# Ratio Analysis

1. Accounting ratios are relationship expressed in mathematical terms between accounting figures which for meaningful purpose.
2. Classification: P & L Ratios
3. Balance Sheet Ratios
4. Composite or Inter-Statement Ratios.

Functional Classification

1. Profitability
2. Turnover/Activity Ratios
Financial/Solvency Ratios
3. Financial Ratios may be further classified as Short Term Ratios/Liquidity Ratios  or Long Term/ Solvency Ratios

Return on Capital Employed

1. EBIT   *   100
Capital Employed
Earnings before Interest & Tax
2. Op. Profit means profit from the Operations of the Company plus Int(Long term) & Tax
3. Capital Employed = Share Capital+ Reserves & Surplus+ Long Term loans ?( Non- business assets + Fictitious assets)
4. Proper calculation gives us  Return on Capital Employed

Earnings Per Share (EPS)

EPS = Net Profit after tax & Pref. Dividend
No. of Equity Shares
This shows whether equity Capital of Co. is properly used or not Company?s capacity to pay Dividend.
EPS helps us at estimating Market Price of the Company

Price Earning (P/E Ratio)

Market Price of per  Equity Share
EPS
Helps to decide whether to buy Share of a Company.

Gross Profit Ratio

Gross Profit* 100
Net Sales
It helps in Price decision & Profit from Op. before Charging all other expenses.

Net Profit Ratio

Net Operating Profit * 100
Net sales

Solvency Ratios

Long Term Solvency Ratios

1. Fixed Assets Ratios :  Fixed Assets
Long Term Funds
2. The ratio should not be more than one.
3. If it is less than one then it indicates part of the Working Capital Financed through Long term Funds i.e. we may call Core Working Capital

Debt- Equity Ratio

1. i) DE Ratio :      Total Long Term Debt
Total Long Term Funds
2. Ii) DE Ratio :      Total Long Term Debt
Shareholders Funds
3. Debt Service Coverage Ratio= Cash Profit available for debt service

Interest+ Instalment

Short Term Solvency Ratio
i) Current Ratio = Current  Assets
Current Liabilities
Ideal ratio: 2
Acceptable to Bank 1.33

ii) Liquidity Ratio/Acid Test or Quick Ratio:
Liquid Assets
Current Liability

Turnover Ratios

Stock Turnover Ratio =
Cost of goods Sold during the year
Average Inventory

Debtors Turn over Ratios (Debtors Velocity)  =
Credit Sales
Average Accounts Receivable

Debtors Collection Period =
Months or days in a year
Debtors turnover                 or
Accounts receivable
Average Monthly or daily Credit sales

Fixed Assets Turnover Ratio =
Cost of Goods Sold
Net Fixed Assets

Calculate the following ratios for YE March2014 & 2015

1. Return on Capital Employed
2. Current Ratio
3. Debt Equity Ratio
4. Fixed Assets Turnover Ratio
5. Inventory Turnover Ratio
6. Earning Per Share

Balance Sheets as at  31st March               Rs. Lakhs
Liabilities                                               2013          2014         2015
Sh. Capital:Shares of Rs.10 each  800            1000          1000
Reserves & surplus                          700              800          1000
Secured Term Loans                        800           2000           2400
Cash Credits from bank                   800           1000          1500
Sundry Creditors                             1200             900          1100
4300            5700         7000

Balance Sheets as at  31st March               Rs. Lakhs
Liabilities                                          2013       2014         2015
Fixed Assets: Gross Block              2800       3000         4000
Less : Dep                                   920       1400         2000
Net Block                  1880      1600          2000
Current Assets: Stock                    1520      2400          2800
Debtors                     480         500            900
Other Current Assets     420       1200         1300
2420       4100         5000
Total Assets                                   4300      5700         7000

EBIT   *   100
Capital Employed
EBIT=Earnings before Interest & Tax
Ret. On Cap. Emp=  Total Cap. Employed for March,2013 is Rs. 2300+Rs. 3800 for Mar,2014.So Av. Cap. Employed is Rs.6100 /2= 3050 lakhs. EBIT is Rs.1020. So ROCE 1020*100= 33.34%
3050
ROCE  for March,2015
Total Cap. Employed for March,2014 is Rs. 3800+Rs. 4400 for Mar,2015.So Av. Cap. Employed is Rs.8200 /2= 4100 lakhs. EBIT is Rs.1800. So  ROCE is  1800*100=    43.90%
4100
Current Ratio = Current  Assets
Current Liabilities
2014              2015
4100 =2.16                  5000 =1.92
1900              2600

Debt Equity Ratio   = Total Long Term Debt
Total Long Term Funds

2014                       2015
2000 =  1.11      2400 = 1.2
1800                   2000

Fixed Assets Turnover Ratio =
Cost of goods Sold during the year
Average Net Fixed Assets

We may take sales when Cost of goods figures are not available
4800  =2.76         7200      =4
1740                    1800
Average Fixed Assets for March,2009 = 1880+1600=3480/2=1740
Average Fixed Assets for March,2010 = 1600+2000=3600/2=1800

Stock Turnover Ratio =
Cost of goods Sold during the year
Average Inventory
We may take sales when Cost of goods figures are not available
Sales                                 4800  =9.8        7200   = 10.29
Av Inv.                              490                   700

EPS = Net Profit after tax & Pref. Dividend
No. of Equity Shares
Net Profit after Tax for 2009 =   Rs.300 Lakhs = Rs.3 =EPS
While no. of Eq. shares are     100  Lakhs

Net Profit after Tax for 2010 =   Rs.600 Lakhs = Rs. 6 =EPS
While no. of Eq. shares are          100  Lakhs

### Principles & Practices of Banking Module E Pdf

Free
Module E PPB ePDFs available in our android app. Get them all at https://iibf.info/app

### Accounting and Finance for Banking Module A Pdf

Free
Accounting and finance for bankers all ePDFs are available in our an app. Get them all at https://iibf.info/app

### Accounting and Finance for Banking Module A Pdf

Free
Accounting and finance for bankers all ePDFs are available in our an app. Get them all at https://iibf.info/app
Learning Sessionshttps://iibf.info
Btech, JAIIB CAIIB and a tutor. Have taken more than 900+ hours online classes with more than 1,25,000 students

### What next after CAIIB? IIBF Certifications at a Glance

What next after CAIIB? 15 Certificate Exams in Finance and Banking useful for Bankers:: Introduction As per the IBA settlement, bankers who have passed JAIIB and CAIIB...

### JAIIB Mega Mock Test for Free | Principles and Practices of Banking

ppb mock test:- Jaiib Exam 2020 dates will be announced soon for May 2020 by iibf. It is high time for preparing for all...

### JAIIB Study Material Principles and Practices of Banking Live Class Previous Year Questions

https://www.youtube.com/watch?v=BG2s7lPiX9A Jaiib Study Material PDF Notes Papers Mock Tests - In this post you can get JAIIB Study Material PDF files as shared by other...

### Principles and Practices of Banking – PPB Most important Questions

Hello friends, today in this article by the learning sessions we will share important questions and memory called topics of PPB that is principles...