# Ratio analysis Ratio essay

Ratioanalysis

 Ratio Formula Calculation CompanyRatio Industry Norm Interpretation Earnings per share of Common Stock net income-dividends on preferred stock/ average outstanding common shares 790/409 1.931 1.912 Purchasing of the share is a good investment as the earnings are higher as compared with the market Dividend Yield annual dividends per share/ price per share 7/0.74 9.459 8.987 The dividend is lower as compared to the market value, this may influence the profitability Price Earnings Ratio market value per share/ earnings per share 0.995/ 1.52 0.6546 0.6546 The price earnings ratio determines the profitability of the shares and purchasing of the share is advised as its likely to increase in profit Book Value per Shareof Common Stock total shareholder equity-preferred equity/ total outstanding shares 221/ 49 4.5102 4.5046 The book value of share determines the value of shares before sale this Operating Expense Ratio operating expenses/ gross operating income 20,775/1,601 12.9762 10.783 The operating expense ratio is higher than the market value which shows profitability of the company Return on Assets net income/ average total assets 623/33,939 0.0183 0.0238 The return on assets is higher than the market value meaning that the company is more profitable Return on Common Shareholder`s Equity net income-preferred dividend/ average common stockholder’s equity 7/371 0.0188 0.0188 The returns on the common shareholder is the same as the market value meaning that investing in its shares is good Equity Ratio total equity/ total assets 12,787/33,939 0.3767 0.3798 Equity ratio determines the ability of the company to pay its long term and short term liabilities the value is higher than the market value hence it is good to purchase its shares Number of Times Interest Earned income before interest and taxes/ interest expense 623/644 0.9673 0.9674 The Number of times interest earned is higher than the market value hence one should buy more shares Debt Ratio total liabilities/ total assets 20,775/33,939 0.6121 0.5 The debt ratio determines the ability of the company to repay its debts, the value is higher as compared to the market value Book Value per Shareof Preferred Stock Stockholders` Equity – Preferred Stock/Average shares outstanding This ratio could not be calculated since the stockholders equity is not available in the books of accounts Working Capital Current Assets – Current Liabilities 9,855- 7,222 2633 2583 The working capital shows the available capital for the company, the value is higher than the market value hence the company is profitable Inventory Turnover Sales-direct materials/sales The ratio could not be calculated because the value of the direct materials are not available in the books Accounts Receivable Turnover Sales / Inventory 45,394/ 642 70.7071 Current Ratio Current Assets/Current liabilities 9,855/7,222 1.3645 1.278 The current ratio determines the profitability of the company, the value is higher as compared to the market value hence the company is more profitable Acid Test (Quick) Ratio Current assets-inventories/current liabilities 9,855-642/7,222 1.2756 1.290 The acid or quick ratio determines the liquidity of the company, the value is lower than the market value meaning that purchasing its shares is valuable Gross Profit Ratio Sales – Direct materials/Sales The ratio could not be calculated as the value of direct materials is not available in the books Profit Margin Net profit/Revenue 781/ 45,394 0.0172 0.0233 The profit margin ratio détermines the profitability of the company, the value is higher than the market value hence purchase of its share is of value