Sample Essay

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

  1. Current Ratio: (Current Assets/ Current Liabilities) 5992/10263 = 0.59
  2. Acid Test Quick Ratio: (Current Assets –[stock in trade-trade deposits and short term prepayments]/Current Liabilities) 5992- (2430-298)/10263= 0.38
  3. Cash Ratio: (Cash + Marketable Securities/ Current Liabilities) 2245/10263= 0.22

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) 43668/2430= 17.97
  2. Accounts Receivables Turnover: (Net Credit Sales/Average Accounts Receivables) 47298/1013= 46.70
  3. Average Collection Period: (365/Accounts Receivables Turnover) 365/46.70= 7.82
  4. Asset Turnover: (Sales/Total Assets) 47298/30164= 1.57
  5. Fixed Assets Turnover: (Sales/Fixed Assets)= 47298/29935= 1.58

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

  1. Debt to Equity Ratio: (Total Debt/Total Equity)= 6186/11815= 0.53
  2. Debt to Asset Ratio: (Total Debt/Total Assets)= 8821/30164= 0.30
  3. Fixed Charges Coverage Ratio: (EBIT+Depreciation/Interest+[repayment of loan/1-tax rate) 2791+992/87+7.02 = 50.51
  4. Times Interest Earned Ratio: (EBIT+Depreciation/Interest) 2791+992/87= 43.49

Profitability Ratios (Measuring Profitability of the business):

  1. Gross Profit Ratio: (Gross Profit/Sales x 100) 3630/47298 x 100= 8%
  2. Operating Margin: (Operating Profit/Sales x 100) 2791/47298 x 100= 6%
  3. Rate of Return on Total Assets: (Net Income/Average Total Assets) 2124/30164= 0.07%
  4. Rate of Return on Equity: (Net Income less Preferred Dividends/ Average Equity) 2124/11815= 0.18%
  5. Rate of Return on Capital Employed: (Net Income/Average Total Assets- Current Liabilities) 2124/30164-10263= 0.11%
  6. Earning Power Ratio: (EBIT/Average Total Assets) 2791/30164= 0.10%

Market Ratios (Analyzing stock as an investment):

  1. Price/Earnings Ratio: (Market price per share/Earnings Per Share) 19.61/0.27= 72.63
  2. Dividend Yield: (Dividend per share/ Market price per share) 0.11/19.61= 0.01
  3. Book Value per share: (Equity/No. of shares outstanding) 11815/7855.70= 1.51
  4. Market Value per share: (Market value per share/book value per share) 19.61/1.51= 12.99

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