Accounting - Financial Statement Analysis, Study notes of Accounting

In this document description about Tools, Liquidity ratio, Leverage ratio, Turnover Ratio, limitations, Relative .

Typology: Study notes

2010/2011

Uploaded on 09/02/2011

raveesh
raveesh 🇮🇳

4.3

(55)

95 documents

1 / 8

Toggle sidebar

This page cannot be seen from the preview

Don't miss anything!

bg1
Tools
Common size analysis ( % contribution
of every item out of total assets or
liabilities or sales
Cross sectional analysis (comparison of
company with all other related companies
in the same industry)
Trend analysis ( movement of a particular
item with respect to time)
pf3
pf4
pf5
pf8

Partial preview of the text

Download Accounting - Financial Statement Analysis and more Study notes Accounting in PDF only on Docsity!

Tools

  • (^) Common size analysis ( % contribution

of every item out of total assets or

liabilities or sales

  • (^) Cross sectional analysis (comparison of

company with all other related companies

in the same industry)

  • (^) Trend analysis ( movement of a particular

item with respect to time)

cont

  • (^) Ratio Analysis

1. Liquidity Ratio.. Test the ability of the

fund to meet short term obligation

2. Leverage Ratio….debt capacity

3. Turnover ratio… efficiency of resources

4. Profitability ratio….profit as % of sales

or assets

Leverage ratio

  1. Structural ratio
  2. Coverage Ratio
  • (^) Interest coverage ratio = PBIT/Interest
  • (^) Fixed charges coverage ratio = PBIT/(Interest+ (Repayment of loan)/(1-t))

Turnover Ratio

  1. Debtors turnover = net credit sales/average debtors
  2. Average collection period = 365/debtors turnover
  3. Inventory turnover = cost of goods sold/average inventory
  4. Average day of inventory supply= 365/inventory turnover

Profitability ratio

  • (^) Gross profit margin = gross profit/ net sales
  • (^) Net profit margin= net profit/ net sales
  • (^) Earning power = PBIT/average assets
  • (^) ROCE=PBIT(1-t)/average assets

limitations

  • (^) Historical
  • (^) Lacks qualitative judgment
  • (^) Relative