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Ratio Analysis

Presentation on Ratio analysis.

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manitadlakha709
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7 views

Ratio Analysis

Presentation on Ratio analysis.

Uploaded by

manitadlakha709
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
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By Sama & Manit

Ratio
analysis
01 What is ratio
analysis?
Ratio analysis is a procedure
of obtaining a look into a
company’s financial efficiency,
liquidity, revenues and
profitability by analysing its
financial records and
statements.
liquidity
02 Definition:
measure a
ratios
company's ability
to
Formula: meet its short-
Current Ratio = term Example: A current ratio of
Current Assets / Current 2.5
obligations.
Liabilities means for every $1 of
Significance: current liabilities,
High liquidity the company has $2.5
ratios indicate of current assets to cover
a company's those obligations.
ability to pay
There is a more
severe test of
liquidity called acid
test ratio with a
formula of
current assets - inventory/ current liabilities
Profitabili
ty ratios
Definition: Measure a
company's ability to
generate profits from its
operations.
• Formula: Gross Profit
Margin: (Net Sales -
Cost of Goods Sold) /
Net Sales
Significance: High
profitability ratios
indicate a company's
efficiency in generating
0 Solvency Ratios
5 Definition: Measure a company's ability to
meet its long-term obligations.
Formula:
• Debt-to-Equity Ratio = Total Liabilities /
Total Equity
• Significance: Low solvency ratios indicate a
company's financial stability and ability to
withstand economic downturns.
• Example: A debt-to-equity ratio of 0.5
means for every $1 of equity, the company
has $0.5 of debt.
Activity ratios
Definition: Measure how efficiently
a company is using its assets to
generate sales.
Formula:
• Inventory Turnover Ratio = Cost
of Goods Sold / Average
Inventory
• Significance: High activity
ratios indicate a company's
efficiency in managing its
assets and generating sales.
• Example: An inventory turnover
Market ratio
07 Definition: Measure a
company's market performance
and investor sentiment.
Formula:
Price-to-Earnings (P/E) Ratio =
Market Price per Share /
Earnings per Share
Significance: Market ratios
provide insights into a
company's valuation and
investor expectations.
Example: A P/E ratio of 10
Why is ratio
analysis
important?
Ratio analysis is
crucial for
understanding a
company's financial
health, making
informed decisions,
Thank you

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