

Financial
Statement AnalysisFIN621
VU
Lesson35
ACTIVITY
RATIOS
(Continued)
(B)
Liquidity
of Receivables: It
shows have quickly Accounts Receivables
are
collected
i.e. converted into cash. It
is determined by Receivable Turnover
Ratio
(RTO).
It is number of times "Receivables" are
converted into cash during
the year.
=
net
sale for the year
= 100
= 10
Average
Receivables during the year.
10
Ideally
RTO = net credit
sales______________
Monthly
average of Receivables
The
higher the RTO, the more liquid the
company's Receivables.
Days
required to collect Receivables
i.e.
Converting
"Receivable" into cash = 365
or 300 = 36 or 30
Normal
credit terms: 30 to 60
days.
Length
of operating cycle: A+ B (158,
130) days.
RATIOS
Gross
Profit
x
100
Gross
profit ratio
Net
sales
Net
Profit
x
100
Net
Profit ratio
Net
sales
Operating
Profit x
100
Operating
Profit ratio
Net
sales
Individual
Expenses
x
100
Expenses
ratios
Net
sales
Operating
cost
x
100
Operating
(Cost) Ratio
Net
sales
Net
Profit after inteerest and
tax
x
100
Net
Profit to net worth
ratio
Net
sales
Net
Profit before interest,
tax
x
100
Return
on capital employed
(ROI)
Capital
employed
Net
profit avaiable for equity
shareholders
Earning
per share
Number
of equity shares
Dividends
per share
______Dividend
amunt______
133
Financial
Statement AnalysisFIN621
VU
Number
of equity shares
___Cost or
sales ___
Capital
employed turnover
ratio
Capital
employed
Cost
of sales or sales
Fixed
assets turnover ratio
Fixed
assets
Cost
of sales or Net sales
Working
capital turnover
ratio
Net
working capital
_____Cost of
goods and sold______
Inventory
turnover ration
Average
accounts receivables
______Annual
net credit sales______
Debtors
(receivables) turnover ratio
Average
accounts receivables
_______Accounts
receivables______
Debtors
(receivables) collection
period
Average
accounts receivables
____Net
credit pruchases ___
Creditors
turnover ratio
Average
creditors
____Average
accounts payables ___
Average
credit period
Net
credit purchase per
day
_____Current
aeests ____
Current
ratio
Current
liabilities
_______Quick
assets______
Quick
ratio/Acid test ratio
Current
liabilities
Debtequity
ratio:
____Total
long term debt____
(i)
Debt
to net worth
Shareholder's
funds
______External
equity____
(ii)
Externalinternal
equity
Internal
equity
____Total
long term debts ___
(iii)
Debt
vs. funds
Total
long term funds
Earnings
before interest and taxes
Debt
service ratio
Fixed
interest charges
____Net
fixed assets ___
Fixed
assets ratio
Longterm
funds
Solvency
(Debt to total funds)
____Total
liabiities ___
ratio
Total
assets
____________
Equity _____________
Capital
gearing ratio
fixed
interest bearing securities
134
Financial
Statement AnalysisFIN621
VU
Proprietor's
funds
Proprietary
ratio
Total
assets
135
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