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(185)-SUMMARY ABOUT RATIO ANALYSIS

Wednesday, June 9, 2010

Summary about Ratio Analysis

In our post number (164) to (184) has gone into quite a lot of detail about basic ratio analysis. The ratios you should be able to calculate and/or comment are as follows.

Profitability ratios
  • Return on capital employed
  • Net profit as a percentage of sales
  • Asset turnover ratio
  • Gross profit as a percentage of sales


Debt and gearing ratios

  • Debt ratio
  • Gearing ratio
  • Interest cover
  • Cash flow ratio


Liquidity and working capital ratios

  • Current ratio
  • Quick ratio (acid test ratio)
  • Debtors days (average debt collection period)
  • Average stock turnover period


Ordinary shareholders’ investment ratios

  • Earnings per share
  • Dividend cover
  • P/E ratio
  • Dividend yield
  • Earnings yield


With the exception of the last three ratios, where the share’s market price is required, all of these ratios can be calculated from information in a company’s publish accounts.


Ratios provide information through comparison:

  • Trends in a company’s ratios from one year to the next, indicating an improving or worsening position.
  • In some cases, against a “norm” or “standard”.
  • In some cases, against the ratios of other companies, although differences between one company and another should often be expected.

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