Professional Documents
Culture Documents
It
is a tool of financial analysis. It is a systematic use of ratios to interpret / assess the performance and status of the firm. It is used to compare risk and return relationships of firms of different sizes.
Liquidity Ratio
Current
Current
ratio of the company is not good . Co. does not have enough current assets to pay current liabilities. Co. should decrease its current liability by decreasing its expenses
Quick
Company should increase its liquidity as the company dont have enough cash to meet its liabilities, expenses and other emergency requirement.
Super
quick ratio:Super quick ratio = Super quick assets Curr ent liabilities = 0.11
times
Proprietary
The proprietor should finance more so that lenders and creditors get more satisfaction.
Interest
Coverage Ratio :Interest coverage ratio = earning before interest and tax Interest = 10.56 times The company is in a good position because the company interest coverage ratio is 10 times which imply that even if firms EBIT were to decline the companys operating profit will be sufficient to meet interest on loan.
Debt
Profitability Ratio
Gross
Operating
expense ratio:Operating expense ratio = cost of goods sold + operating expenses X 100 Net sales = 81.92%
The company has good operational efficiency. The operating ratio of the company is high which means company is earning good profit.
Return
on assets:Return on assets = Net profit after tax X 100 Average total assets = 9.01%
It is always under estimated because interest paid to the lender are excluded from the net profit.
Return
on equity:Return on equity = Net profit after tax X100 Average total shareholders equity = 25.28%
The companys return on equity is sufficient as compared to return on asset. The owner is getting return on his investment.
Return
on capital employed: Return on capital employed = Earning before interest and tax X 100 Average total capital employed = 22.81%
The company should increase its profitability in consideration to long term funds.The capital employed is not sufficiently used.
Turnover Ratio
It
measure the relationship between the cost of goods sold and the the inventory level Inventory turn over Ratio= cost of goods sold Average stock cost of goods sold= sales - gross profit Average stock = opening stock + closing stock 2 Inventory turn over Ratio =3.31 times
Debtors turn over ratio It shows how quickly debtors are converted into cash or debtors turnover is a test of liquidity of the debtors of a firm Debtors turn over ratio = net credit sales Avg debtors Avg debtors= opening debtors + closing debtors 2 Debtors turn over ratio = 4.41 times
It indicates the effency with which firm uses all assets to generate sales
Assets
goods sold
This ratio indicates that how fix assets has been used well. This ratio is very important for manufacturing organization.
Fix
This ratio is very important for those organization which use very less current assets
Current
Capital turnover ratio = cost of goods sold Avg capital employed cost of goods sold =31979.3 capital employed= long term liabilities + owner equity capital employed=2537.16
turnover ratio = Net credit purchase avg creditors Purchase = sales + closing stock+ gross profit - opening stock avg creditors = 7782.25 Creditors turnover ratio=6.6 times