| Financial Ratios | |
This
page last updated 2011 Nov 4
| Ratios - an introduction | Financial Ratios
are mathematical calculations of how a firm has measured some activities,
and compared those activities to other inputs, time periods, resources
etc.
In an increasingly complex
world were people are doing business on a global basis, with competition
from many direct and indirect competitors, it becomes more and more difficult
for investors and business partners to evaluate the "financial health"
of a company when they don't have the ability to meet the executives and
have probing discussions about what has been happening.
International finance in the 2nd decade of the new millenium, ie 2010+, involves fast decisions about companies all over the world for international investors, government fuind managers, stock traders etc.- ratios help these investors and fund managers make decisions in order to have the opportunity to avoid losing money in companies that may have trouble, and make money with companies that are profitbale now, and in the near future.In the absence of "going to the source" to find out how a company has been doing presently, and may do in the future, business executives have turned to a series of calculations, when taken together with other objective and subjective information, can give a better indication of a company's success or failure, than if you did not have this info. So the basic point is, Financial Ratios by themselves will not tell you perfect information about a company - but if you have nothing else to go on, except numbers and stats about product, money spent etc., you can use these ratios to make some conclusions that can give you a fairly good idea. |
| Ratios
- an introduction
Limitations |
Ratios, without
context, are not enough information on which a business person can make
a confidendent decision. Ratios need to be provided in the context within
which the "numbers" are generated... a reference point is needed, as in
some sort of historical time period.
Secondly, the financial health"
of a company is more than just a series of mathematical calculations about
sales and expenses,
Again, the financial health" of a company is more than just a series of mathematical calculations as we can see in the example of companies that have had dynamic leadership which allowed the company to do well, even though there might have been times when the "books" were not attractive to institutional investors. examples
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o Leverage Ratios (also called
Debt Ratios)(Leverage Ratios are also referred to as a type of "Solvency
Ratio"), including
o Capital Acquisition Ratio
o Capital Employment Ratio
o Capital Structure Ratio
o Long-term debt/capitalization Ratio
o Debt-to-equity Ratio
o Liquidity Ratios, including
o Current Ratio
o Quick Ratio (or "Acid Test"
o Cash Ratio
o Efficiency Ratios (also known
as Operating Financial Ratios),
(also sometimes titled
Asset Utilization Ratios or Asset Management Ratios)
o The Days Sales Outstanding Ratio
o Inventory Turnover Ratio (also referred to as Asset Turnover Ratios)
o Receivables Turnover
o Inventory Turnover
o Inventory Period
o Average Collection Period
o Accounts Payable to Sales (%)
o Total asset turnover (TAT) Ratio
o Fixed asset turnover (FAT) Ratio
o Sales Revenue per Employee
o Profitability Ratios, including
o Gross Profit Margin
o Operating Profit Margin
o Return on Assets
o Return on Equity
o Return on capital employed ("ROCE")
o Investor Ratios (also known
as Market Value Ratios), including
o Earnings per share ("EPS")
o Price-Earnings Ratio ("P/E Ratio")
o Price / Cash Ratio
o Dividend Yield (also known as Dividen Policy Ratios)
o Dividend Yield
o Payout Ratio
o Book Value per Share
o Market Value per Share
o Market / Book Ratio
Leverage Ratios (also called Debt Ratios)
 |
Oct 2011
students
Dana A., Jelyn A. Karlo C., Rana H. Gursimran (Sim) G. presented to the CCT 224
class a description of Leverage Ratios using the theme of "Who Wants to
be a Millionaire".
|
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Leverage Ratios
A quick snapshot to show the elaborate PPT the student presenters created to mimic the questions in the game, and use those questions to go through the main points describing Leverage Ratios |
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Leverage Ratios
- they even managed to get
in some audience participation by having the students shout out what one
of the answers should be to a question
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vv
Liquidity Ratios
 |
Oct 2011,
students
Colby H., Murtaza H. Heba I., Tashfia I. Nancy K. presented to the CCT 224 class a description of Liquidity Ratios Colby did a good job as the lead off speaker and he and Murtaza and Heba energetically explained their concepts through a board game which they had handed out to the class. The group also emphasize "something interesting learned...". Tashfia found an interesting article which discussed cash ratios. |
| . | Oct 2011
students
Ermir K., Karolina K. Patrick L., Jennifer (Yan Chi) L. Eric M. (pic coming) presented to the CCT 224 class a description of Efficiency Ratios - did a good skit, unfortunately their "media" did not work out OK, but sometimes that is just bad luck - the info they had was good, but because the "technology" did not work, there was no engagement with the audience at all - each group should therefore always have a back-up-plan / contingency, such as a hand out, for these situations |
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Oct 2011
students
Patrick M., Ulana O. Tanmay P., Brett P. Ayesha S., Ravi S. presented to the CCT 224 class a description of Profitability Ratios Their presentation was pretty interesting in how they made a "skit" called "Chickens Pen" which was based on Dragon's Den - good imagination - good graphics, good story line and good use of members in the group to explain all the parts of Profitability Ratios
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Oct 2011
students
Tim S., Delaney S. Hamna T., Rocky T. Aanchal V., Harry Y., Kian Y. presented to the CCT 224 class a description of Leverage Ratios
Liked the fact each group member wore clear name tags which allowed the prof and the audience to know who was saying what. |
| Investor Ratios -
the video
The best thing about this group's presentation was the video they posted on YouTube which specifically emphasized what each person learned during this process which was "useful and interesting". |
Ratios - Alberta
Govt Source
-------------------------------------.
Investopedia.com
Financial Ratios
Tutorial
Online
by Richard Loth
http://lothinvest.com
