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Ratio Analysis FWhy Conduct Ratio Analysis?  FRatios Are Used To Evaluate:  FClassifications of Ratios:

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Presentation on theme: "Ratio Analysis FWhy Conduct Ratio Analysis?  FRatios Are Used To Evaluate:  FClassifications of Ratios:"— Presentation transcript:

1 Ratio Analysis FWhy Conduct Ratio Analysis?  FRatios Are Used To Evaluate:  FClassifications of Ratios:

2 Liquidity Ratios F Definition/Purpose -  Current Ratio = Current Assets / Current Liabilities Notes:  Quick Ratio = (Current Assets - Inventories) / Current Liabilities Notes:  Net Working Capital = Current Assets - Current Liabilities Notes: P Conclusion/Interpretation -

3 Asset Management Ratios F Definition/Purpose -  Inventory Turnover Ratio = Sales / Inventories Notes:  Average Collection Period = Receivables / Average Sales per Day Notes:  Fixed Asset Turnover = Sales / Net Fixed Assets Notes:

4 Asset Management Ratios, cont.  Total Asset Turnover = Sales / Total Assets Notes:  Receivables Turnover = Sales / Receivables Notes: P Conclusion/Interpretation -

5 Debt Management Ratios F Definition/Purpose -  Debt Ratio = Total Debt / Total Assets Notes:  Times-Interest-Earned Ratio = EBIT / Interest Charges Notes:  Fixed Charge Coverage Ratio = (EBIT+LP) / [I+LP+(SFP/(1-T))] Notes: P Conclusion/Interpretation -

6 Profitability Ratios F Definition/Purpose -  Profit Margin = Net Income Available to Common Stockholders / Sales Notes:  Basic Earning Power = EBIT / Total Assets Notes:  Return on Assets = Net Income Available to Common Stockholders / Total Assets Notes:  Return on Equity = Net Income Available to Common Stockholders / Common Equity Notes: P Conclusion/Interpretation -

7 Market Value Ratios F Definition/Purpose -  Price Earnings (P/E) Ratio = Price per Share / Earnings per Share Notes:  Market-to-Book (Tobin’s Q) Ratio = Market Value / Book Value Notes: P Conclusion/Interpretation -

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