Page 208 - DMGT202_COST_AND_MANAGEMENT_ACCOUNTING

Unit 11: Ratio Analysis

The next step is to substitute the found value in the equation of creditors turnover ratio. Notes
` 1,00,000
` 16,000 + Sundry creditors =
5
Sundry creditors = ` 20,000 - ` 16,000 = ` 4,000

Self Assessment

Fill in the blanks:

14. The net profit ratio is an indicator of over all ...................... of the firm in terms of return out

of sales volume.
15. The operating ratio is establishing the relationship in between the ...................... and
operating expenses with the total sales volume.
16. The ...................... is nothing but the combination of both non current liabilities and owners’
equity.

11.7 Summary

Ratio analysis is one of the important tools of financial statement analysis to study the
financial structure of the business fl eeces.

Financial ratio analysis is the calculation and comparison of ratios which are derived from
the information in a company’s fi nancial statements.

The level and historical trends of these ratios can be used to make inferences about a
company’s financial condition, its operations and attractiveness as an investment.

Financial ratios are calculated from one or more pieces of information from a company’s
fi nancial statements.
A ratio gains utility by comparison to other data and standards.

Ratios are classified as liquidity, leverage, profitability, activity, integrated and growth
ratio.
Although fi nancial ratio analysis is well-developed and the actual ratios are well-known,
practicing financial analysts often develop their own measures for particular industries

and even individual companies.
Analysts often differ drastically in their conclusions from the same ratio analysis.

11.8 Keywords

Balance Sheet or Positional Statement Ratios: These type of ratios are calculated from the
balance sheet of the enterprise which normally reveals the financial status of the position i.e.

short-term, long-term financial position, Share of the owners on the total assets of the enterprise
and so on.
Capital Structure Ratios: The capital structure position are analysed through leverage ratios as
well as coverage ratios.
Current Assets: Current assets are in the form of cash, equivalent to cash or easily convertible
into cash.

Current Liabilities: Current liabilities are short-term financial resources or payable in short span
of time within a year.
Income Statement Ratios: These ratios are computed from the statements of Trading, Profi t &
Loss account of the enterprise.

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