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MATERIAL COSTING: INVENTORY CONTROL Setting of various stock levels: a.

Minimum level of inventory Re-order level - (Average rate of consumption x Average time of delivery) Maximum level of inventory Re-order level + Re-order quantity - (Minimum consumption x Minimum re-order period) Re-order level = Maximum re-order period x Maximum usage OR Minimum level + (Average rate of consumption x Average time to obtain fresh supplies) Average inventory level = Minimum level + 1/2 Re-order quantity OR Maximum level + Minimum level / 2 Danger level + Average consumption x Lead time for emergency purchases ECONOMIC ORDER QUANTITY: EOQ= 2AS C Annual usage units Ordering cost per order Annual carrying cos of one unit i.e. (carrying cost % x cost of one unit)

b.

A S C

o obtain fresh supplies)

COST OF CAPITAL COST OF IRREDEMABLE DEBTS 1 WITHOUT TAX

FINANCIAL STATEMENT ANALYSIS A. PROFITABILITY RATIOS - BASED ON SALES 1 Cost of Goods sold ratio: Cost of Goods sold ratio 2 Gross Profit Ratio or Gross Margin % Gross Profit Ratio 3 Expenses Ratio a Office & Admin. Expenses Ratio b c Selling & Dist. Expenses Ratio Net operating Profit Ratio

Cost of goods sold / Net sales X 100

Gross Profit / Net Sales X 100

= = =

Office & Admin. Expenses / Net Sales X 100 Selling & Dist. Expenses / Net Sales X 100 Net operating profits / EBIT Net Sales Fixed Expenses / Net Sales X 100 Variable Expenses Ratio / Net Sales X 100 X 100

d e

Fixed Expenses Ratio Variable Expenses Ratio

= =

4 Operating Ratio Operating Ratio

= =

Operating Cost / Net Sales X 100 OR Cost of Goods Sold + Other Operating Exp. / Net Sales X 100

5 Net operating Profit Ratio Net operating Profit Ratio 6 Net Profit Ratio or Net Margin % Net Profit Ratio B

Operating Net Profit before Int. & Taxes / Net Sales X 100

Net Profit / Net Sales X 100

PROFITABILITY RATIOS - BASED ON CAPITAL & INVESTMENT

7 Return on Capital Employed or Return on Investment Return on Capital Employed = Operating Net Profit before Int.& Taxes / Capital Employed X 100 8 Return on shareholders fund ratio Return on shareholders fund ratio 9 Return on Equity Return on Equity Ratio 10 Return on Operating Assets Return on Operating Assets 11 Return on Total Assets Return on Total Assets

Net Profit after Tax / Shareholder's Funds X 100

Net Profit after Tax & PD / Equity Shareholder's Funds X 100

NOPAT / Operating Assets X 100

NOPAT / Total Assets excluding Fictitious Assets X 100

ACTIVITY OR PERFORMANCE OR TURNOVER RATIOS 1 Fixed Assets Turnover Ratio Fixed Assets Turnover Ratio 2 Total Assets Turnover Ratio Total Assets Turnover Ratio 3 Current Assets Turnover Ratio 4 Capital Turnover Ratio 5 Net Working Capital Turnover Ratio

Net Sales / Net Fixed Assets

= = = =

Net Sales / Total Assets Net Sales / Current Assets Net Sales / Capital Employed Net Sales / Net Working Capital

6 Debtors Turnover Ratio or Receivables Turnover Ratio Debtors Turnover Ratio = Net Credit Sales / Debtors 7 Stock or Inventory Turnover Ratio Stock or Inventory Turnover Ratio

Cost of Goods Sold / Cost of Sales Stock in trade / Finished goods inventory

8 Raw Materials Turnover Ratio Raw Materials Turnover Ratio 9 Work in Progress Turnover Ratio Work in Progress Turnover Ratio

Raw Materials Consumed / Inventory of Raw Materials

Net Factory Cost / Inventory of WIP

10 Creditors or Accounts Payable Turnover Ratio Creditors Turnover Ratio = 11 Average Collection Period Average Collection Period

Net Credit Purchases / Accounts Payable (Creditors + B/P)

= =

360days or 12 months or 52 weeks / Debtors Turnover Ratio OR Average Debtors / Net Credit Sales X 360 days or 12 months or 52 wee

12 Average Inventory Conversio / holding Period Average Inventory Conversion Period= Avg.Stock in trade holding period =

360days or 12 months or 52 weeks / Stock Turnover Ratio OR Average Stock / Cost of Goods Sold X 360 days or 12 months or 52 wee

13 Raw Materials Inventory Conversion Period Raw Material Conversion Period = = 14 WIP Inventory Conversion Period WIP Inventory Conversion Period

360days or 12 months or 52 weeks / Raw Material Turnover Ratio OR Average Stock of RM/ RM Consumed X 360 days or 12 months or 52 we

= =

360days or 12 months or 52 weeks / WIP Turnover Ratio OR Average Stock / Net Factory Cost X 360 days or 12 months or 52 weeks

15 Average Payment Period Average Payment Period

= =

360days or 12 months or 52 weeks / Creditors Turnover Ratio OR AverageCreditors / Net Credit Purchases X 360 days or 12 months or 52

COVERAGE RATIOS 1 Interest Coverage Ratio Interest Coverage Ratio

EBIT / Interest on Long Term Debt

2 Preference Dividends Coverage Ratio Preference Dividends Coverage Ratio = 3 Equity Dividend Coverage Ratio Equity Dividend Coverage Ratio

EAT / PD

= =

EPS / DPS OR Earnings available for Eq. Sharholders / Dividend to Eq. Sharhelders

4 Total Dividends Coverage Ratio Total Dividends Coverage Ratio 5 Fixed Charges Coverage Ratio Fixed Charges Coverage Ratio 6 Debt Service Coverage Ratio Debt Service Coverage Ratio

EAT / Total Dividend

EBIT / Int.on Long Term Debt + (PD / 1-t )

EAT + Int. + Dep. + Other non cash expenses Int.on Long Term Debt + Installment of Principal

MARKET TEST OR MARKET STRENGTH ANALYSIS OR INVESTOR ANALYSIS RATIOS: 1 Dividend Per Share or DPS Dividend Per Share or DPS 2 Earning Per Share or EPS Earning Per Share or EPS

Dividend Paid to Eq.Sh.hold. / No.of ES o/s.

Earnings avail. For Eq.Sh.hold./ No. Of ES

3 Book value per share / Net Asset Value per Share Book value per share = Eq.Sh.Hold Funds / No. of ES 4 Dividend Yield in Equity Shares Dividend Yield in Equity Shares 5 Earning Yield ratio Earning Yield ratio 6 Dividend Pay out Ratio Dividend Pay out Ratio 7 Retention Ratio Retention Ratio 8 Price Earning Ratio or P/E Ratio Price Earning Ratio or P/E Ratio

DPS / MPS X 100

EPS / MPS X 100

DPS / EPS X 100

Earnings Retained / Earnings Available X 100

MPS / EPS

9 Market Value to Book Value Per Share Market Value to Book Value Per Share = LIQUIDITY / SHORT TERM SOLVENCY RATIO 1 Current Ratio

MPS / BPS

Current Ratio 2 Acid Test / Quick / Liquid Ratio Liquid Ratio Quick Ratio 3 Absolute Liquidity / Cash Ratio Cash Ratio

Current Assets / Current Liabilities

= =

Liquid Assets / Current Liabilities Quick Assets / Quick Liabilities

Cash in hand & at bank + Short term marketable securities Current Liabilities

4 Defensive Interval / Cah Interval Ratio Defensive interval ratio 5 Ratio of Inventory to WC Inventory to Working Capital Ratio LONG TERM SOLVENCY RATIOS 1 Debt - Equity Ratio D/E Ratio

Absolute Liquid Assets / Projected daily cash req.

Inventory / WC

= =

Debt / Equity Or Outsiders Funds / Sh.hold. Or Proprietors Fund or Net Worth.

2 Debt to Total Funds Ratio / Debt Ratio Debt Ratio 3 Debt to Total Asset / Debt to value Ratio Debt to total asset ratio 4 Proprietary Ratio Proprietary Ratio 5 Capital Gearing Ratio Capital Gearing Ratio 6 Fixed Assets Ratio Fixed Assets Ratio

Debt / Debt + Equity

Debt / Total Assets

Sh.Hold. Funds or Net Worth / Total Assets

Fixed int. & dividend bearing securities / Eq.Sh.hold. Funds

FA / Capital Employed

7 Ratio of Current Assets To Fixed Assets Ratio of Current Assets To Fixed Assets =

CA / FA

Sales X 100

s X 100

mployed X 100

nds X 100

s + B/P)

over Ratio

12 months or 52 weeks

er Ratio 12 months or 52 weeks

Turnover Ratio

or 12 months or 52 weeks

2 months or 52 weeks

nover Ratio

ys or 12 months or 52 weeks

o Eq. Sharhelders

ecurities

Net Worth.

d. Funds