Question

Indicate what is meant by the following ratio calculations.

1. Liquidity Ratios

Current Ratio = Current Assets

                          Current Liabilities

                       = 515800

                          626900

                     = 0.82 : 1

Quick Ratio = Quick Assets

                         Current Liabilities

                     = 42700 + 205800

                                626900

                     = 0.40

Cash Ratio = Cash & Cash Equivalents

                      Current Liabilities

                  = 42700

                     626900

                 = 0.0681 : 1   

2. Turnover / Activity Ratios

Inventory Turnover = COGS

                             Average Inventories

Average Inventories = (Beginning Inventory + Closing Inventory)/2

=(287,000+267,300)/2

= 277150

                                = 1229122

                                    2,77,150                               

                                    = 4.43

Accounts Receivable Turnover = Net Credit Sales

                                                  Average accounts receivables

                                                  = 37135000

                                                      205800

                                                  = 180.442

Accounts Payable Turnover = Total credit Purchases

                                                   Accounts Payable

                                             = 466520

                                                318300

                                           = 1.465

3. Profitability Ratios

Gross Profit Margin = Revenue - Cost of goods sold

                                               Revenue

Gross Profit = Revenue – Cost of Goods Sold

                     = 37135000 - 1229122

                     = 35905878

Gross Profit Margin =     35905878

                                        37315000

                                = 0.97

Operating Margin =                EBIT

                                                Sales Revenue

                             =           292510

                                      37135000

                             = 0.01

Return on Equity =            Net Income

                                  Average Shareholder Equity

                           = 615010

                               81820

                          = 0.01

4. Debt / Capital Structure Ratios

Debt to Equity Ratio = Total Liabilities

                                    Total Stockholders' Equity

Debt / Equity Ratio = 3,08,600+$40,000

                                    81820

                               = 4.26

Debt to Total Asset Ratio = Short term debt + Long term debt + Other fixed payments

                                                                        Total assets

Debt to Total Asset Ratio = 3,08,600 + 40,000

                                             748720

                                         = 0.47

5. Capital Market Value Ratios                  

Book Value Per Share = Book Value

                                      Number of Shares

                                    = Total Asset – Intangible Asset – Liability

                                                        Number of Shares

                                    = 748720 – 0 – 666900

                                                 50000

                                    (Share value $1)

                                

                                  = 81820

                                     50000

                                    = 1.6364

                                             

Dividend Yield = Dividend

                                Price

                           = 55000 / 50000

                                  1.6364

                        = 668.16

Answer 1

1]	LIQUIDITY RATIOS:
	Current ratio:
	This ratio gives the number of times current assets
	are over the current liabilities. It tells whether the
	current assets are sufficient to meet the current
	liabilities.
	The ratio is very low at 0.82:1, indicating that the
	current assets are not enough to meet the current
	liabilities. It is a precarious situation indicating that
	the company will have serious problems in meeting
	its current liabilities.
	Quick ratio:
	This ratio tells how many times the quick assets
	[current assets that can be converted quickly into
	cash + cash and marketable securities] are in terms
	of current liabilities.
	The ratio is very low at 0.40 and indicates serious
	liquidity problems.
	Cash ratio:
	It is the number of times cash and marketable
	securities are in terms of current liabilities. It is
	also very low indicating very serious liquidity
	situation.
2]	TURNOVER/ACTIVITY RATIOS29-06-2019
	Inventory turnover:
	It gives the number of times the inventory is turned
	over in the course of operations. The higher the
	turnover higher the efficiency of operations.
	Accounts receivable turnover:
	The number of times the receivables are turned
	over by credit sales. Higher the turnover better the
	efficiency of operations.
	Acccounts payable turnover:
	The ratio indicates the outstanding payables for
	purchases in terms of the total purchases.
	Lower ratio indicates that the time taken to pay
	is higher and vice versa.
3]	PROFITABILITY RATIOS;
	Gross profit:
	Gross profit is the excess of sales over cost of
	goods sold.
	Gross profit:
	Indicates the gross margin per dollar of sales in %
	terms.
	Operating margin:
	States the operating profit as a % of sales.
	Return on equity:
	Measures the NI as a % of total shareholders' equity.
	It indicates the rate of income earned on the funds
	supplied by the shareholders.
4)	DEBT/CAPITAL STRUCTURE RATIOS:
	Debt to Equity:
	This measures the number of times debt is over
	equity and suggests the capital structure of the
	firm.
	Debt to total asset ratio:
	The extent to which total assets are financed by
	debt is indicated by the ratio.
5)	CAPITAL MARKET VALUE RATIOS:
	Book value per share:
	The total equity is divided by the number of shares
	outstanding to get the ratio. It indicates the net
	asset value per share.
	Dividend yield:
	This gives the dividend as a % of share price and
	indicates the current yield to stock holders.