copy of balance sheet

8/13/2019 Copy of Balance Sheet

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a. Investments in Govt. or Trust securities.

b. Investmentsin shares, debentures or bonds.

c. Investment in Capital of Partnership firm


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Raw materials, work-in-progress, finished goods,

spares and consumables

Sundry debtors and receivables < 6 mths Advances paid to suppliers of raw materials

Cashand bank balances

Interest receivables

Other current assets such as Governmentsecurities, Bank deposits ..etc


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Tax disputes

Legal litigations

Bills and cheques discounted with banks Claims against the company not

acknowledged


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Ratio analysis is one of the powerfultools of financial analysis. It indicates aquantitative relationship between the figuresand group of figures which are used for

Evaluation And Decision Making.


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Ratio is a simple mathematical expression of

relationship between two related items in quantitative

form. It may be a number expressed in terms of another

number.

The relationship between two figures may be expressed as

Quotient

A Rate

Percentage


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In assessingthe financial stability of a firm, a management

should, apart from profitability, be interested in relative figures rather

than in absolute figures.

Ratioscan be directly helpful as a basis for making predictions.

A ratio is a mathematical relationship between two quantities.

To evaluate financial condition and the purposes of a firm, the

financial analyst needs certain yardsticks.Such yardsticks frequently

used is a ratio.

The ratios are not only helpful to those who manage companybut

also its shareholders and creditorsto knowabout financial position

and the earning capacity of that concern.


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A) ON THE BASIS OF STATEMENTS PREPARED

The Classification is based on financial statements prepared i.e. Profit and Loss

and Balance Sheet, where from the information is obtained for calculation ratios.

The ratios under this classification are grouped into three categories, namely :

1. Balance Sheet Ratios:

Those ratios which are calculated to establish relationship between two balance

sheet items. They are-

a) Current Ratio b) Liquid Ratio

c)) Proprietary Ratio d) Debt-Equity Ratio

e) Capital Gearing Ratio


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Current Assets

Current Ratio = -----------------------------

Current Liabilities


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2. Income Statement Ratios:

Those ratios calculated to establish relationship between two P&L a/c items.

They are:

a) Gross Profit Ratio b) Operating Ratio

c) Operating Profit Ratio d) Net Profit Ratio

e) Interest Coverage Ratio


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Gross Profit

Gross Profit Ratio = --------------------------- X 100Net Sales


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3. Composite or Mixed Ratios

Those ratios are calculated to establish relationship between a

P&L a/c item and Balance Sheet item. They are

a) Inventory Turn-Over Ratio b) Debtors Turn-Over Ratio

c) Creditors Turn-Over Ratio d) Working Capital Turn-Over

Ratio

e) Fixed Assets Turn-Over Ratio f) Return on Equity

g) Return on Capital Employed


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Net Sales

Total Asset Turnover Ratio = --------------------------

Total Assets


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a) Liquidity Ratios:

i) Current Ratio ii) Liquid Ratioiii) Absolute Liquid Ratio

b) Deficiency or Activity Ratios :a) Inventory Turn-Over Ratio b) Debtors Turn-Over Ratio

c) Creditors Turn-Over Ratio d) Working Capital Turn-Over Ratio

e) Fixed Assets Turn-Over Ratio

c) Profitability Ratios:a) Gross Profit Ratio b) Operating Ratio

c) Operating Profit Ratio d) Net Profit Ratio

d) Solvency Ratios:a) Debt-Equity Ratio b) Proprietary Ratio c) Solvency Ratio

d) Fixed assets to Net-Worth Ratio e) Current Assets to Net-

Worth Ratio

f) Interest Coverage Ratio g) Capital Gearing Ratio


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Trade Creditors-- Focus on the liquidity of the

firm.

Bondholders-- Focus on the long-term cash

flow of the firm.

Shareholders-- Focus on the profitability and

long-term health of the firm.


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Plan-- Focus on assessing the current financial

position and evaluating potential firm

opportunities.

Control -- Focus on return on investment for

various assets and asset efficiency.

Understand -- Focus on understanding how

suppliers of funds analyze the firm.


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Balance Sheet

A summary of a firms financial position on a

given date that shows total assets = total

liabilities + owners equity.

Income Statement

A summary of a firms revenues and expenses

over a specified period, ending with net income

or loss for the period.


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Reynolds Balance Sheet (Asset Side)

Reynolds Balance Sheet (thousands) Dec. 31, 2007

a. How the firm stands on aspecific date.

b. What Renolds owned.

c. Amounts owed by

customers.d. Future expense items

already paid.

e. Cash/likely convertible tocash within 1 year.

f. Original amount paid.

g. Acc. deductions for wearand tear.

Cash and C.E. $ 90

Acct. Rec. 394

Inventories 696

Prepaid Exp 5

Accum Tax Prepay 10Current Assets $ 1,195

Fixed Assets (@Cost) 1030

Less: Acc. Depr. (329)

Net Fix. Assets $ 701

Investment, LT 50Other Assets, LT 223

Total Assets $ 2,169


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Reynolds Balance Sheet (Liability Slide)

Reynolds Balance Sheet (thousands) Dec. 31, 2007

a. Note, Assets = Liabilities + Equity.

b. What Renolds owed and

ownership position.

c. Owed to suppliers for goods and

services.

d. Unpaid wages, salaries, etc.

e. Debts payable < 1 year.

f. Debts payable > 1 year.

g. Original investment.

h. Earnings reinvested.

Notes Payable $ 290

Acct. Payable 94

Accrued Taxes 16

Other Accrued Liab. 100

Current Liab. $ 500Long-Term Debt 530

Shareholders Equity

Com. Stock ($1 par) 200

Add Pd in Capital 729

Retained Earnings 210

Total Equity $ 1,139

Total Liab/Equity $ 2,169


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Reynolds Income StatementReynolds Statement of Earnings (in thousands) for Year Ending December 31, 2007

a. Measures profitability over atime period.

b. Received, or receivable, from

customers.

c. Sales comm., adv., officerssalaries, etc.

d. Operating income.

e. Cost of borrowed funds.

f. Taxable income.g. Amount earned for

shareholders.

Net Sales $ 2,211

Cost of Goods Sold 1,599

Gross Profit $ 612

SG&A Expenses 402

EBIT $ 210

Interest Expense 59

EBT $ 151

Income Taxes 60

EAT $ 91Cash Dividends 38

Increase in RE $ 53


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Use of Financial Ratios

A Financial Ratio is an index that relates two

accounting numbers and is obtained by dividingone number by the other.

Types of Comparisons

Internal Comparisons

External Comparisons

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