Financial Project

Current Ratio

1) Concept: what are current assets and liability? Explain in detail.

2) Formula
3) Computation of ratio for 3 years in a table.

Table 1
Particulars 2006-07 2007-08 2008-09
Current assets
Current Liability
Ratio

4) Analysis:

Ideal ratio, which trend is emerging, reasons for the trend etc.

(Note: The above points are to be written for the ratios along with proper
explanation and table.)

Quick Ratio/ Acid Test Ratio:

Current Assets-Investments/ Current Liability

Include bank overdraft in current liability.

Leverage Ratios:

Fixed Interest Coverage Ratio:

EBIT/INTEREST
Commission, Bank Charges, Guarantee charges are excluded from interests.
Analysis: amount of profits available for paying interests. Higher the ratio better the
interest paying capacity.

Debt-equity ratio
Debt: All loans (secured, unsecured, directors, shareholders)
Net worth= Equity shares + Reserves & Surplus- Fictitious Assets.
Take net amount of calls in advances and calls in arrears.
Don’t consider notes under the schedule.

Capital Employed to Net Worth Ratio:

Cap. Employed= Equity share capital+ Preference Share capital + Long term loans-
Fictitious assets.

Valuation Ratios:
 Dividend Yield Ratio:
DYR = DPS/Average MPS.
Dividend: include share interim dividend & final dividend. If proposed dividend is given,
include it. Dividend tax is excluded.
Number of issued shares: Share price on BSE.
Average MPS: Highest price of shares on BSE for entire 12 months + Lowest price of
shares on BSE for 12 Months/2

Dividend Payout Ratio

DPR = DPS/EPS
Consider only the basic EPS.

Return on Shareholders’ Funds

RoShF= PAT/Shareholders’ Funds.

Shareholders’ funds= Equity share capital + Reserves & Surplus.
Analyses: return should be good not only from capital viewpoint but also from R & S
viewpoint. Higher the return better it is. Bcoz we consider shareholders’ funds, we are
also considering the profit earned on R & S.

ROCE:
ROCE = PAT+ Total capital employed
Total capital employed: Equity share capital+ Preference Share capital + Long term
loans-Fictitious assets.
Analysis: It helps to analyze the cost of capital. It gives an indication of over or under
capitalization. It helps in analyzing the dividend.