Sample Essay

Liquidity Ratios (Measuring the ability to pay current liabilities):

  1. Current Ratio: (Current Assets/ Current Liabilities) 4168/8152 = 0.52
  2. Acid Test Quick Ratio: (Current Assets –[stock in trade-trade deposits and short term prepayments]/Current Liabilities) 4168- (1931-128)/8152= 0.29
  3. Cash Ratio: (Cash + Marketable Securities/ Current Liabilities) 1150/8152= 0.15

Activity / Turnover / Efficiency /Performance Ratio/Assets Management Ratios (Measuring the ability to sell inventory and collect receivables):

  1. Inventory Turnover: (Cost of goods sold/Average Inventory) 39401/1931= 20.41
  2. Accounts Receivables Turnover: (Net Credit Sales/Average Accounts Receivables) 42641/951= 44.84
  3. Average Collection Period: (365/Accounts Receivables Turnover) 365/44.84= 8.14
  4. Asset Turnover: (Sales/Total Assets) 42641/24807= 1.72
  5. Fixed Assets Turnover: (Sales/Fixed Assets)= 42641/25592= 1.67

Debt Management Ratios (Measuring the ability to pay long term debts or leverage ratios):

  1. Debt to Equity Ratio: (Total Debt/Total Equity)= 6186/10506= 0.59
  2. Debt to Asset Ratio: (Total Debt/Total Assets)= 6186/24807= 0.25
  3. Fixed Charges Coverage Ratio: (EBIT+Depreciation/Interest+[repayment of loan/1-tax rate) 2648+878/65+4.35 = 58.60
  4. Times Interest Earned Ratio: (EBIT+Depreciation/Interest) 2648+878/65= 54.25

Profitability Ratios (Measuring Profitability of the business):

  1. Gross Profit Ratio: (Gross Profit/Sales x 100) 3240/42641 x 100= 8%
  2. Operating Margin: (Operating Profit/Sales x 100) 2648/42641 x 100= 7%
  3. Rate of Return on Total Assets: (Net Income/Average Total Assets) 1892/24807= 0.08%
  4. Rate of Return on Equity: (Net Income less Preferred Dividends/ Average Equity) 1892/10506= 0.18%
  5. Rate of Return on Capital Employed: (Net Income/Average Total Assets- Current Liabilities) 1892/24807-8152= 0.12%
  6. Earning Power Ratio: (EBIT/Average Total Assets) 2648/24807= 0.11%

Market Ratios (Analyzing stock as an investment):

  1. Price/Earnings Ratio: (Market price per share/Earnings Per Share) 19.61/0.23= 85.26
  2. Dividend Yield: (Dividend per share/ Market price per share) 0.10/19.61= 0.01
  3. Book Value per share: (Equity/No. of shares outstanding) 10506/7947.35= 1.33
  4. Market Value per share: (Market value per share/book value per share) 19.61/1.33= 14.75

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Essay: Ratio Analysis of Tesco Plc for the year 2007
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