Ratio Analysis Fundamentals: How 17 Financial Ratios Can Allow You to Analyse Any Business on the Planet
By Axel Tracy
4.5/5
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About this ebook
Make Better Business & Investment Decisions
To understand the fundamentals of ratio analysis and thus improve your business or investment profits, our concise, clear & friendly book is a great place to start. Written in a conversational manner & with explained examples, it's never a better time to take more control of your financial statements.
Ratio Analysis Fundamentals:
How 17 Financial Ratios Can Allow You to Analyse Any Business on the Planet
There is so much we can do with financial data beyond the mere compliance-required record keeping. Ratio Analysis Fundamentals teaches you the fundamentals of one of these extra applications: ratio analysis. This application allows you to take data from the financial statements & internal business records and evaluate performance, risk & efficiency and allows benchmarking and viewing trends over time.
Ratio Analysis Fundamentals will give the financial statement novice power to add value to business and investments.
The book covers 17 Financial Ratios that can be used for the financial analysis of a business.
Each Financial Ratio Section Provides:
•The formula
•A worked example
•Guidance on where to locate the data in the financial statements
•Guidance on how to interpret the result of the ratio analysis calculation
Use Ratio Analysis for:
•Profitability comparison, to help improve performance of businesses and investments
•Liquidity testing, to assess how comfortably a business can maintain operations
•Leverage measurement, which can be used to check risk
•Efficiency benchmarking, to improve internal operations
•Valuation analysis, to decide between alternative investments
What's New in the 2nd Edition:
• Revised and improved content in many sections as a result of the author's further research
• Updated formatting to assist reading experience on mobile devices
• Removal of spelling and grammatical errors to reduce confusion and improve professionalism
Axel Tracy
"My mission is to put academic accounting & finance knowledge, through technology, in the hands of businesspeople & investors."Axel Tracy has been educated in accounting and finance at two of Australia's leading universities: The University of Technology, Sydney (UTS) and The Australian National University.He is one of the top students at his current university (UTS) and is a member of the invitation-only Golden Key International Honours Society and UTS Honours Society. Axel's GPA for accounting and finance subjects is 3.64 out of 4.From 2011 till 2014 he was employed by UTS to run PASS Sessions for the 2nd-year accounting subject Accounting Standards and Regulations. This involved teaching undergraduate accounting students in a subject that has a high failure rate (Axel scored a High Distinction in this particular subject). Accounting Standards and Regulations is a financial accounting subject that involves Australia's current implementation of the International Financial Reporting Standards.Axel has also been employed by UTS to be a one-on-one tutor in the subject of Accounting for Business Combinations. This is another 2nd-year financial accounting subject involving the accounting treatment of corporate groups, joint-ventures and associates.His passion for financial markets has led his self-directed study about the 'value investing' philosophy, an investment approach originating from the Columbia Business School in the 1920s. He has also studied trading tactics and systems, however his greatest investment success has come from the former value investing approach.Axel is happy being a small business operator (and hopes to make this business big) and his first business was launched when he was 25 years old.Axel currently lives in Armidale, Australia, but hopes to live in many cities in the years to come."A little later than many, I found the reason for coming into this world. It was to become an entrepreneur and spread the accounting and finance knowledge that I had learned since 2003.I greatly enjoy teaching and helping others see the beauty of accounting and finance.I love accounting and finance...and I want you to feel the same way too!And if I can't get you to love them, then I want my books to help you take those initial steps in your knowledge journey, so you can be armed with techniques and tools that will set you above the pack."
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Book preview
Ratio Analysis Fundamentals - Axel Tracy
Ratio Analysis Fundamentals
How 17 Financial Ratios Can Allow You to Analyse Any Business on the Planet
By Axel Tracy
Copyright 2012 Bidi Capital Pty Ltd.
All rights reserved.
Published by Bidi Capital Pty Ltd at Smashwords
Cover Design: Natural Selection Web Design LLC
Smashwords Edition, License Notes
This eBook is licensed for your personal enjoyment only. This eBook may not be re-sold or given away to other people. If you would like to share this book with another person, please purchase an additional copy for each recipient. If you’re reading this book and did not purchase it, or it was not purchased for your use only, then please return to your favourite eBook retailer and purchase your own copy. Thank you for respecting the hard work of this author.
Disclaimer
The material in this publication (the book
) and the information accessed through it is of a general nature only and does not contain investment recommendations or professional advice. The information is not to be relied upon as being accurate, complete or up to date. Axel Tracy (the author
) recommends that, before acting or not acting upon information contained or referred to in this book, readers should seek independent professional advice that takes into account their financial situation, investment objectives, particular needs and/or other personal circumstances. The information contained in this book is not to be used for any purpose other than educational purposes and it is not to be construed as an indication or prediction of future results from any investment. Axel Tracy does not offer financial, business or academic advice. To the maximum extent permitted by law, the author and publisher disclaim all responsibility and liability to any person, arising from directly or indirectly from any person taking or not taking action based upon the information in this publication.
For Sarah: Thanks for the ongoing love and inspiration.
For Mum & Dad: Nothing I have achieved, or will ever achieve, would be possible without you both.
Table of Contents
About
About the Author
About accofina.com
What New in the 2nd Edition
Introduction
PRIMER START
The Income Statement
The Balance Sheet
The Cash Flow Statement
PRIMER FINISH
Financial Statements and Other Company Information used in Ratio Examples
The Income Statement
The Balance Sheet
Other Company Information
Part 1: Profitability Ratios
PROFIT MARGIN
GROSS PROFIT MARGIN (ALSO KNOWN AS GROSS PROFIT PERCENTAGE)
RETURN ON ASSETS
RETURN ON EQUITY
Part 2: Liquidity Ratios
CURRENT RATIO
ACID-TEST RATIO
CASH RATIO
Part 3: Leverage Ratios
DEBT RATIO
DEBT TO EQUITY RATIO
TIMES INTEREST EARNED RATIO (ALSO KNOWN AS INTEREST COVERAGE RATIO)
Part 4: Efficiency Ratios
INVENTORY TURNOVER
ACCOUNTS RECEIVABLE TURNOVER
DAYS’ SALES IN RECEIVABLES
Part 5: Valuation Ratios
EARNINGS PER SHARE (EPS)
PRICE/EARNINGS (P/E) RATIO
DIVIDEND YIELD
PAYOUT RATIO
Final Thoughts
Extras
Book Excerpt
Free Resources
Free accofina.com Books
Free accofina.com Spreadsheets
More Books and Other accofina Products
Author Contact Details and Review Requests
About
About the Author
Axel Tracy is an accounting and business student at the University of Technology, Sydney (UTS). He has a passion for his studies and is a member of the invitation-only Golden Key International Honours Society in recognition of having a GPA that placed him in the top bracket of students at his university. He is also a member of the UTS Honour Society.
He was employed by the University of Technology, Sydney, to run PASS sessions in the subject of Accounting Standards and Regulations; an undergraduate accounting subject that trains students to become familiar with Australia’s implementation of International Financial Reporting Standards and the current Australian accounting standard regime. He was also employed by UTS as a one-on-one tutor for the study of another 2nd year accounting subject, Accounting for Business Combinations, a subject that dealt with the financial accounting of corporate groups, joint ventures and associates.
Since April 2011, he has been the Founder & Manager of RatioAnalysis.net, a website dedicated to financial and accounting ratios. In August 2013, Axel launched accofina.com. This website promotes the sale of products involved with accounting and finance knowledge and education.
Axel lives in Armidale, Australia, and apart from studies or working, enjoys spending time with his partner, Sarah, or enjoying a good cup of coffee.
About accofina.com
accofina.com launched in August, 2013, and is a hub for accounting & finance knowledge and technology.
On the website you will find Books, Apps, Online Courses & Tutorials, MS Excel Spreadsheets and other Online Calculators all customized to assist putting academic accounting & finance knowledge, through technology, in the hands of businesspeople, investors and students.
accofina.com is part of Bidi Capital Pty Ltd, which is a company founded, directed and owned by this book’s author, Axel Tracy.
What New in the 2nd Edition
Revised and improved content in many sections as a result of the author's further research.
Updated formatting to assist reading experience on mobile devices.
Removal of spelling and grammatical errors to reduce confusion and improve professionalism.
Introduction
Do you look at financial statements and not know what they mean, or more importantly what you can learn about a business from them? Is a lack of accounting training holding you back from getting value from these important financial documents? This book aims to address these problems through the application of ratio analysis, which is one use derived from a business’ financial statements.
The financial statements, these being the Income Statement, Balance Sheet & Cash Flow Statement, allow you to tell the ‘story’ of a business. You can tell its history, its strengths and weaknesses and sometimes even its future. Financial numbers alone will not tell you everything about a business. For instance (and according to Kaplan and Norton’s ‘Balanced Scorecard’ theory) it’s important to assess how customers perceive the business. But when it comes to the overarching business goals (how shareholders and owners view the business), and the breadth of information that financial data can summarize (every department of a business and most activities the business carries out can usually be translated into financial form), an appreciation of the financial statements is vital.
The financial statements are three ‘pieces of paper’, or three worksheets of a spreadsheet, that are recognized as being a summary of the