Question

How to calculate the profitability, Liquidity, Efficiency, Coverage and Market Prospect ratios in the Financial Statement of an Annual Report of a quoted company.

(what are the values to look for in the annual report financial statement)

Answer 1

PROFITABILITY RATIO-

1) Gross profit margin= gross profit/sales

2)Net income to sales ratio= Net income/sales

3)Operating income to sales ratio=

Operating income/sales

4) Return on total assets ratio=

net income and interest expenses / total assets.

5)Return on equity= net income / total equity.

LIQUIDITY RATIO-

1)Current ratio= Current assets / current liabilities.
2)Acid test (liquidity ratio)= Cash, cash equivalents, and receivables /current liabilities.

3)Day's sales in receivables= Accounts receivable divided by credit sales/number of days.

4)Inventory turnover= sales /inventory.

EFFICIENCY RATIO-

1)Debtors' turnover=Net Credit Sales/Average Trade Debtors

2)Creditors' turnover= Credit Purchase / Average Trade Creditors
3)Inventory turnover= Sales/ inventory
4)Total asset turnover=revenue/ average of the total assets.
COVERAGE RATIO-

1)Interest Coverage Ratio= EBIT/Interest Expenses

MARKET RATIO-

1) Earning per share= Net earnings/number of shares

2) Payout Ratio= Dividend/Earnings per share

3) Dividend cover Ratio= Earning per share/Dividend

4) P/E .ratio= Market price per share/ diluted EPS

5)Cash flow ratio= Market price per share/ present value of cash flow per share