Statements Corporate Org. &Balance Sheet
Transcript of Statements Corporate Org. &Balance Sheet
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Financial statements of an organization
is the basis of data required for financial decision making.As such, correct understanding of the structure of
financial statements and also of the tools available for
the interpretation of financial statements is a must
before one talks of any of the further discussions onfinancial management.
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Any organization doing the business, whatever it is manufacturing activity
or trading activity or service activity, is interested in knowing basically two
facts about the business.
a. Where the business stands at any given point of time in financial terms.
b. What is the result of operations carried out by the business organization
during a specific period.
In order to answer these questions, the organization carr ies out the
process of recording various transactions in a defined set of records,
technically referred to as accountingwhich effectively result into the
preparation of what are called as f inancial statements.
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These Financial Statements Are:
a. First financial statements is balance sheet. This is the answer to the
first question viz. where the business stands in finance terms. Balance
sheet informs about the various sources used by the organization toraise the funds which technically result into what are referred as
Liabilities and the way these sources are used which technically
result into the creation of the Assets. Sometimes, balance sheet is
also referred to as statement of sources and application of funds.Effectively, balance sheet is a listing of various assets and liabilities of
the organization at any given point of time. Technically, balance sheet
is a position statement in the sense it refers to a particular date. As
such, balance sheet is referred to as Balancesheet as on ________
or Balance Sheet as at_______
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Cont
b. Second financial statement is profitability statement. In technical
language. It is referred to as Profit & Loss Account. This is the
answer to the second question. What is the result of operation of the
business during the specific period i.e. whether the operations have
resulted into a profit or loss and by what amount. Technically,
profitability statement is a period statement in the sense it refers to a
particular period. This may be a month, a quarter, a half yeardepending upon the organization and purpose for which it is prepared.
As such, profitability statement is referred to as Profit and Loss
Account for the year ending on___
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Structure of Financial StatementAs there is no specific law applicable to the preparation of
financial statements of a non-corporate organizations like proprietary
firms or partnership firms, these organizations can prepare theirfinancial statements in whatever structure they want. However, in case
of a corporate organization, in simple language a company form of
organization, there is a uniform law applicable to these types of
organizations viz. Companies Act. 1956. As such a company form of
organization is required to prepare and present its financial statements
in accordance with the provision of Companies Act. 1956. to be more
specific as per the provisions of schedule VI of the Companies Act
1956. the underlying presumptions of the schedule VI provisions is
that it is through the financial statements that the companiescommunicate with the various outsiders. As such, it is required that
the financial statements should be as transparent and as an
informative as possible. Hence, schedule VI lays down various
disclosure requirements which the companies are required to followwhile preparing their financial statements.
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Schedule VISchedule VI of the Companies Act, 1956 is subdivided
into four parts:
Part-I
Deals with the format of the Balance sheet.
Part-II
Deals with the Profit and Loss Account.
Part-III
Deals with notes forming part of the P&L A/C. andthebalance sheet. The last reporting requirement to Part
VI was interested recently with the effect from 15thMay
1995 which deals with Balance Sheet abstract and the
companys general business profile.
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Part-I Structure of Balance Sheet
As stated above, Part-I of Schedule VI deals with balance
sheet, though in normal circumstances we come across vertical form
of Balance Sheet.
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Liabilities
a. Share Capitalb. Reserves & Surplus
c. Secured Loans
d. Unsecured Loans
e. Current Liabilities
and Provisions
Assets
a. Fixed Assets
b. Investments
c. Current Assts, Loans&
Advancesns
d. Misc. Expenditure
e. Profit & Loss a/c debit
Balance
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1) Authorized Capital
2) Issued Capital3) SubscribedCapital
4) Paid-up Capital
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Reserves
1) Subsidy Received From The Govt
2) DevelopmentRebate reserve
3) Revaluation of fixed assets
4) Issue of Shares at Premium
5) General Reserves
Surplus
The credit balance in profit and loss account
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a. Debentures
b. Loans and Advances From Banks.
c. Loans and advances From subsidiaries.d. Other Loans and advances.
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a. Fixed Deposits.
b. Loans and Advances From subsidies.
c. Short Term Loans and Advancesi) From Subsidiaries
ii) From Others
d. Other Loans and Advancesi) From Subsidiaries
ii) From Others
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a. Goodwill
b. Land
c. Buildingsd. Plant & Machinery
e. Furniture fittings
f. Patents, Trade Marks and Designsg. Vehicles
h. etc.
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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 Government
securities, 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 100
Net Sales
3 Composite or Mixed Ratios
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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 incomeor 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
R ld I St t t
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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 $ 210Interest 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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External Comparisons and Sources of Industry Ratios
This involves comparing the ratios of one firm withthose ofsimilarfirms or with industry averages.
Similarityis important as one should compare applesto
apples.
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Liquidity Ratios
Current Ratio
Current Assets
Current Liabilities
For ReynoldsDecember31, 2007
Shows a firms ability tocover its current
liabilities with its current
assets.
$1,195
$500= 2.39
Balance Sheet Ratios
Liquidity Ratios
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Current Ratio
The current ratio of a firm measures its short tem solvency that is its
ability to meet short term obligations. As a measure of short term/
current financial liquidity, it indicates the rupees of current assets
available for each rupee of current liability or obligations. The
higher is the current ratio, the larger is the amount of rupees
available per rupee of current liability, and more is the firms
ability to meet current obligations, and the greater is the safety of
the funds of short term creditors.
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Liquidity Ratio Comparisons
Reynolds Industry
2.39 2.15
2.26 2.09
1.91 2.01
Year
2007
2006
2005
CurrentRatio
Ratio is stronger than the industry average.
Rationale: The higher the current ratio, the higher is the amount of
rupees available per rupee of current liability, The more is the firmsability to meet current obligations and the greater is the safety of
funds of short-term creditors.
Standard : 2:1
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Acid Test Ratio
It is rigorous measure of firmsability to serve short term
liabilities. The usefulness of the ratio lies in the fact that it
is widely accepted as the best available test of liquidity
position of a firm. The ratio provides, in a sense, a check
on thee liquidity position of a firm. Yet it is not conclusive
test. Both the current and quick ratios should be
considered in relation to the industry average to inferwhether the firms short term financial position is
satisfactory or not.
Liquidity Ratios
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Liquidity Ratios
Acid-Test (Quick)
Current AssetsInv.+ Prepaid Exp.Current Liabilities
For ReynoldsDecember 31, 2007
Shows a firms ability to meetcurrent liabilities with its most
liquid assets.
Balance Sheet Ratios
Liquidity Ratios
$1,195 - $696
$500= 1.00
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Liquidity Ratio Comparisons
Reynolds Industry
1.00 1.25
1.04 1.231.11 1.25
Year
2007
20062005
Summary of the Liquidity Ratio Comparisons
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Summary of the Liquidity Ratio Comparisons
Strong current ratio and weak acid-test ratioindicates a potential problem in the inventoriesaccount.
Note that this industry has a relatively high level ofinventories.
Ratio Reynolds Industry
Current 2.39 2.15
Acid-Test 1.00 1.25
S f th Li idit T d A l i
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Summary of the Liquidity Trend Analysis
2.The current ratio for the industry has been rising slowly at the
same time the acid-test ratio has been relatively stable.
3.This indicates that INVENTORIESare a significant problem
forReynolds.
1.The current ratio for Reynoldshas been rising at the same
time the acid-test ratio has been declining.
Debt to Equity Ratio
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Debt to Equity Ratio
It is an important tool of financial analysis to appraise the
financial structure of a firm. It has important implications
from the view point of the creditors, owners business in its
financing. A high ratio shows a large share offinancing by
the creditors of the firm. A low ratio implies a smaller
claim of creditors. The debt equity ratio indicates the margin
of safety to creditors. If, for instance, the debt equity ratio is
1:2, it implies that for every rupee of outside liability, the
firm has two rupees of owners capital or the stake of the
creditors is one half of the owners.
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Debt-to-Equity
Total DebtShareholders Equity
For ReynoldsDecember 31, 2007
Shows the extent to
which the firm isfinanced by debt.
Balance Sheet Ratios
Financial Leverage
Ratios
$1,030
$1,139= .90
Total Debt=Short Term Debt + Long Term Debt
=500 + 530
= 1030
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Reynolds Industry
.90 .90
.88 .90
.81 .89
Year
20072006
2005
Reynolds has average debt
utilization relative to the industry
average.
Debt to Equity Ratio
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The Debt Asset ratio measures the extent to which borrowedfunds support the firms assets. It is Defined as
The numerator of this ratio includes alldebt, shortterm as well as long-term, and the denominator of this
ratio is the total of all assets.
Total Debt
Total Assets
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Debt-to-Total-Assets
Total Debt
Total Assets
For ReynoldsDecember
31, 2007
Shows the percentage of the
firms assets that are
supported by debtfinancing.
Balance Sheet Ratios
Financial Leverage
Ratios
$1,030
$2,169= .47
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Reynolds Industry
.47 .47
.47 .47
.45 .47
Year
2007
2006
2005
Debt-to-Total-Asset Ratio
Reynolds has average debt utilization
relative to the industry average.
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Financial Leverage RatiosTotal Capitalization
Long-term Debt
Total Capitalization
For Reynolds December
31, 2007
Shows the relative
importance of long-term debt
to the long-term financing of
the firm.
Balance Sheet Ratios
Financial Leverage Ratios
$530
$1,669= .32
(i.e., LT-Debt + Equity)
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Financial Leverage Ratio omparisons
Reynolds Industry
.32 .30
.32 .31
.37 .32
Year
20072006
2005
Total Capitalization Ratio
Reynolds has average long-term debt utilization relative to the
industry average.
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Interest Coverage Ratio
Components:
The numerator considers the profits before interest on both term
and working capital borrowings. In this connection, it should be
noted that income tax should be added while computing the profits
because, it is calculated after paying the interest. The denominator
considers the interest charges which is in the form of interest on longterm borrowing and not the interest on working capital facilities.
EBIT
Interest Charges
Indications:
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This ratio indicates the protection available to
the lenders of long term capital in the form of funds
available to pay the interest charges i.e. profits.
Normally a high ratio will be desirablebut too
high a ratio may indicate under utilization of the
borrowing capacityof the organization, where as toolow ratio may indicate excessive long term
borrowingsor inefficient operations.
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Coverage Ratios
Interest Coverage
EBIT
Interest Charges
For ReynoldsDecember
31, 2007
Indicates a firms ability
to cover interest charges.
Income Statement
Ratios
$210
$59
= 3.56
Coverage Ratio
Interest Coverage
EBIT
Interest Charges
For ReynoldsDecember
31, 2007
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Coverage Ratio Comparisons
Reynolds Industry
3.56 5.19
4.35 5.02
10.30 4.66
Year
2007
2006
2005
Interest Coverage Ratio
Reynolds has below average interest
coverage relative to the industry average.
S f Th C T d A l i
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Summary of The Coverage Trend Analysis
This indicates that low earnings (EBIT) may be a
potential problem for Reynolds.
Note, we know that debt levels are in line with
the industryaverages.
The interest coverage ratio for Reynolds has been
falling since 2005. It has been below industry
averages for the past two years.
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ctivity Ratios
Receivable Turnover
Annual Net Credit Sales
Receivables
For Reynolds December 31, 2007
Indicates quality ofreceivables and how successful
the firm is in its collections.
Income Statement
/Balance Sheet Ratios
$2,211$394 = 5.61
(Assume all sales are credit sales.)
ctivity Ratio
Receivables Turnover Ratio
Avg. Collection Period
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The average collection period ratio represents the average
number of days for which a firm has to wait before its receivables are
converted into cash. It measures the quality of debtors. Generally,
the shorter the average collection period the better is the quality of
debtors as a short collection period implies quick payment by
debtors. Similarly the higher collection period as inefficient
collection performance which in turn adversely affect the liquidity
or short term paying capacity of the firm out of its current liabilities.
A ti it R ti
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Activity Ratios
Avg. Collection Period
Days in the Year
Receivable Turnover
For ReynoldsDecember 31, 2007
Average number of daysthat receivables are
outstanding.(or RT in days)
Income Statement /Balance
Sheet Ratios
Activity Ratios
365
5.61= 65 days
Avg. Collection Period
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Activity Ratio Comparisons
Reynolds Industry
65.0 65.7
71.1 66.3
83.6 69.2
Year2007
2006
2005
Reynoldshas improved the average collection period to
that of the industry average.
Avg. Collection Period
Activity Ratios
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Activity Ratios
Payable Turnover (PT)
Annual Credit Purchases
Accounts Payable
For Reynolds December 31, 2007
Indicates the promptness of
payment to suppliers by the firm.
Income Statement /BalanceSheet Ratios
Activity Ratios
$1551
$94= 16.5
(Assume annual credit purchases = $1,551.)
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Activity Ratios
PT in Days
Days in the Year
Payable Turnover
For Reynolds December 31,
2007
Average number of days thatpayables are outstanding.
Income Statement /Balance
Sheet Ratios
Activity Ratios
365
16.5= 22.1 days
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Activity Ratio Comparisons
BW Industry
22.1 46.725.4 51.1
43.5 48.5
Year
20072006
2005
Payable Turnover in Days
Reynolds has improved the PT in Days.
Inventory Turnover Ratio
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A High Inventory Turnover Ratio indicates that Maximum Sales
Turnover is achieved with the Minimum Investment In Inventory. As such, as
a general rule, High Inventory Turnover Ratio Is Desirable. However, the
high inventory turnover ratio should be viewed from some more angles.Firstly, it May Indicates that there is Under Investments In Inventory where
by the organization May Loose Customer Patronage if it is unable to
maintain the delivery schedule. Secondly, High Inventory Turnover ratio
may Not Necessarily Indicate Profitable Situation. An organization, in Order
To Achieve A Large Sales Volume, may sometimes Scarifies On Profit, whereby a high inventory ratio may not result into high amount of profits.
on the other hand, a Low Inventory Turnover ratio may
indicate Over Investment In Inventory, existence of excessive or
obsolete/non moving inventory, improper inventory management,accumulation of inventories at the year end in anticipation of increased
prices of sales volume in near future and so on.
There can be no standard inventory turnover ratio which may
be considered to be ideal. IT MAY DEPEND ON NATURE OF INDUSTRY AND
MARKETING STRATEGIES FOLLOWED BY THE ORGANIZATION.
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Activity Ratios
Inventory Turnover
Cost of Goods Sold
Inventory
For ReynoldsDecember 31, 2007
Indicates the effectiveness ofthe inventory management
practices of the firm.
Income Statement /
Balance Sheet Ratios
Activity Ratios
$1,599$696
= 2.30
A ti it R ti C i
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Activity Ratio Comparisons
Reynolds Industry
2.30 3.452.44 3.76
2.64 3.69
Year
20072006
2005
Inventory Turnover Ratio
Reynolds has a very poor inventory turnover ratio.
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ActivityRatios
Total Asset Turnover
Net Sales
Total Assets
ForReynoldsDecember 31,
2007Indicates the overall effectiveness of
the firm in utilizing its assets togenerate sales.
Income Statement /Balance Sheet
Ratios
Activity Ratios
$2,211
$2,169= 1.02
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ctivity Ratio Comparisons
Reynolds Industry
1.02 1.171.03 1.14
1.01 1.13
Year
20072006
2005
Total Asset Turnover Ratio
REYNOLDSHAS A WEAK TOTAL ASSET TURNOVER RATIO.
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Gross Profit
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Gross Profit
The net sales consists of sales after deducting the sales
return if any. The G.P indicates the difference between net sales on
one hand and either of the following on the other hand.a. Manufacturing cost or factory cost or production cost in case of
manufacturing concerns.
b. Cost of purchases, expenses directly related to purchases and the
adjustments for stock variations if any, in cases of trading concerns.
Indications
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The G.P ratio indicates the relation between production
cost and sales and the efficiency with which the goods areproduced or purchased. A high G.P ratio may indicate that
the organization is able to produce or purchase at relatively
lower cost. As such, a high G.P ratio will be desirable. G.P
may be increased by any of the following methods:a. Increase sales price, production cost remaining the same.
b. Reduce production cost, sales price remaining the same.
c. Increase sales price, reduce production cost.d. Increase volume of products high gross profit margin.
An undue increase in G.P ratio as well as an undue decrease in
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G.P ratio should be carefully investigated.
Undue Increase in G.P ratio may indicate
1.Over- valuation of closing stock.2. Non- Consideration of purchase invoices
3. Consideration of Non- Sales transactions as sales transactions e.g.
Goods sent on Consignment basis.
Undue Decrease in G.P Ratio May Indicate1. Under- Valuation of Closing Stock.
2. Non- Consideration of Sales invoices.
3. Inability of management to control the cost or increase the sales.
4. Improper utilization of infrastructural Facilities.
Profitability Ratios
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Profitability Ratios
Gross Profit Margin
Gross Profit
Net Sales
ForReynoldsDecember 31, 2007
Indicates the efficiencyof operations and firm
pricing policies.
Income Statement /Balance Sheet
Ratios
Profitability Ratios
$612
$2,211= .277
Profitability
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Profitability
Ratio Comparisons
Reynolds Industry
27.7% 31.1%28.7 30.8
31.3 27.6
Year
20072006
2005
Gross Profit Margin
Reynolds has a weak Gross Profit Margin.
Net Profit Ratio
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Measures the percentage of each sales rupee remaining
after all costs and expenses including interest and taxes have
been deducted. Net Profit Ratio is also known as net margin.This measures the relationship between net profits and sales
of a firm.
The net profit margin is indicative of managements
ability to operate the business with sufficient success notonly to recover from revenues of the period, the cost of
merchandise or services, the expenses of operating the
business and the cost the borrowed funds, but also to leave a
Net Profit
N.P Ratio= -----------------------*100Net Sales
margin of reasonable compensation to the owners for
providing their capital at risk The ratio of net profit to sales
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providing their capital at risk. The ratio of net profit to sales
essentially expresses the cost price effectiveness of the
operation. A high net profit margin would ensure adequate
return to the owners as well as enable a firm to withstand
adverse economic conditions when selling price is declining
, cost of production is rising and demand for the product is
falling.The net profit indicates that portion of sales available to
the owners after the consideration of all types of expenses
and cost either operating or non-operating or normal or
abnormal. A high net profit ratio indicates higherprofitability of the business. As such a high net profit ratio
will be desirable.
Profitability Ratios
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Profitability Ratios
Net Profit Margin
Net Profit after Taxes
Net Sales
For Reynolds December 31, 2007
Indicates the firms
profitability after takingaccount of all expenses and
income taxes.
Income Statement /Balance
Sheet Ratios
Profitability Ratios
= .041$91
$2,211
Profitability Ratio Comparisons
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Reynolds Industry
4.1% 8.2%4.9 8.1
9.0 7.6
Year
20072006
2005
Net Profit Margin
Reynoldshas a poor Net Profit Margin.
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Profitability Ratios
Return on Investment
Net Profit after Taxes
Total Assets
For ReynoldsDecember
31, 2007Indicates the profitabilityon the assets of the firm
(after all expenses and
taxes).
Income Statement
/Balance Sheet Ratios
Profitability Ratios
$91
$2,160= .042
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Reynolds Industry
4.2% 9.8%5.0 9.1
9.1 10.8
Year
20072006
2005
Return on Investment
Reynolds has a poor Return on Investment.
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Return on Equity
Net Profit after Taxes
Shareholders Equity
ForReynolds December 31, 2007
Indicates the profitability to the
shareholders of the firm (after all
expenses and taxes).
Income Statement /Balance
Sheet Ratios
Profitability Ratios
$91
$1,139= .08
Profitability Ratio Comparisons
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Reynolds Industry
8.0% 17.9%9.4 17.2
16.6 20.4
Year
20072006
2005
Return on Equity
Reynoldshas a poor Return on Equity.
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The profitability ratios for ReynoldshaveALLbeen
falling since 2005. Each has been below theindustry averages for the past three years.
This indicates that COGSandadministrative costs
may both be too high and a potential problem forReynolds.
Note, this result is consistent with the low interest
coverage ratio.
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Inventories are too high.
May be paying off creditors (accounts
payable) too soon. COGS may be too high.
Selling, general, and administrative costs
may be too high.