ZeePedia

BALANCE SHEET AND INCOME STATEMENT RATIOS

<< STOCKHOLDERS’ EQUITY SECTION OF THE BALANCE SHEET 2
Financial Consultation Case Study >>
img
Financial Statement Analysis-FIN621
VU
Lesson-42
BALANCE SHEET AND INCOME STATEMENT RATIOS
2005-06
2004-05
5.
Gross profit percentage:
Rs.594, 000 ÷ Rs.2, 200,000
27%
Rs.480, 000 ÷Rs.1, 600,000
30%
6.
Operating expense ratio:
Rs.336, 600 ­ Rs.22, 400 ÷Rs.2, 200,000
14%
Rs.352, 000 ­ Rs.22, 400 ÷Rs.1.600, 000
20.6%
7.
Net income as a percentage of net sales:
Rs.166, 400 ÷ Rs.2, 200,000
7.6%
Rs.80, 000 ÷ Rs.1, 600,000
5%
8.
Inventory turnover (Assume arrange inventory of Rs.150, 000 for both years)
= 1,606,000 ÷ 150,000
10.7 times
1,120,000 ÷ 150,000
7.5 times
9.
Accounts Receivable turnover
(Assume average accounts receivable Rs.90, 000 for
(2004-05)
= 2,200,000 ÷90,500
24.3 times
1,600,000 ÷90,000
17.8 times
10. Length of operating cycle (Assume 360 working days)
= 360 + 360 = 34+15
49
10.7  24.3
360 + 360 = 48 + 20
68
7.5  17.8
Summary of Ratios
1. Percentage Gross Profit on Turnover = (Gross Profit) / (Sales) x 100.
2. Percentage Gross Profit on Cost of Sales = (Gross Profit) / (Cost of Sales) x 100.
3. Percentage Net Income on Turnover = (Net Income) / (Sales) x 100.
4. Percentage Total Expenses on Turnover = (Total Expenses) / (Sales) x 100.
5. Percentage Operating Profit on Turnover = (Operating profit) / (Sales) x 100.
6. Percentage Operating Profit on Cost of Sales = (Operating Profit) / (Cost of Sales) x 100.
152
img
Financial Statement Analysis-FIN621
VU
7. Net Assets = (Total Assets) - (Total Liabilities).
8. Solvency Ratio = (Total Assets) / (Total Liabilities).
9. Net Current Assets = (Current Assets) - (Current Liabilities).
10. Current Ratio = (Current Assets) / (Current Liabilities).
11. Acid-Test Ratio = (Liquid Assets) / (Current Liabilities).
12. Rate of Stock Turnover = (Cost of Sales) / (Average Stock).
13. Period for which Ample Stock is on Hand = (Average Stock) / (Cost of Sales) x (365 days or 12
months).
14. Debtors Average Collection Period = (Average Debtors) / (Credit Sales) x (365 days or 12 months).
15. Creditors Average Payment Period = (Average Creditors) / (Credit Purchases) x (365 days or 12
months).
16. Debt/Equity Ratio = (Total Liabilities) / (Shareholders Equity). This is also known as Risk or
Gearing, the extent to which a company is financed by borrowed funds; for example, if a company is
highly geared, it borrows a lot.
17. Return on Total Capital Employed = ((Net Profit before Tax)+(Interest on Loan)) / (Average Capital
Employed) x 100.
18. Return on Shareholders' Equity = (Net Profit after Tax) / (Average Shareholders' Equity) x 100.
19. Earnings per Share = (Net Profit after Tax) / (Number of Shares Issued) x 100.
20. Dividends per Share = (Dividends on Ordinary Shares) / (Number of Shares Issued) x 100.
21. Net Asset Value per Share = (Shareholders' Equity) / (Number of Shares Issued) x 100.
22. Net Profit before Tax on Turnover = (Net Profit before Tax) / (Turnover) x 100.
153
Table of Contents:
  1. ACCOUNTING & ACCOUNTING PRINCIPLES
  2. Dual Aspect of Transactions
  3. Rules of Debit and Credit
  4. Steps in Accounting Cycle
  5. Preparing Balance Sheet from Trial Balance
  6. Business transactions
  7. Adjusting Entry to record Expenses on Fixed Assets
  8. Preparing Financial Statements
  9. Closing entries in Accounting Cycle
  10. Income Statement
  11. Balance Sheet
  12. Cash Flow Statement
  13. Preparing Cash Flows
  14. Additional Information (AI)
  15. Cash flow from Operating Activities
  16. Operating Activities’ portion of cash flow statement
  17. Cash flow from financing Activities
  18. Notes to Financial Statements
  19. Charging Costs of Inventory to Income Statement
  20. First-in-First - out (FIFO), Last-in-First-Out (LIFO)
  21. Depreciation Accounting Policies
  22. Accelerated-Depreciation method
  23. Auditor’s Report, Opinion, Certificate
  24. Management Discussion & Analyses (MD&A)
  25. TYPES OF BUSINESS ORGANIZATIONS
  26. Incorporation of business
  27. Authorized Share Capital, Issued Share Capital
  28. Book Values of equity, share
  29. SUMMARY
  30. SUMMARY
  31. Analysis of income statement and balance sheet:
  32. COMMON –SIZE AND INDEX ANALYSIS
  33. ANALYSIS BY RATIOS
  34. ACTIVITY RATIOS
  35. Liquidity of Receivables
  36. LEVERAGE, DEBT RATIOS
  37. PROFITABILITY RATIOS
  38. Analysis by Preferred Stockholders
  39. Efficiency of operating cycle, process
  40. STOCKHOLDERS’ EQUITY SECTION OF THE BALANCE SHEET 1
  41. STOCKHOLDERS’ EQUITY SECTION OF THE BALANCE SHEET 2
  42. BALANCE SHEET AND INCOME STATEMENT RATIOS
  43. Financial Consultation Case Study
  44. ANALYSIS OF BALANCE SHEET & INCOME STATEMENT
  45. SUMMARY OF FINDGINS