Sample Essay

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

  1. Current Ratio: (Current Assets/ Current Liabilities) 13647/18040 = 0.76
  2. Acid Test Quick Ratio: (Current Assets –[stock in trade-trade deposits and short term prepayments]/Current Liabilities) 13647- (2669-419)/18040= 0.64
  3. Cash Ratio: (Cash + Marketable Securities/ Current Liabilities) 5124/18040= 0.29

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) 50109/2669= 18.78
  2. Accounts Receivables Turnover: (Net Credit Sales/Average Accounts Receivables) 54327/1379= 39.40
  3. Average Collection Period: (365/Accounts Receivables Turnover) 365/30.40= 12.01
  4. Asset Turnover: (Sales/Total Assets) 54327/46053= 1.18
  5. Fixed Assets Turnover: (Sales/Fixed Assets)= 54327/39098= 1.39

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

  1. Debt to Equity Ratio: (Total Debt/Total Equity)= 17277/12938= 0.59
  2. Debt to Asset Ratio: (Total Debt/Total Assets)= 17277/46053= 0.38
  3. Fixed Charges Coverage Ratio: (EBIT+Depreciation/Interest+[repayment of loan/1-tax rate) 3206+1189/57+5.96 = 83.07
  4. Times Interest Earned Ratio: (EBIT+Depreciation/Interest) 3206+1189/57= 77.11

Profitability Ratios (Measuring Profitability of the business):

  1. Gross Profit Ratio: (Gross Profit/Sales x 100) 4218/54327 x 100= 8%
  2. Operating Margin: (Operating Profit/Sales x 100) 3206/54327 x 100= 6%
  3. Rate of Return on Total Assets: (Net Income/Average Total Assets) 2161/46053= 0.05%
  4. Rate of Return on Equity: (Net Income less Preferred Dividends/ Average Equity) 2161/12938= 0.17%
  5. Rate of Return on Capital Employed: (Net Income/Average Total Assets- Current Liabilities) 2161/46053-18040= 0.08%
  6. Earning Power Ratio: (EBIT/Average Total Assets) 3206/46053= 0.07%

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) 0.12/19.61= 0.01
  3. Book Value per share: (Equity/No. of shares outstanding) 12938/7886.64= 1.64
  4. Market Value per share: (Market value per share/book value per share) 19.61/1.64= 11.96

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