Interpretation: Earnings per share measures the net income earned per each share owned. e. Gross profit margin ratio: Net sales – Cost of goods sold) ÷ Net sales ...
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...Introduction – This assignment is done on the basis of finding of ratio of three companies and interpreting the ratios of the three companies of last five years. Financial ratio analysis is the selection, evaluation and interpretation of financial data in easier ways to understand ratios which have been identified as critical indicators of financial performance of the business and can be used for strategy and decision making. Basically financial analysis is popularly used to compare a firm’s financial performance over a period of time. The advantages of ratio analysis are – 1) Ratio analysis helps in knowing the efficiency of the business. 2) It helps in knowing the profitability of business 3) It helps to compare the performance with previous years and see whether there is improvement or reduction in performance 4) Ratio helps in comparing the rivals or industry standards to see comparative performance. Here the ratio of three retail giants have been analyzed for past five years, the three giants are Pantaloons, Westside and Shopper’s Stop, the balance sheet and P&L account is taken into consideration from the year 2007 to 2011 and based on those information ratio has been calculated and interpretation is made on that basis of the data collected from source. Retail sector as we know is quite challenging and dynamic sector and in this sector the companies which are been chosen by me as – Pantaloons, Shopper’s Stop and Westside are all renowned retail...
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...[pic] REPORT ON Working Capital Management Performance In GreameenPhone FIN-301 Section:01 SUBMITTED TO: MD. KAMRUL HASAN School Of Business Independent University, Bangladesh (IUB) SUBMITTED BY: |NAME |ID | |Jannatul Nahin Chandni |1420801 | |Mohammad Abdullah |1421039 | |Sultana Akter |1310409 | |Md Nazmul Islam |1310669 | |Towfique Reza Tonmoy |1421580 | |Jannatul Ferdos Pia |1310583 | 3rd April, 2016 To MD. Kamrul Hasan School Of Business Independent University, Bangladesh (IUB) Subject: Working Capital Management Performance in Grameenphone. Sir, It is great pleasure for us to submit the report on the topic on “: Working...
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...Analysis: Liquidity Ratio 1. Current Ratio: A company’s current assets divided by its current liabilities is known as the Current Ratio. This ratio is regarded as a measure of short-term debt paying ability. It measures the capability to obsolete the current liability with comparing to current asset by how many times. The equation is- Current Ratio = Current AssetCurrent Liability * The general rule of thumb calls for a current ratio of at least 2:1. If it is greater than 2 then it creates income problem and if it is less than 2 then it creates liquidity problem. For Northern Insurance Company Years | 2007 | 2008 | 2009 | 2010 | 2011 | Ratios | 1.59 | 1.66 | 1.89 | 1.72 | 1.91 | Interpretation: From the above table and graph we can see that the ratios and the curve were consistently increasing during the calculated year except 2010. From Balance sheet we can see that Current Asset in the calculated year is significantly increase than the Current Liability. So Current Ratio is increasing in a consistant basis and the ratio which indicates that NORTHERN INSURANCE CO. has few problem with liquidity but they are generating profit efficiently. Underwriting Ratios 2. Loss Ratio: A company’s loss ratio is calculated by dividing loss adjustments expenses by premiums earned. And los adjustment measured by dividing claim payment by net premium. Now this los ratio shows what percentage of payouts are being settled with recipients. It means lower the ratio better that is....
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...represented by placed common shares and 7.49% are represented by global depository receipts (GDRs) presenting common shares. The minority interest is 17.62% common shares. Analysis I employed three different methods of analysis: ratio analysis, horizontal analysis and comparing with competitor. Ratio analysis: Here the results № | Liquidity Ratios | Formula | Ratios | | | | 2012 | 2013 | 2014 | 1 | Current ratio | Current Assets/Current Liabilities | 1,4304227 | 1,3107553 | 1,406041 | 2 | Quick Ratio | (CA-Inventory)/CL | 0,076537 | 0,0780694 | 0,250062 | 3 | Working Capital | Current Assets -Current Liabilities | 146543 | 98800 | 213836 | | LEVERAGE/DEBT RATIOS: | | | | | 4 | Times Interest Earned | EBIT/Interest Expense | 0,3578144 | 0,5384922 | 4,56427 | 5 | Debt to Equity ratio | Total debt/Total equity | 51,929847 | -7,336392 | 4,877251 | 6 | Debt ratio | Total debt/Total assets | 98,11% | 115,78% | 82,99% | | PROFITABILITY RATIOS: | | | | | 7 | Net profit margin | Net Income/net sales (revenue) | -0,132927 | -1,124057 | 2,798423 | 8 | Return on assets | NI/Total Assets | -1,31% | -18,12% | 18,62% | 9 | Return on equity | NI/Total Equity | -69% | 115% | 109% | | Turnover(Activity) ratios | | | | | 10 | Total assets turnover |...
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...financial statement of a health care organization are ratios. Analysis of ratios show how two numbers relate or compare to one another. Ratios are a way for organizations to make comparison. These comparisons not only encompass what is happening presently but can also be used to make comparisons about numbers and ratios over time. Ratios are a way for organizations to compare themselves with competitors and the industry. (Finkler, Kovner, and Jones, 2007). There are four major ratios that financial statements analyze 1) liquidity 2) activity 3) leverage and 4) profitability. The financial statement for Mayo Health System for the year 2011 will analyze each area to determine the health of the organization. Liquidity Liquidity ratio looks at an organizations assets and liabilities is an indicator of the organizations ability to pay off debts (Investopedia, 2012). The two main ratios for liquidity are current ratio and the quick test ratio. Below are the calculations for these ratios. I. Liquidity ratios 1. Current ratio Current Assets/Current Liabilities = $10,128.9/5,399.5 = 1.88 Interpretations: a) Current assets are more than enough to pay for current liabilities. b) The company has the ability to pay short term obligations. 2. Quick/acid-test ratio Formula: Cash & equivalents + short term investments + accounts receivable)/liabilities = (1,422.4+4,237.4+141.3)/4099.5 = 1.42 Interpretations: a) This ratio is a better indication of liquidity and shows the organization...
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...Introduction In our project we have choose two companies that are engaged in cement manufacturing. They are i) Lafarge Surma Cement Ltd. and ii) Meghna Cement Mills Ltd. As per requirement, we have conducted ratio analysis and given interpretation. We chose Lafarge Cement Ltd as our main company and Meghna Cement Mills Ltd. as our benchmark company. Before telling the reasons behind this decision, we would like to give some brief information on these two companies. Brief review of Lafarge Surma Cement Ltd. Lafarge Surma Cement Ltd. (LSC) was incorporate on 11 November 1997 as a private limited company in Bangladesh under the company Act 1994 having its registered office in Dhaka. On 2003, Lafarge Surma Cement Ltd. was made into a public limited company. The company is listed in Dhaka and Chittagong stock exchange. Today, Lafarge Surma Cement Ltd has more than 11,000 shareholders having more than 58 million shares outstanding. The company contributes with some USD 50-60 million per annum worth of foreign currency savings for the country by supplying clinker to other cement producers in the market. The company also contributes BDT 1 billion per annum as govt. revenue to the national exchequer of Bangladesh. About 5,000 people depend on this company directly or indirectly for their livelihood. Brief Review of Meghna Cement Mills Ltd. Meghna Cement Mills Ltd. (MCM) was incorporate on March 1992 and started their production on January 1996. The company was listed in Dhaka...
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...3 | 2. | LITERATURE REVIEW | 4-6 | 3. | INTRODUCTION | 7 | 4. | STATEMENT ANALYSIS | 8-9 | 5. | RATIO ANALYSIS * FINANCIAL RATIOS * PROFITABILITY RATIOS * TURNOVER RATIOS | 10-1112-1617-20 | 6. | TABLE OF RATIOS | 21 | 7. | CONCLUSION | 22 | 8. | REFERENCES | 23-24 | 9. | APPENDIX | 25-26 | 10. | WORKING NOTES | 27-30 | 11. | NOTES | 31 | ABSTRACT The title of our project is HCL infosystem ltd. The purpose of this assignment is to compare the financial position of HCL between two years 2010 and 2011 by calculating different ratios from a given balance sheet and make a comparative analysis between these two years by comparing with the ideal ratio. Ratio analysis provides us an overview of the company’s financial position in both short term and long term. The ratio analysis, comparative balance sheet and common size balance sheet are gives an accurate picture of company’s position. As financial ratio analysis is a useful technique to measure, compare, and evaluate the financial condition and performance of a company and by calculating these ratios it can help us to answer if the company is business profitable and if it is able to pay its bills and to find how the business is financed and also the company’s financial performance of 2011 compared to 2010. To summarize in short in this assignment we are going to study and calculate different ratios of HCL INFOSYSTEM LTD’s balance sheet and profit & loss account of 2010 and 2011 and make a comparative...
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