Monday, June 16

Ratio Analysis

Earnings ratios

Earnings Per Share = Income attributable to common shareholders / Weighted average number of common shares
Cash Earnings Per Share = EDBIT / Weighted average number of shares issued
Dividend Payout Ratio = Dividend / Net Income After Tax

Profitability Ratios

Return on Total assets = Net Income After Tax / Average Total Asset
(This is an extremely important indicator as it would help the investor determine: Whether the company has earned a reasonable return on its sales, whether the company's assets have been effectively and efficiently used, and whether the cost of the company's borrowings are too high?)
Return on Equity = Net Income After Tax-Dividend on preference shares / Average Shareholders Equity
Pre Interest Return on Assets = Earning Before Interest and Tax / Average Total Asset
Pre Interest After Tax Return on Assets = (Net Income After Tax + Interest Expense Net of Income Tax Saving )/ Average Total Assets
Return on Total Invested Capital = Earnings Before Interest and Tax / Average Total Invested Capital

Liquidity Ratios

Current Ratio = Current assets / Current Liabilities
Quick or Acid Test Ratio = Cash & Cash Equivalents / Current Liabilities
Debtors Turnover ratio = Average Debtors / Sales x 365
Creditors Turnover ratio = Average Creditors / Sales x 365
Stock Turnover ratio = Average Stock / Sales x 365
Net Trade Cycle = Debtors Turnover + Stock turnover Sales — Creditors turnover
Defensive Ratio = Average Daily Cash operating Expenses / Most liquid Assets
Current Liability Coverage = Cash Inflow From Operations / Average Current Liabilities

Leverage Ratios

Liabilities to assets ratio = Total Liabilities / Total Assets
Debt to Assets Ratio = Total Debt / Total Tangible Assets
Debt to Net Worth Ratio = Debt / Net Worth
Liabilities to Net Worth Ratio = Total Liabilities / Net Worth
Incremental Gearing Ratio = Net increase in Debt / Increase in Net Income After Tax but Before Dividend
Debt Coverage Ratio = Internally Generated Funds / Average Debt
Liability Coverage ratio = Internally Generated Funds / Average Total Liabilities
Interest Coverage Ratio = Earnings Before Interest and Tax / Interest expense

Fixed Charge Coverage Ratio = Net Income + (1— Tax Rate) (Interest and Rental Expenses)
(1 — Tax Rate) ( Interest and Rental Expense) + Preferred Dividends
Fixed Charge Cover = Earnings Before Interest and Tax + rental expense / Interest and Rental expense
Cash Flow Surplus = Cash Flow Surplus / Average Debt


Efficiency Ratios

Stock Turnover Ratio = Cost of Goods Sold / Average Stock
Stock Holding Ratio = Average Stock / (Cost of Goods sold / 365)
Average Collection Period = Average Trade Debtors / Average Sales Per Day
Average Payment Period = Trade Creditors / Average Daily Cost of Goods Sold
Net Working Investments Ratio = (Stocks + Debtors — Creditors) / Sales
Total assets Utilisation = Sales / Average Total assets
Fixed Assets Utilisation = Sales / Net Fixed Assets

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