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Rohil Sanil Connel Fernandes Sanket Pandit Jaswant Jaiswar Vinayak Bhosle

Joel Correia

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* Financial ratios represent an attempt to standardize financial
information to facilitate meaningful comparisons.

* It helps us to know 1. How liquid is the firm? 2. Is management generating sufficient profits from the firms
assets?

3. 4.

How does the firms management finance its assets? Are the shareholders receiving sufficient returns on their investments?

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*Liquidity Measurement Ratios *Profitability Indicator Ratios *Debt Ratios *Operating Performance Ratios *Investment Valuation Ratios

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Liquidity ratios attempt to measure a companys ability to pay off its short term debt obligations. This is done by comparing a companys most liquid assets and its short term liabilities.

*Current Ratio *Quick Ratio *Cash Conversion Cycle

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* The Current Ratio is a popular financial ratio used to
test a companys liquidity by deriving the proportion of current asset available to cover current liabilities
companys short term assets are readily available to pay off its short term liabilities Current Assets

* The concept behind this ratio is to ascertain whether a

Current Ratio = ---------------------Current Liabilities

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* The quick ratio or acid-test ratio is a liquidity indicator
that further refines the current ratio by measuring the amount of the most liquid current assets there are to cover current liabilities. current ratio because it excludes inventory and other current assets, which are more difficult to turn into cash. Current Assets - Inventory Acid Test or Quick Ratio =------------------------------------Current Liabilities

* The quick ratio is more conservative than

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* This liquidity metric expresses the length of time that a
company uses to sell inventory, collect receivables & pay its account payables

* Formula = DIO + DSO - DPO

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*These ratios gives the investors a good
understanding of how well the company utilized its resources in generating profit.

* Gross Profit Margin * Effective Tax Rate * Return on assets * Return on Equity * Return on Capital Employed

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* The gross profit margin is used to analyse how efficiently a
company is using its raw material, labour & manufacturingrelated fixed assets to generate profits. A higher margin percentage is favourable profit indicator.

EBIT(Operating Profit)

* Gross profit margin = -------------------------------Net Revenue(Sales)

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* This ratio is measurement of companys tax rate, which is
calculated by comparing its income tax expense to its pretax income. This effective tax rate gives a good understanding of the tax rate the company faces.

Income tax Expense

* Tax Ratio = ----------------------------Pre-Tax Icome

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* This Ratio indicates how profitable a company is relative to its
total assets. The return on Assets (ROA) ratio illustrates how well the management is employing the companys total assets to make a Profit.

Net income (EAT/PAT)

* ROA = ------------------------Average Total Asset

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* This ratio indicates how profitable a company is by comparing
its net income to its average shareholders equity. The higher the ratio percentage, the more efficient management is.

EBIT

* ROE= --------------------Average Equity

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* By comparing net income to the sum of a companys debt and
equity capital investors can get a clear picture of how the use of leverage impacts a companys profitability

Net Income (PAT)

* Return on Capital Employed =

------------------Capital Employed

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* These ratios give the investors a general idea of the compnys
overall debt load as well as its mix of equity and debt.

Debt ratios can be used to determine the overall level of financial risk a company and its shareholders face.

The Debt Ratio Debt-Equity Ratio Capitalization ratio Interest coverage Ratio

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* The Debt ratio compares a company total debt to its total
assets, which is used to gain a general idea as to the amount of leverage being used by a company. A low percentage means that the company is less dependent on leverage. The lower the percentage the stronger is its equity position. In general, higher the ratio, the more risk that company is considered to have taken on.
Total Liabilities

* Debt Ratio = -------------------------------Total Assets

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* The debt Equity ratio is another leverage ratio that compares
a companys total liabilities to its total shareholders equity. To a large degree, the debt-equity ratio provides another vantage point on a companys leverage position. Similar to the debt ratio, lower the percentage means that a company is using less leverage and has stronger equity position.

Total Liabilities

* Debt-Equity Ratio = ------------------------Shareholders Equity

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* The capitalization ratio measure the debt component of a
companys capital structure or capitalization to support a companys operations and growth. Low debt and high equity levels in the capitalization ratio indicate investment quality. This ratio is considered to be one of the most meaningful debt ratios.

Long Term Debt

* Capitalization Ratio= ----------------------------------------------Long term debt + Owners Equity

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* The Interest Coverage ratio is used to determine how easily a
company can pay interest expenses on outstanding debt. The lower the ratio, the more the company is burdened by debt expenses.

EBIT

* Interest Coverage Ratio = -------------------------Interest Expenses

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* These ratios look at how well a company turns its assets into
revenue as well as how efficiently a company converts its sales into cash. In general, the better these ratios are, the better it is for the sake of shareholders.

* Fixed Asset turnover Ratio * Cash Conversion Cycle

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* This ratio is a rough measure of the productivity of a
companys fixed asset with respect to generating sales. This annual turnover ratio is designed to reflect a companys efficiency in managing these significant assets. Higher the yearly turnover, the better.

Revenue

* Fixed Assets Turnover = ------------------------Total Asset

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* These ratios provide investors with an estimation, albeit a
simplistic one, of whether a stock price is too high, reasonable, or a bargain as an investment opportunity. Investment Valuation ratios attempt to simplify evaluation process by comparing relevant data that help users gain an estimate of valuation.

* Price/Book Value Ratio * Price Earning Ratio

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* A valuation used by investors which compares a stocks per share
price. The book value of the company is the value of the companys assets expressed on the balance sheet. It is the difference balance sheet assets and balance sheet liabilities. Book value Ratio provides investors a way to compare the market value, or what they are paying for each share.

Price on stock exchange

* Price/book Value ratio = ----------------------------------Book value Per share

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* Price/Earning ratio is the best known of the investment valuation
indicators. It is very common & widely used by investment professionals and investing public. Historically the average P/E ratio for the broad market has been around 15, although it can fluctuate significantly depending on economic and market conditions.

Price per Share

* P/E Ratio =-------------------------Earnings per share

* Current Ratio=

current assets/current liabilities

Typical Ltd: 208/120 = 1.73

* Quick ratio =

(current assets-inventory)/current liabilities

Typical Ltd: (208-65)/120 = 1.19

* Fixed asset turnover=

Sales/fixed assets

Typical Ltd: 3573/1227 = 2.91 times

* Debt Ratio = total debt/total assets

Typical Ltd: (400+120)/(1227+208) = 36.24%

* Debt/Equity Ratio = total debt/total equity

Typical Ltd: (400+120)/915 = 56.83%

* Interest coverage ratio = EBIT/interest

Typical Ltd: 282/100 = 2.82 times

*Gross Profit Margin = gross profit/sales

Typical Ltd: 1537/3573 = 43%

*ROA = Net profit/Assets

Typical Ltd: 128/(1227 + 208) = 8.92%

*Return on Equity = Net income / total shareholders

funds

Typical Ltd: 128/915 = 13.99%

*Price-Earnings Ratio = Share price / earnings per share

Typical Ltd: 280/25.6 = 10.94