Sample Essay
Liquidity Ratios (Measuring the ability to pay current liabilities):
- Current Ratio: (Current Assets/ Current Liabilities) 5992/10263 = 0.59
- Acid Test Quick Ratio: (Current Assets –[stock in trade-trade deposits and short term prepayments]/Current Liabilities) 5992- (2430-298)/10263= 0.38
- 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):
- Inventory Turnover: (Cost of goods sold/Average Inventory) 43668/2430= 17.97
- Accounts Receivables Turnover: (Net Credit Sales/Average Accounts Receivables) 47298/1013= 46.70
- Average Collection Period: (365/Accounts Receivables Turnover) 365/46.70= 7.82
- Asset Turnover: (Sales/Total Assets) 47298/30164= 1.57
- Fixed Assets Turnover: (Sales/Fixed Assets)= 47298/29935= 1.58
Debt Management Ratios (Measuring the ability to pay long term debts or leverage ratios):
- Debt to Equity Ratio: (Total Debt/Total Equity)= 6186/11815= 0.53
- Debt to Asset Ratio: (Total Debt/Total Assets)= 8821/30164= 0.30
- Fixed Charges Coverage Ratio: (EBIT+Depreciation/Interest+[repayment of loan/1-tax rate) 2791+992/87+7.02 = 50.51
- Times Interest Earned Ratio: (EBIT+Depreciation/Interest) 2791+992/87= 43.49
Profitability Ratios (Measuring Profitability of the business):
- Gross Profit Ratio: (Gross Profit/Sales x 100) 3630/47298 x 100= 8%
- Operating Margin: (Operating Profit/Sales x 100) 2791/47298 x 100= 6%
- Rate of Return on Total Assets: (Net Income/Average Total Assets) 2124/30164= 0.07%
- Rate of Return on Equity: (Net Income less Preferred Dividends/ Average Equity) 2124/11815= 0.18%
- Rate of Return on Capital Employed: (Net Income/Average Total Assets- Current Liabilities) 2124/30164-10263= 0.11%
- Earning Power Ratio: (EBIT/Average Total Assets) 2791/30164= 0.10%
Market Ratios (Analyzing stock as an investment):
- Price/Earnings Ratio: (Market price per share/Earnings Per Share) 19.61/0.27= 72.63
- Dividend Yield: (Dividend per share/ Market price per share) 0.11/19.61= 0.01
- Book Value per share: (Equity/No. of shares outstanding) 11815/7855.70= 1.51
- Market Value per share: (Market value per share/book value per share) 19.61/1.51= 12.99
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