Current Ratio:

The current ratio is obtained by

dividing total current assets by total
current liability. The current ratio is
calculated to determine liquidity or
solvency position of the company. It
indicates whether company is capable
to discharge its current liability.

Current Ratio = Current Assets

Current Liabilities
Quick Ratio:
The quick ratio is calculated by
dividing the total current assets less
inventories by the total current
liabilities. It is modified version of
current ratio. It indicates the ability of
a company to pay its current liabilities
out of immediately convertible current
assets into cash.
Quick Ratio= Current Assets -
Inventories Current Liabilities
Total Debt to Total Assets
Ratio:
This ratio is obtained by dividing total
debt by the total assets and represent
the proportion of assets that is
financed by debt.
TD to TA Ratio= Total Debt
Total Assets
Time Interest Earned:

The time interest earned ratio is

obtained by dividing the operating
income by the interest expense. The
time interest earned ratio provides a
measure of the extent to which the
firm is capable of servicing its interest
expense from funds available from
operation.
Time Interest Earned = Operating Income
Interest Expenses
Gross Profit Rate:

This rate is calculated by dividing

gross profit by net sales. In evaluating
the performance of company it is
useful to express the gross profit rate.
A rising gross profit rate usually mean
that demand for company’s product is
strong enough and the company is
able to increase its sales prices.
Gross Profit Rate= Gross Profit
Net Sales
Inventory Turnover:
This ratio is calculated by dividing the net
sales by the inventory and is measure of
effective inventory management policies.
It indicates how many times the average
inventory is sold during the course of the
year. This computation is of interest to
short term creditors/owners because it
indicates the relative liquidity of the
companies inventory how quickly this
asset can be sold.
Inventory Turnover= Net Sales
Inventory
Receivable turnover:

The account receivable turnover ratio

tells us how many times the receivable
were converted into cash during the
year. The ratio is computed by dividing
annual net sales by average account
receivables.

Receivable Turnover= Annual Net Sales

Avg. A/c. R’able
Net Profit Margin:

The profit margin reflects managerial

efforts at controlling costs, the
market’s acceptance of the firm’s
products, the effectiveness of its
marketing and sales efforts and the
firm’s over all efficiency and
profitability. The ratio is given as
follows.

Net Profit Margin= Net Profit

Net Sales
Price to Earning Ratio:
This indicates a relationship b/w the market
price of common stock and earning per
share. It is expressed as ratio and also called
the price earning ratio of P/E. This P/E is
determined by dividing the market price per
share by the annual earning per share. The
outlook for future earning is the major
factory influencing a company’s P/E ratio.
The P/E ratio is as follows.
Price to Earning Ratio= Price per Share
Earning per Share*

*Earning per Share is also calculated by dividing Net

Income by total No. of Stocks.
Average Collection Period:
The average collection period is
calculated by dividing receivable by
sales per day. This ratio indicates the
firm’s credit policies and
aggressiveness in collecting
receivable. The average collection
period should be closed to the sales
terms granted by the firm, generally
firms in the same industry have similar
terms. It is calculated as follows.

Avg. Collection Period = Receivable x 360

Net Sales
Break up Value of Share:

This value is arrived at by dividing

total equity by number of shares. It
indicates the worth of a share as per
paid-up capital plus reserves un-
appropriated profit o/s. at the date of
Balance Sheet.

Break-up Value of Shares= Total Shares Holder

Equity Number of
Shares
Total Assets Turnover:

The Total Assets Turnover is a measure

of the Firm’s over all effectiveness in
utilizing its assets in generating sales.
This is determined by dividing sales by
total assets.

Total Assets Turnover = Net Sales

Total Assets
 Balance Sheet
Assets Liabilities & Equity
Cash 7.4 A/c. P’ble 45.2
Short-term Inv. 1.2 Notes P’ble-8% 3.5
A/c. R’able 43.6 Tax P’ble 12.7
Inventories 112.9 T.Current Liability 61.4

T.Current Assets 165.1 Mortgage bonds-7% 30.00

Land 3.7 TFC – 8% 40.00
Building & Equipment 171.5 Total Other Liabilities 70.00 -
131.4
Accumulated Dep. (58.4)
Stock @ 2/Share 21.4
Total Fixed Assets 116.8 Retained Earning 140.4
Subsidiary Invest. 11.3 Total Equity 161.8
Total Assets 293.2 Total Liability & Equity
293.2

* Market Price / Share = 32.5

* Dividend / Share = 1.10
Income Statement:
Net Sales 390.2
(-)Cost of Goods Sold 284.3
Gross Income 105.9
(-) Selling and Operating. Expenses 38.8
(-) Depreciation
7.8 .
Operating Income 59.3
(-) Interest 5.6 .
Income before Tax 53.7
(-) Income tax @ 46%
24.7 .
Net Income 29.00
Common Dividend 11.77 .
Marginal Increase in Retained Earning
17.23
End of Presentation
Thanks
M. Adil Siddiqui
0300-2019801
E-mail (adil3169@yahoo.com)