FIN619 Essentials for Ratio Analysis Calculation Problems

FIN619 Essentials for Ratio Analysis Calculation Problems

It has been noted through that most of the students are facing problem while Calculating Essentials for Ratio analysis. All such students are suggested please go through this page and resolved their issues.

Ratio analysis is the calculation and comparison of ratios which are derived from the information in a company’s financial statements. Financial ratios are usually expressed in percentages or times or rupees.

Ratios Required for Banks/DFIs

Those students who want to work on banking sector are required to follow the the under below Ratios
  1. Net Profit Margin
  2. Gross Spread Ratio
  3. Spread Ratio
  4. Non Interest Income to Total Income Ratio
  5. Return on Assets (ROA)
  6. Du Pont Return on Assets Ratio
  7. Return on Equity (ROE)
  8. Debt Ratio
  9. Debt / Equity Ratio
  10. Times Interest Earned Ratio
  11. Advances / Deposits Ratio
  12. Operating Cash Flow Ratio
  13. Dividend per Share
  14. Earning per Share
  15. Price/Earning Ratio

Ratios Required for Other Companies

  1. Current Ratio
  2. Acid Test Ratio
  3. Working Capital
  4. Times Interest Earned
  5. Debt Ratio
  6. Debt / Equity Ratio
  7. Net Profit Margin
  8. Gross Profit Margin
  9. Return on Assets(ROA)
  10. Operating Income Margin
  11. Return on Equity
  12. Assets Turnover Ratio
  13. Operating Cash Flow Ratio
  14. Dividend per Share
  15. Earning per Share

Ratios Required for Insurance Companies

Debt Ratio

  1. Debt / Equity Ratio
  2. Return on Assets(ROA)
  3. Return on Equity
  4. Operating Cash Flow Ratio
  5. Dividend per Share
  6. Earning per Share
  7. Net Claims to Net Premiums Ratio
  8. Expenditures (Management expenses) to Total Net Income Ratio
  9. Net premiums to Gross Premiums Ratio
  10. Underwriting expenses to Net Premiums Ratio
  11. Outstanding Claims to Net Claims Ratio

Working required after Calculating the ratio 

If any amount is clearly provided in the financial statements then there is no need to show the working for those amounts. For example if total assets amount is provided in the financial statements no working for calculating total assets is required. In case of any problem you are more then welcome to write us at ( qundeel.com@gmail.com)

 

Trend Analysis 

You are not required to show Trend Analysis separately. Instead plot the graphs of each ratio according to the given specimen. In this way while showing the graphs and interpreting the ratios, you will also be performing Trend Analysis.

 

Guidelines for Interpretation of Ratios

The following guidelines will help to understand what interpretation means and how it should be done.

 

What does interpretation of ratios mean?

Interpretation means explanation of the ratios results. It does not mean definition of ratios rather it should enable the readers to understand what the calculated ratio indicates and what the trend for that particular ratio is. It should cover the following steps:

 Result understanding:

i.e. what does the answer derived from ratio calculation indicates? You have to critically analyze the result of calculated ratio by explaining the relationship of numerator with that of a denominator. I.e. if the result of current ratio for a year is 2.1 times then what is meant by this 2.1 times. For supporting your interpretation results you will not use the values provided in the Balance Sheet of the current assets and current liabilities.

Trend Analysis:

i.e. what are the variations in a company’s ratio results i.e. the trend for the same company and the reasons for that change in trend?

Comparisons

i.e. the company’s performance (better/ poor/ same) for the three consecutive years along with reasons.

Bench mark (if applicable):

i.e. the comparison of ratio with the benchmark/rule of thumb/standard of that ratio in that particular industry (as these standards vary according to the type of industry selected for analysis e.g. Manufacturing, Banking, FMCG companies, etc). Also give reasoning of deviation from that standard.

Important Points to be Considered

You must provide audited scanned copies of all the financial statements used for financial analysis. However, if you have downloaded the financial statements from organization’s website then URL or web link should be provided. In this case, scanned copies will not be required. Without providing the scanned copies or URL of the organization’s website, your work will NOT be accepted /evaluated.

Students should know the difference between unconsolidated and consolidated financial statements. Consolidated statements comprise the accounts of whole group (more than one business units) of an organization. While, on the other hand, unconsolidated statements represent the accounts of single business unit (normally a holding company).

All those students who will provide scanned copies of financial statements in the annexure part of their report are required to ensure that the scanned financial statements should be signed by the approved authority and should have company stamp/seal. Otherwise scanned copies will NOT be considered and ratio analysis conducted on such financial statements will NOT be accepted.

Non Availability of Financial Statements for Ratio Analysis

All those students who are facing difficulty in conducting ratio analysis due to non availability of the organization’s financial statements are required to discuss this issue with their Course Instructor via email at: (qundeel.com@gmail.com). They will be given guidance about how to resolve this issue as ratio analysis is a very important part of internship report and skipping this part will NOT be accepted at all.

I hope it is now clear for all students, if you have still any query or feedback, please do,t hesitation to ask us any time at qundeel.com@gmail.com

by Mian Aamir 

 


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