To perform a complete ratio analysis for a company, you'll need its financial statements, including the income statement, balance sheet, and cash flow statement. Below is an outline of the key financial ratios categorized into different areas of analysis:
1. Liquidity Ratios
These ratios measure the company's ability to meet short-term obligations.
- Current Ratio = Current Assets / Current Liabilities
- Quick Ratio = (Current Assets - Inventories) / Current Liabilities
- Cash Ratio = Cash and Cash Equivalents / Current Liabilities
2. Solvency Ratios
These ratios assess the company's ability to meet long-term obligations.
- Debt to Equity Ratio = Total Debt / Total Equity
- Interest Coverage Ratio = EBIT / Interest Expense
- Debt to Assets Ratio = Total Debt / Total Assets
3. Profitability Ratios
These ratios evaluate the company's ability to generate profit relative to its revenue, assets, and equity.
- Gross Profit Margin = (Revenue - Cost of Goods Sold) / Revenue
- Operating Profit Margin = Operating Income / Revenue
- Net Profit Margin = Net Income / Revenue
- Return on Assets (ROA) = Net Income / Total Assets
- Return on Equity (ROE) = Net Income / Shareholder's Equity
- Return on Investment (ROI) = Net Income / Invested Capital
4. Efficiency Ratios
These ratios measure how well the company utilizes its assets and liabilities.
- Asset Turnover Ratio = Revenue / Total Assets
- Inventory Turnover Ratio = Cost of Goods Sold / Average Inventory
- Receivables Turnover Ratio = Revenue / Average Accounts Receivable
- Payables Turnover Ratio = Cost of Goods Sold / Average Accounts Payable
5. Market Ratios
These ratios provide insights into the company's stock market performance.
- Earnings Per Share (EPS) = Net Income / Average Outstanding Shares
- Price to Earnings (P/E) Ratio = Market Price per Share / Earnings per Share
- Price to Book (P/B) Ratio = Market Price per Share / Book Value per Share
- Dividend Yield = Annual Dividends per Share / Market Price per Share
- Dividend Payout Ratio = Dividends / Net Income
6. Cash Flow Ratios
These ratios evaluate the company's ability to generate cash to meet obligations.
- Operating Cash Flow Ratio = Operating Cash Flow / Current Liabilities
- Free Cash Flow = Operating Cash Flow - Capital Expenditures
Example Analysis
Let's take a hypothetical company, XYZ Corp, and perform a ratio analysis using the above categories. Assume the following financial data (in millions):
Income Statement (Year 2023)
- Revenue: $1,000
- Cost of Goods Sold: $600
- Operating Income: $200
- Net Income: $150
- Interest Expense: $10
Balance Sheet (Year-end 2023)
- Current Assets: $400
- Cash and Cash Equivalents: $100
- Inventories: $150
- Total Assets: $800
- Current Liabilities: $250
- Total Debt: $300
- Shareholder's Equity: $500
Cash Flow Statement (Year 2023)
- Operating Cash Flow: $180
- Capital Expenditures: $50
Market Data
- Average Outstanding Shares: 10 million
- Market Price per Share: $50
- Annual Dividends per Share: $2
Now, let's calculate some key ratios:
Liquidity Ratios
- Current Ratio = $400 / $250 = 1.6
- Quick Ratio = ($400 - $150) / $250 = 1.0
- Cash Ratio = $100 / $250 = 0.4
Solvency Ratios
- Debt to Equity Ratio = $300 / $500 = 0.6
- Interest Coverage Ratio = $200 / $10 = 20
- Debt to Assets Ratio = $300 / $800 = 0.375
Profitability Ratios
- Gross Profit Margin = ($1,000 - $600) / $1,000 = 0.4 or 40%
- Operating Profit Margin = $200 / $1,000 = 0.2 or 20%
- Net Profit Margin = $150 / $1,000 = 0.15 or 15%
- Return on Assets (ROA) = $150 / $800 = 0.1875 or 18.75%
- Return on Equity (ROE) = $150 / $500 = 0.3 or 30%
- Return on Investment (ROI) = $150 / $300 = 0.5 or 50%
Efficiency Ratios
- Asset Turnover Ratio = $1,000 / $800 = 1.25
- Inventory Turnover Ratio = $600 / (($150 + $150) / 2) = 4
- Receivables Turnover Ratio = $1,000 / (Assume Average Accounts Receivable $100) = 10
- Payables Turnover Ratio = $600 / (Assume Average Accounts Payable $50) = 12
Market Ratios
- Earnings Per Share (EPS) = $150 / 10 = $15
- Price to Earnings (P/E) Ratio = $50 / $15 = 3.33
- Price to Book (P/B) Ratio = $50 / ($500 / 10) = 1
- Dividend Yield = $2 / $50 = 0.04 or 4%
- Dividend Payout Ratio = (10 million * $2) / $150 = 0.1333 or 13.33%
Cash Flow Ratios
- Operating Cash Flow Ratio = $180 / $250 = 0.72
- Free Cash Flow = $180 - $50 = $130
This analysis provides a comprehensive overview of XYZ Corp's financial health, performance, and market position.
Post a Comment