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Financial Statement Analysis

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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.
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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.
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