BSNS107

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Who is interested in Ratio Analysis?
- Stakeholders (Current and potential)
- Creditors
- Management
A financial statement shows:
- Short term liquidity
- Long term stability
- Profitability
Name the 4 areas of interest in Ratio Analysis
- Profitability
- Liquidity
- Activity
- Gearing
Name the 5 Ratios under Profitability
- ROA
- ROE
- Price/ Earnings
- Dividend Yield
- Dividend Payout Ratio
Return on Assets (ROA) is:

EBIT
Average Total Assets

What does it show?

It shows the return on investments, and what rate of return is on investments.
Return on Equity (ROE) is:

Profit for the Period
Average total equity

What does it show?

It shows the rate of return on that portion of assets provided by the owners of the entity. (The higher the better).
Price/ earnings ratio is:

Market price per share
Earnings per share

What does it show?

It shows how much investors are willing to pay for a share relative to earnings.
Dividend Yield is:

Annual dividend per share
Market Price per share

What does it show?

It shows the returns to stakeholders through their dividends.
Dividend Payout Ratio is:

Annual Dividend per share
Earnings per share

What does it show?

It shows the proportion of earnings payed as dividends to shareholders.
Name the 3 Ratios under Liquidity
- Working Capital
- Current Ratio
- Quick Ratio
Working Capital is:

Current assets - current liabilities

What does it show?

It shows the firms ability to meet obligations as they come due.
Current Ratio is:

Current Assets
Current Liablities

What does it show?
- It is an evaluation of the liquidity that is more comparable over time and between firms than the dollar amount of working capital.
- (Ideally 2:1)
Quick ratio is:

Current Assets - Inventory
Current Liabilties

What does it show?
- By excluding inventories and other non liquid assets this ratio gives us a conservitive assessments of the firms bill paying ability.
- (Ideally 1:1)
Name the 4 Ratios under Activity
- Total Asset Turnover
- Inventory Turnover
- No. of days sales in AR
- No. of days sales in INV
Total Asset Turnover is:

Sales
Average Total Assets

What does it show?

It shows the efficiency with which assets are used to generate sales.
Inventory Turnover is:

COGS
Average Inv

What does it show?

It shows the efficiency of the firms inventory management systems.
No. of days sales in AR is:

365 days
Sales/AR

What does it show?

It shows average AR. It also shows the firms collection policy relative to its credit terms.
No. of days sales in INV is:

365 days
COGS/INV

What does it show?

It shows the no. of days sales that could be made from the inventory on hand. Also shows inventory policies.
Name the 4 Ratios under Gearing
- Debt ratio
- Equity ratio
- Debt/ Equity ratio
- Times interest earned
Debt Ratio is:

Liabilities
Liabilities + OE

What does it show?

It shows the proportion of debt in the capital structure. It reflects the risk caused by the interest and principal requirements of borrowing.
Equity Ratio is:

OE
Liabilities + OE

What does it show?

It shows the proportion of debt in the capital structure. It reflects the risk caused by the interest and principal requirements of borrowing.
Debt/ Equity Ratio is:

Liabilities
OE

What does it show?

It shows the proportion of debt in the capital structure. It reflects the risk caused by the interest and principal requirements of borrowing.
Times interest earned is:

EBIT
Interest expense

What does it show?

It shows the measure of a firms ability to earn enough to cover its annual interest payments.
Where do morals come from?

Our own experiences : Family, religion etc
What is values?

An absolute or relative ethical value - the assumption of which can be the basis for ethical action.

Author

Anonymous

89586

Card Set

BSNS107

Description

Ethics& Ratio Anaysis

Updated

2011-06-07T07:45:48Z