Ratio Analysis

In: Business and Management

Submitted By pearly
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Current Ratio
Current ratio may be defined as the relationship between current assetsand current liabilities.
Current ratio = Current assets/current liabilities
Year200620072008Current Ratio1.101.071.08
If the C.R. is less than 2 : 1, it indicates lack of liquidityand shortage of working capital. But a much higher ratio, eventhough it is beneficial to the short-term creditors, is notnecessarily good for the company. A much higher ratio than 2 :1 may indicate the poor investment policies of the management.So liquidity of Bank is satisfactory.

C.R1. 2007 2008 Years C . R
[pic][pic][pic] Net profit ratio = (Net profit / Net income) * 100
Interpretation :
This Ratio measures the rate of net profit earned on sales.It helps in determining the overall efficiency of the businessoperations. An increase in the ratio over the previous year shows improvement in the overall efficiency and profitability of the business.

Net profit ratio(%)20.581715.7205101520252005-06 2006-07 2007-08 Years N P R
Net profit ratio(%)

Calculation of the Quick Ratio

The quick ratio is calculated from balance sheet data.
Current Assets - Inventory/Current Liabilities
If a business firm has $200 in current assets and $50 in inventory and $100 in current liabilities, the calculation is $200-$50/$100 = 1.50X. The "X" (times) part at the end is important. It means that the firm can pay its current liabilities from its current assets (less inventory) one and a half times over.
Liquidity ratios are used to evaluate the firm's ability to pay its short-term debt obligations such as accounts payable (payments to suppliers) and accrued taxes and wages. Short-term notes payable to a bank, for example, may also be…...

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