Liquidity Ratios 1- Current Ratio = Current assets/ Current Liabilities Usage: Ability to meet short-term obligations Health Result:

High Result analysis:

Total Current Assets and Total Current Liabilities in balance sheet For Finance the income statement is the first step, imperative Profit is from the Income statement (Retained Earnings or net profit) In case the company is not making profit, then we will issue common stock,

if the result is less than industry average, this means that the firm has a great risk concerning it's capabilites to satisfy it's obligations. if the result is greater than industry average then: - from creditor standpoint, they like to see a high current ratio because if the firm getting into financial difficulty its liquidity position will be relativly weak so, this ratio provides the best single indicator of the extent to which th claims of shortterm creditors are covered by assets that are expected to be converted to cash fairly quickly. - from shareholder standpoint, a high current ratio could mean that the firm has a lot of money tied up in nonproductive assets, (to be better invested) Related Ratios: None 2- Quick Ratio = Current assets - Inv./ Current Liabilities

If they do not give us the bench mark then we refer to the bench mark industry as follows: the above figure is to be compared with the industrial figures and bench mark, if the result is high , then . (comment)

From the balance sheet (current Assets minus inventory)

Usage: a measure of the firms ability to pay off short-term obligations without relying on the sale of inventories is important. Healthy Result: Moderate Result analysis: if the result is less than industry average, this means that the firm has a great risk concerning it's capabilities

to satisfy it's obligations. this means that if the accounts receivables can be collected, the company can pay off its current liabilities without having to liquidate its inventory. Related Ratios: None Asset Ratios 3 -Inventory Turnover Ratio = Sales Inventory Usage: measures how effectively the firm is managing its inventories. Result analysis: if the result is lower than the industry average, this suggest that the firm is holding too much inventory. Excess inventory is unproductive, and it represents an investment with a low or zero rate of return. Related Ratios: Current ratio (Liquidity ratio) a low turnover, we must wonder whether the firm is actually holding obsolete goods not worth thier stated value. 4- Fixed Assets Turnover Ratio = Sales net F.A. Usage: Result analysis: if the result fair compared with the industry average, indicating that the firm is using its fixed assets as intensively as other firm in the industry. if the result is less than the industry average this means that the firm doesn't utilize its assets on a propare mannar. Related Ratios: None

This could be used in marketing if the sales is less than the inventory then this means then we need to do marketing plan, if the sales is more than inventory then we can recommend to increase production

This is not that important (net fixed assets from balance sheet is called long term assets), (a total assets current assets) Total Sales = Sales Sales from the income statement aka If there is no sales then we take Revenues revenue(Income statement) Total Assets from Balance sheet

measures how effectively the firm uses its plant and equipment.

5- Total Assets Ratio = Total Sales Total Assets Usage:

Total Sales (Income Statement) Total Assets (Balance Sheet)

measures the turnover of all the firm's assets. Result analysis: if the ratio is somewhat below the industry average, indicating that the firm is not generating a sufficient volume of business given its total asset investment. Recommendations: - Sales should be increased. - Some assets should be sold. - Apply both solutions. Related Ratios: None

Debt Ratios 6- Total Debt Ratio = Total Liabilities Total Assets Usage:

To know if I can get a loan/finance or not, it is preferable to be low

it describes how the firm is financed, i.e it measures the percentage of funds provided by sources other than equity. Healthy result: % and Low Result analysis: Creditors prefer low debt ratios because the lower the ratio, the greater the cushion against creditors' losses in the event of liquidation. Stockholders, on the other hand, may want more leverage because it magnifies expected earnings. Related Ratios: None

7- Times-interest-earned (TIE) Ratio = Earnings Before Interest and Taxes (EBIT) Interest Expense Usage:

EBIT (Income Statement) Earning Before Interest and Taxes If it is not mentioned then RevenuesExpenses= EBIT Earnings= EBIT-Interest -Taxes

It measures the ability of the firm to pay interest, i.e. measures the extent to which operating income can be decline before the firm is unable to meet its annual interest cost.

Healthy result: High Result analysis: Creditors prefer TIE ratios because the lower the ratio, failure to meet obligations can bring legal action by the creditors, possibly resulting in bankruptcy. Related Ratios: Profit Margin Ratio = Net Income Total Sales if the result is low this might means that the interest cost is high, while the net income is calculated after deducting the interest expenses from gross income; this means that the profit margin goes lower. Recommendations: if the result is relatively high, this means that the firm can depend on more debt on financing its operations. if the result is moderate, this means that the firm would face difficulties if it attempted to borrow additional funs.

Profitability Ratios 8- Return on Assets Ratio (ROA) = Net Income Average Total Assets Usage: It shows the return on assets percentage after interest and taxes. Healthy result: High Result analysis: the ratio should go high. if the ratio goes lower, this means that the firm is utilizing its assets in a proper way. also means that the firm is paying more interest expenses which decrease the net income. Related Ratios: turnover ratios Recommendations: if the result is relatively low, we recommend that the firm should change its financial strategy to be more dependant on equity rather than debt. also it should change its marketing strategy to increase its sales in less operations cost to increase its net income. -------------------------------------------------------------------------------------------------

9- Return on Equity Ratio (ROE) = Net Income Average Owners' Equity Usage: It measures the profit percentage related to the equity invested. this ratio tells the stockholders how well they are doing in an accounting sense. Healthy result: High Result analysis: the ratio should go high. if the ratio goes lower, this means that the firm is using more debt to finance its operations. this means that paying more interest expenses which decrease the net income. Related Ratios: None Recommendations: if the result is relatively low, we recommend that the firm should change its financial strategy to be more dependant on equity rather than debt. also it should change its marketing strategy to increase its sales in less operations cost to increase its net income.

10- Profit Margin Ratio = Net Income Total Sales Usage: It measures the effectiveness of a firm's operations, and goes on to show the combined effects of liquidity, assets management, and debt on operating results. gives profit per dollar of sales percentage. Healthy result: % and High Result analysis: the ratio should go high. if the ratio goes lower, this means that the firm is using more debt to finance its operations. this means that paying more interest expenses which decrease the net income. Related Ratios: None

Recommendations: if the result is relatively low, we recommend that the firm should change its financial strategy to be more dependant on equity rather than debt. also it should change its marketing strategy to increase its sales in less operations cost to increase its net income. 11- Basic Earnings Power Ratio = Earnings Before Interest and Taxes Total Assets Usage: It shows the raw earning power of the firm's assets, before influence of taxes. Healthy result: % and High Result analysis: if the ratio goes low this consider as a result of low turnover ratios and low profit margin on sales. Related Ratios: Inventory Turnover Ratio Fixed Assets Turnover Ratio Recommendations: while the result goes lower, the firm should take necessary actions to improve the turn over ratios which its results will be reflected on profit margin and on basic earning power ratio as well. 12- Earnings per Share Ratio = Net Income Average Number of Common Shares