Financial Ratio Analysis Essays

3156 Words Nov 29th, 2013 13 Pages

Ratio analysis expresses the relationship among selected items of financial statement data. A ratio expresses the mathematical relationship between one quantity and another. The relationship is expressed in terms of a percentage, a rate or a simple proportion. Ratios can provide clues to underlying that may not be apparent from individual financial statement component. However, a single ratio by itself is not very meaningful. For discussion making the companies use the following types of comparisons.

a. Intra-company comparisons

b. Industry average comparisons

c. Intercompany comparisons


For our report we have collected the financial reports of the following companies (for the year
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Quick Ratio:

The quick ratio is a measure of a company’s immediate short term liquidity. The ratio is computed by dividing the sum of cash, short term investments and net receivables by current liabilities. Thus it is an important complement to the current ratio.

Current assets excluding all inventories Quick Ratio = ---------------------------------------------- Current Liabilities

Target: 1

2. Asset Utilization

a. Inventory Turnover:

Inventory turnover measures the number of times on average the inventory is sold during the period. Its purpose is to measure the liquidity of the inventory. It is computed by dividing cost of goods sold by the average inventory. Unless seasonal factors are significant, average inventory turnover can be computed from the beginning and ending balances of the inventory.

Cost of Goods Sold Inventory Turnover = -------------------------- Avg. Inventory

Target: Lower is better.

3. Solvency Ratio:

a. Debt to Total Assets Ratio:

This ratio measures the

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