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Review of literature on financial performance in ratio analysis
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2.3. ANALYSIS OF FINANCIAL STATEMENTS
RATIO ANALYSIS
Financial statements can be broadly analyzed through ratio analysis. A ratio of selected values on an enterprises financial statement is financial ratio. To evaluate the overall financial condition of a corporation or other organization there are standard ratios are used. The market price of the shares is used in regular financial ratios if division in a company traded in a financial market. The values are taken from the balance sheet, cash flow statement, income statement and retain earning statement for the purpose of analyzing the financial ratios.
For financial analysis most usable tool is ratio analysis. Main purpose is to compare the risk and return relationship of different sizes of the firm. The
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In the year 2014 -15 again it increased by the ratio of 5.04%
6 Liquid assets to total assets ratio:
To asset on existing basis the extent liquid asset can support its asset base so the liquid asset to total asset is an important liquidity management tool.
Formula:
Liquidity to total asset ratio= (Liquid assets)/(Total assets)×100
Table showing liquid assets to total assets
Year Liquid assets
(in lakhs) Total assets
(in lakhs) Liquidity ratio
%
2010-2011 2900.78 21753.38 13.33
2011-2012
3246.86 26522.25 12.24
2012-2013
5031.22 31802.07 15.82
2013-2014
7321.63 34606.64 21.16
2014-2015
7263.74 36293.08 20.00
The below chart showing the liquidity asset to total asset
This section will discuss ratio analysis for the following ratios: current ratio, quick (acid-test) ratio, average collection period, debt to assets ratio, debt to equity ratio, interest coverage ratio, net profit margin, and price to earnings ratio. Depending on the end user which ratio carries more importance, however, all must be familiar with ratio analysis. Details on each company's performance for each of these areas can be found in the attached ratio analysis worksheet.
The first method we will review is the accounting method. Through this accounting approach we will analyze specific ratios and their possible impact on the company's performance. The specific ratios we will review include the return on total assets, return on equity, gross profit margin, earnings per share, price earnings ratio, debt to assets, debt to equity, accounts receivable turnover, total asset turnover, fixed asset turnover, and average collection period. I will explain each ratio in greater detail, and why I have included it in this analysis, when I give the results of each specific ratio calculation.
Organizations use financial statements and ratio analysis assess financial performance viability. The ratio analysis are used to identify trends and to perform organizational comparison (financial) with other companies within same industry. Ratio analysis, using data reported on the financial statements, are divided into five major categories: common size, liquidity, solvency, efficiency, and profitability. This paper will assess the financial stability of John Hopkins Hospital (JHH) using the five ratio analysis.
General Motors - Financial Ratio Analysis I. General Motors History Highlights In its early years the automobile industry consisted of hundreds of firms, each producing a few models of the same. William Durant, who bought and reorganized a failing Buick Motors in 1904, determined that several automobile makers would unite. it would increase the protection for the group. He formed General Motors.
Cash Flow Statement Eastman Kodak’s cash flow statement shows that cash has decreased every year except for 2012 (Nasdaq, 2015). The reason for this is that the company sold $90,000 of its capital assets and also issued a large amount of debt (Nasdaq, 2015). In 2013 Kodak repaid $811,000 of their debt, this was different from any of the other years (Nasdaq, 2015). They may have done this since 2013 was the only year with a positive net income. Each year from 2011 to 2014, Kodak purchased capital assets (Nasdaq, 2015).
Any successful business owner or investor is constantly evaluating the performance of the companies they are involved with, comparing historical figures with its industry competitors, and even with successful businesses from other industries. To complete a thorough examination of any company's effectiveness, however, more needs to be looked at than the easily attainable numbers like sales, profits, and total assets. Luckily, there are many well-tested ratios out there that make the task a bit less daunting. Financial ratio analysis helps identify and quantify a company's strengths and weaknesses, evaluate its financial position, and shows potential risks. As with any other form of analysis, financial ratios aren't definitive and their results shouldn't be viewed as the only possibilities. However, when used in conjuncture with various other business evaluation processes, financial ratios are invaluable. By examining Ford Motor Company's financial ratios, along with a few other company factors, this report will give a clear picture of how the company is doing now and should do in the future.
By taking into account only the most liquid assets, ratio 1.0 in 2013 and 2012, which increased by a small margin 0.2 from 2011, indicates that company has strong liquidity position.
In regards to the corporation’s balance sheet, it is necessary to place an importance on liquidity ratios to demonstrate the company’s ability to pay its short term obligations such as accounts payable and notes that have a duration of less than one year. These commonly used liquidity ratios include the current ratio, quick ratio, and cash ratio. All three ratios are used to measure the liquidity of a company or business. The current ratio is used to indicate a business’s ability to meet maturing obligations. The quick ratio is used to indicate the company’s ability to pay off debt. Finally the cash ratio is used to measure the amount of capital as well short term counterparts a business has over its current liabilities.
I have leant that ratio analysis offers better insight of a company’s financial position on the short-term and long-term basis. However, I would recommend that investor advice should be based on ratio analysis that considers ratios from several years. This will ensure that the investor is making an informed decision based on the company’s financial ratio performance trend.
ADCT's debt/equity ratios are 17.7% 24.5, 24.7, 42.2 and 34.0 for 1995-1999. There are no comparison ratios. There was a dramatic increase in 1998. This increase reflects ADCT's 1998 decision to sell additional stock in the NASDAQ exchange. ADCT has used the raised capitol to invest in operating activities and is reflected in the reduction of this ratio in 1999.
Upon examining P&G’s financial ability to meet short-term obligations, it is apparent that not only have their current liabilities exceeded current assets over the last three years, but close to half of their current assets have been tied up in inventories and other illiquid assets. For example, assessing both the quick and current ratio respectively shows that less than 70% of the firm’s current assets could be converted immediately to pay current commitments, but a little more than 90% of the firm’s liabilities would ultimately be covered. Though, based on industry average similar findings occur; therefore, it must not be uncommon for industries similar to P&G to
Ratios traditionally measure the most important factors such as liquidity, solvency and profitability, as well as other measures of solvency. Different studies have found various ratios to be the most efficient indicators of solvency. Studies of ratio analysis began in the 1930’s, with several studies of the concluding that firms with the potential to file bankruptcy all exhibited different ratios than those companies that were financially sound.
Asset is liquid if can be quickly converted to cash at a price close to fair market value. Investor may have liquidity needs that the investment plan must consider.
Financial ratios which would be used in this study are profitability ratios, activity turnover ratios, turnover ratios etc. These are found out from the financial statements prepared and presented by the company every year. These help us in speaking about the financial stability and profitability of the company. These also tell about the creditability of the company which help the outsider in taking important decisions.
They are used to analyze trends in financial statements. Ratios are valuable to see the financial status of a firm. There are three basic categories used for ratios. Ratios can be used in trend analysis, also called timer series analysis. This analysis evaluates a firm’s performance over time. Cross-sectional analysis is another category. Firms uses this analysis to compare different firms at the exact point in time. The last category is industry comparative analysis. This category is used to compare the firm’s ratio to average ratios of other firms in that same industry. Using ratios help a firm evaluate their performance. The five major types of financial ratios are: liquidity ratios, asset management ratios, financial leverage ratios, profitability ratios, and market value ratios. These ratio can be used from information used in the firm’s income statement, balance sheet, and stock market. Ratio analysis give insight to a firm financial strengths and