Archive about 'Interpretation of Financial Statements'
Activity-Based Financial Ratio: Total Assets Turnover
Continued from my last article, we now look at the financial ratio for assessing the Activity of assets deployed by the company.
Essentially, the Activity ratios are able to measure the efficiency of managing or using of assets like:-
total assets.
accounts receivable,
inventory,
accounts payable, and
TOTAL ASSETS TURNOVER:
FORMULA
Net Sales / Total Assets ( or [...]
Market-Based Financial Ratio: Dividend Yield
DIVIDEND YIELD:
FORMULA
Dividends per share / Market price per share
MEASURE WHAT
Share rate of dividend to shareholders based on market price
SCORE/VALUE
Higher ratio is better. Depends on performance of the company itself & objectives of Management as studies show higher yields can increase share prices
SALIENT POINTS TO NOTE
It is the cash rate of return by shareholders through dividend
Market-Based Financial Ratio:Net Asset Backing
NET ASSET BACKING ( NTA):
FORMULA
Ordinary shareholders’ equity / No of ordinary shares
MEASURE WHAT
Measure the assets backing per share
SCORE/VALUE
Higher the better. Say if a company’s share has a net tangible asset per share of $1.00, the number of equity share is 2million, it means that if we were to liquidate the company after paying off all the [...]
Market-Based Financial Ratio:Price Earning Ratio
PRICE EARNINGS RATIO (P/E) :
FORMULA
Market Price per Share of Common Stock / Earnings Per Share.
MEASURE WHAT
Evaluates the relative attractiveness of a company’s stock price. One of the quickest and easiest ways to determine if a stock is trading on an investment or speculative basis.
SCORE/VALUE
Different industries-different P/E ranges- technologies sell at 40 P/E while textile at [...]
Market-Based Financial Ratio:Earnings Per Share
Continued from my last article, we now look at the financial ratio for assessing the Market Value of a company.
Essentially, these Market Based financial ratios are able to relate the company performance to the market for its shares
EARNINGS PER SHARE (EPS):
FORMULA
Earnings Available to Common Shareholders / Number of Shares Outstanding.
MEASURE WHAT
Indicates the amount of profit [...]
Leverage Ratio:Net Interest Cover or Times Interest Earned
We now look at the financial ratio for assessing the LEVERAGE or gearing of a company.Essentially, the Leverage Financial ratio should be able to measure the amounts of borrowed money being used by the firm.
Leverage Ratios are classified as either:-
Capitalization Ratios, focusing on how investments are financed; or
Coverage Ratios, focusing on the ability to service [...]
Leverage Ratio: Debts-Equity Ratio
Continued from my last article, we now look at the financial ratio for assessing the LEVERAGE or gearing of a company. Essentially, the Leverage Financial ratio should be able to measure the amounts of borrowed money being used by the firm.
Leverage Ratios are classified as either:-
Capitalization Ratios, focusing on how investments are financed; or
Coverage Ratios, [...]
Leverage Ratio:Debt/Leverage/Gearing Ratio
We now look at the financial ratio for assessing the LEVERAGE or gearing of a company.
Essentially, the Leverage Financial ratio should be able to measure the amounts of borrowed money being used by the firm.
Leverage Ratios are classified as either:-
Capitalization Ratios, focusing on how investments are financed; or
Coverage Ratios, focusing on the ability to service [...]
Profitability Ratio: Return on Assets
Another type of profitability ratio for assessing the profitability of a company is:
The RETURN ON TOTAL ASSETS (ROA % )
FORMULA
Net Profit After Taxes / Total Assets
MEASURE WHAT
Indicates how well assets are used to create wealth, regardless of capital structure. Profitability of operations management
SCORE OR VALUE
Depends on industry
10-15% is reasonable Depends on industry
SALIENT POINTS TO NOTE:
[...]
Profitability Ratio: Net Profit Margin
Another type of profitability ratio for assessing the profitability of a company is:
The NET PROFIT MARGIN
FORMULA
Net Profit After Taxes / Net Sales
MEASURE WHAT
Indicates overall business profitability. Shows how effective managers run the business.
SCORE OR VALUE
Approx 10-20% is good. Higher is better
>8% Strong
>6% Acceptable
<4% Evidence of weakness
<2% Weak
<0% Problems present
SALIENT POINTS TO NOTE:
1. Comparing gross [...]
October 11, 2008
- Answer To Accounting Test Question No. Ltd 2 On Limited Companies-Profit & Loss Appropriation Account
- Accounting Test Question No Ltd 2 On Limited Companies
- Accounting Test Question No Ltd 2 On Limited Companies
- Answer To Accounting Test Question No. Ltd 1 On Limited Companies-Profit & Loss Appropriation Account
- Accounting Test Question No Ltd 1 On Limited Companies-Profit & Loss Appropriation Account
- Answer To Accounting Test Question No.Mfg 1 On Manufacturing Account
October 10, 2008


