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Financial Performance Analysis

Profitability Ratios

A profitability ratio is a measure of profitability, which is a way to measure a company's


performance. Profitability is simply the capacity to make a profit, and a profit is what is left over from
income earned after you have deducted all costs and expenses related to earning the income

Operating Profit Margin

Operating margin takes into account the costs of producing the product or services that are
unrelated to the direct production of the product or services, such as overhead and administrative
expenses. It is calculated by dividing your operating profit (OP) by your net sales (NS) and
multiplying the quotient by 100:

Operating Margin = Operating Profit / Net Sales * 100

OM = OP / NS * 100

Operating Profit = Operating Revenue - COGS - Operating


Expenses - Depreciation & Amortization

Profit Before Interest And Tax Margin

Gross Profit Margin

Gross Margin
Gross margin tells you about the profitability of your goods and services. It tells you how much it
costs you to produce the product. It is calculated by dividing your gross profit (GP) by your net sales
(NS) and multiplying the quotient by 100:

Gross Margin = Gross Profit/Net Sales * 100

GM = GP / NS * 100

Gross profit = Net sales Cost of goods sold

Cash Profit Margin

The Cash Flow Margin is a measure of how efficiently a company converts its
sales dollars to cash. Since expenses and purchases of assets are paid from
cash, this is an extremely useful and important profitability ratio

Cash Flow Margin = Cash Flows from Operating Activities/Net


Sales = _______%
Adjusted Cash Margin

Net Profit Margin (%)

Adjusted Net Profit Margin

Return On Capital Employed

Return On Net Worth

Adjusted Return on Net Worth

Return on Assets Excluding Revaluations

Return on Assets Including Revaluations

Return on Long Term Funds

Return on Assets
Return on Assets measures how effectively the company produces income from its assets. You
calculate it by dividing net income (NI) for the current year by the value of all the company's assets
(A) and multiplying the quotient by 100:

Return on Assets = Net Income / Assets * 100

ROA = NI/A * 100

Return on Equity
Return on equity measures how much a company makes for each dollar that investors put into it.
You calculate it by taking the net income earned (NI) by the amount of money invested by
shareholders (SI) and multiplying the quotient by 100:

Return on Equity = Net Income / Shareholder Investment * 100

ROE = NI / SI * 100

Operating Profit Margin(%)


Profit Before Interest And Tax Margin(%)
Gross Profit Margin(%)
Cash Profit Margin(%)
Adjusted Cash Margin(%)
Net Profit Margin(%)
Adjusted Net Profit Margin(%)
Return On Capital Employed(%)
Return On Net Worth(%)
Adjusted Return on Net Worth(%)
Return on Assets Excluding Revaluations
Return on Assets Including Revaluations
Return on Long Term Funds(%)

14.00
9.45
9.62
12.50
12.50
8.19
8.19
51.41
37.66
37.66
280.43
280.43
51.41

13.97
9.02
9.17
13.64
13.64
8.76
8.76
48.57
42.31
43.05
250.70
250.70
48.57

15.46
10.77
10.81
13.56
13.56
10.04
10.04
49.83
55.43
49.27
214.83
214.83
49.83

Liquidity Ratios

LIQUIDITY RATIO ANALYSIS


It is crucial for a company to be able to meet its liabilities as and when they become due.
Although liquidity analysis is a complex process involving the detailed preparation of
budgets and funds flow statements, liquidity ratios provide us with a quick way of measuring
liquidity of assets of a company. It is very important to maintain an optimum level of
liquidity as both high and low liquidities can cause problems. Two of the most important
liquidity ratios used in analysis are the current and quick (acid test) ratios

CURRENT RATIO
Current Ratio= Current Assets/Current Liabilities
Current Assets=Current investments+ Inventories+ Unbilled revenues+ Trade receivables+
Cash& Bank balances+ Short term loans and Advances+ Other current assets
Current Liabilities=Short term borrowings+ Trade payables+ Other current liabilities+ Short
term provisions

13.40
11.26
11.33
11.36
11.36
9.89
9.89
52.13
65.21
61.34
148.03
148.03
52.13

1
1

QUICK RATIO
Quick Ratio= (Current Assets-Inventories)/Current Liabilities
Quick ratio or acid test ratio is a better ratio to evaluate liquidity since it does not take
inventories into account. This is done so because inventories are the least liquid of all current
assets since it takes time for realisation into cash and its value also has a tendency to
fluctuate.

Current Ratio

Quick Ratio

Current Ratio
Quick Ratio
Debt Equity Ratio
Long Term Debt Equity Ratio

0.65
0.47
---

0.67
0.52
0.06
0.06

0.42
0.28
0.23
0.23

Leverage Ratios
A leverage ratio is meant to evaluate a companys debt levels. The most common leverage
ratios are the debt ratio and the debt-to-equity ratio.

A debt ratio is simply a company's total debt divided by its total assets. The formula is:
Debt Ratio = Total Debt / Total Assets
The debt-to-equity ratio is a measure of the relationship between the capital contributed by
creditors and the capital contributed by owners. It also shows the extent to which
shareholders' equity can fulfill a company's obligations to creditors in the event of a liquidation.
Here is the formula for the debt-to-equity ratio:
Debt-to-Equity Ratio = Total Debt/Total Equity

0.24
0.15
0.50
0.50

Long-Term Debt-to-Equity Ratio


In risk analysis, a way to determine a company's leverage. The ratio is calculated by taking the compa
ny's long-term
debt and dividingit by the total value of its preferred and common stock. Put graphically:
Ratio = Long-term debt / (Preferred stock + Common stock)
The greater a company's leverage, the higher the ratio. Generally, companies with higher ratios are th
ought to be more risky becausethey have more liabilities and less equity

A measure of a company's financial leverage calculated by dividing its total


liabilities by stockholders' equity. It indicates what proportion of equity and
debt the company is using to finance its assets.

Long term debt / Equity

0.06

0.23

0.50

0.01

Total debt/equity

0.06

0.23

0.50

0.01

Owners fund as % of total source


Fixed assets turnover ratio

100.00 94.30 81.17 66.46 98.13


4.63

4.49

4.85

4.85

4.28

Turnover Ratios

Turnover ratios are also known as activity or efficiency ratios. The total fund raised by the
company are invested in acquiring various assets for its operations. The assets are acquired to
generate the sales revenue and the position of profit depends upon the value of sales. Turnover
ratios establish the relationship of sales with various assets. Turnover ratios are expressed in

integers or times rather than as a percentage or proportion. The turnover ratios are mostly
computed to measure the efficiency.

Inventory Turnover Ratio


Inventory turnover ratio is also known as stock turnover ratio.Inventory turnover ratio shows the
relationship between the cost of good sold and the average inventory. This ratio measures
how frequently the company's inventory turned into sales. This ratio is calculated by using the
following formula.
Inventory turnover ratio = Cost of good sold/Average stock
In the absence of the cost of good sold and average stock, the following formula can be used to
calculate inventory turnover ratio.
Inventory turnover ratio = Sales/Closing Inventory
* Cost Of Good Sold = Opening stock+ Purchases+Carriage inward+Direct wages and
expenses- Closing Stock
* Cost Of Good Sold =Sales - Gross profit
* Average stock = (Opening stock + closing stock)/2

Debtors Turnover Ratio


Debtors turnover ratio is also called receivable turnover ratio. This ratio establishes the
relationship between net credit sales and average debtors for the year. Debtors turnover ratio
shows how quickly the credit sales of the company have been converted into cash. This ratio can
be calculated by using the following formula
Debtors Turnover Ratio = Net credit sales/Average account receivable

Total Assets Turnover Ratio


Total assets turnover ratio shows the relationship between total assets and sales. Total assets
turnover ratio indicates how well the firm's total assets are being used to generate its sales. This
ratio is obtained by using the following formula.
Total Assets Turnover ratio = Net Sales/Total Assets

Fixed Assets Turnover Ratio


Fixed assets turnover ratio is also termed as the ratio of sales to fixed assets. Fixed assets
turnover ratio indicates how efficiently the fixed assets are used. It measures the efficiency with
which the firm has been using its fixed assets to generate sales. This ratio is calculated in the
following manner.
Fixed Assets Turnover Ratio = Sales/ Net fixed assets.

Capital Employed Turnover Ratio


Capital employed turnover ratio establishes the relationship between the amount of sales and
capital employed. It shows how efficiently capital employed in the company has been utilised in
generating sales revenue. This ratio is calculated by using following formula.
Capital Employed Turnover Ratio = Sales/Capital employed

Asset Turnover Ratio


The asset turnover ratio is an efficiency ratio that measures a company's ability to
generate sales from its assets by comparing net sales with average total assets. In other
words, this ratio shows how efficiently a company can use its assets to generate sales.

Formula
The asset turnover ratio is calculated by dividing net sales by average total assets.

Investment turnover ratio

A companys investment turnover ratio measures its ability to generate sales revenue using
the money it has invested in the company. The ratio equals sales divided by the sum of longterm liabilities plus stockholders equity. Stockholders equity is the amount of money
stockholders have invested in a company. The amount of long-term liabilities is the amount
of money debtholders have invested in the company - See more at:
http://wiki.fool.com/How_to_Measure_Investment_Turnover_Ratio#sthash.eYycY4j2.dpuf

Inventory Turnover Ratio


Debtors Turnover Ratio
Investments Turnover Ratio
Fixed Assets Turnover Ratio
Total Assets Turnover Ratio

37.75
31.88
37.75
7.40
4.81

37.33
50.72
37.33
7.32
5.76

40.84
117.09
40.84
4.05
4.91

43.88
162.08
43.88
3.70
4.68

Asset Turnover Ratio

4.63

4.49

4.85

4.85

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