Presentation on accounting for management (1)

PRESENTATION ONRATIO ANALYSIS

PRESENTED BYAnushree Lawrence (PB1203)

Kanderao Kalyan (PB1212)

Ravi Kumar Rahul (PB1222)

Subarno Paul (PB1231)

What is Ratio Analysis?• It is Not just comparing different numbers from the balance

sheet, income statement and cash flow statement.

• It is about comparing the numbers against previous years, other companies, the industry or even the economy in general.

• Ratios look at the relationships between individual values and relate them to how a company has performed in the past, and might perform in the future.

Ratio Analysis LIQUIDITY RATIOS: tests the ability of a firm to meet its

current liabilities

SOLVENCY RATIOS: tests the long term solvency of a firm

TURNOVER RATIOS: indicates the efficiency with which assets are utilized

PROFITABILITY RATIOS: measures the efficiency of a business

Liquidity AnalysisRATIOS LENOVO

(2011)LENOVO

(2010)HP

(2011)HP

(2010)Current Ratio: (Current Assets/Current

Liabilities)0.99 0.97 1.01 1.10

Quick Ratio: (Current Assets- Stock/Current Liabilities)

0.89 0.83 0.58 0.66

InterpretationsCurrent ratio: Normally a current ratio of 2:1 is considered as satisfactoryHP has a higher current ratio that is better able to meet its current liabilities Quick ratio: Normally a quick ratio of 1:1 is considered satisfactory. Lenovo has enough short term assets to pay its short term liabilities.

Solvency AnalysisRATIOS LENNOVO

(2011)LENNOVO

(2010)HP

(2011)HP

(2010)

Long Term Debt / Equity 0.00 0.18 0.58 0.38

Total Debt / Equity 0.14 0.22 0.79 0.55

Total Debt / Capital Employed 0.10 0.14 0.44 0.36

Proprietary ratio: (share holders funds / total assets)

0.17 0.18 0.30 0.32

Interpretation:Debt Equity Ratio: Here debt equity ratio is less in 2011 for Lenovo, which is good for the company as it shows the debt is paid much faster in that year.As compared to HP, Lenovo has a better financial position.

Interpretation of solvency analysisRATIOS LENNOVO

(2011)LENNOVO

(2010)HP

(2011)HP

(2010)

Proprietary ratio: (share holders funds / total assets)

0.17 0.18 0.30 0.32

Interpretation:Proprietary ratio: The standard proprietary ratio should be1:3. The higher the Proprietary ratio the stronger the financial position of the company is but neither of the company has been able to meet the standard ratio.

Activity RatioRATIOS LENOVO

(2011)LENOVO

(2010)HP

(2011)HP

(2010)

Inventory Turnover Ratio: (COGS/Avg. Stock)

23.92 16.85 16.99 19.49

Fixed Asset Turnover Ratio: (Net Sales/Fixed Assets)

11.02 8.62 10.35 10.71

Total Asset Turnover Ratio: (Net Sales/Total Asset)

8.00 5.34 0.98 1.01

Capital Turnover Rate: (Sales/Capital Employed)

8.08 6.54 2.08 2.26

Interpretation of Activity RatioRATIOS LENOVO

(2011)LENOVO

(2010)HP

(2011)HP

(2010)Inventory Turnover Ratio: (COGS/Avg.

Stock)23.92 16.85 16.99 19.49

Fixed Asset Turnover Ratio: (Net Sales/Fixed Assets)

11.02 8.62 10.35 10.71

Interpretation:Inventory Turnover Ratio: if the ratio is higher it is better for the companybecause it show that finished stock is rapidly turnover and low stock turnover isis not desirable because it show obsolete stock or carry too much of stock, so Lenovois doing well than HP. Fixed Asset Turnover Ratio: The higher the ratio is the better is theperformance of the company and low ratio indicate that fixed assets arenot being effectively utilized, so Lenovo is doing well in 2011.

Interpretation of Activity RatioRATIOS LENOVO

(2011)LENOVO

(2010)HP

(2011)HP

(2010)Total Asset Turnover Ratio: (Net

Sales/Total Asset)8.00 5.34 0.98 1.01

Capital Turnover Rate: (Sales/Capital Employed)

8.08 6.54 2.08 2.26

Interpretation:Total Asset Turnover Ratio: The higher the ratio is the higher will be the overtrading of total assets, while low ratio reveal idle capacity, so Lenovo is doing good in compare to HP.Capital Turnover Rate: The higher the ratio the greater are the profit and alow capital turnover ratio should be taken to mean sufficient sales are notbeing made and profit are low, so here Lenovo is doing good profit in 2011and also in compare to HP.

Profitability AnalysisRATIOS LENOVO

(2011)LENOVO

(2010)HP

(2011)HP

(2010)Return On Equity: (Profit-Dividend Due To

Pref. Shareholder/Equity Share Capital)0.148 0.080 0.183 0.216

Return On Total Assets: (PBIT/Total Asset)*100

2.55 1.44 5.46 7.04

Operating Profit Ratio: (Operating Profit/Net Sales)*100

1.77 1.32 7.61 9.11

Net Profit Ratio: (Net Profit After Tax/Net Sales)*100

1.27 0.78 5.56 6.95

Return on capital employed: (PBIT/capital employed)*100

10.22 5.10 16.00 20.00

Earnings Per Share: (NPAT/No of equity shares issued)

2.84 1.42 1.68 2.08

Interpretation of Profitability AnalysisRATIOS LENOVO

(2011)LENOVO

(2010)HP

(2011)HP

(2010)Return On Equity: (Profit-Dividend Due To

Pref. Shareholder/Equity Share Capital)0.148 0.080 0.183 0.216

Return On Total Assets: (PBIT/Total Asset)*100

2.55 1.44 5.46 7.04

Operating Profit Ratio: (Operating Profit/Net Sales)*100

1.77 1.32 7.61 9.11

Interpretation:Return On Equity: Over here Lenovo is doing good as the more they get returnfrom the equity shareholder the more it is good for the companyReturn On Total Assets: The higher the ratio is the better it is for the companybecause the more the company get return from total asset the more is good for the firm.Operating Profit Ratio: Higher the ratio is the better it is for the company as itindicate the portion remain out of every rupee worth of sale after all operating cost expense have been met.

Interpretation of Profitability AnalysisRATIOS LENOVO

(2011)LENOVO

(2010)HP

(2011)HP

(2010)Net Profit Ratio: (Net Profit After

Tax/Net Sales)*1001.27 0.78 5.56 6.95

Return on capital employed: (PBIT/capital employed)*100

10.22 5.10 16.00 20.00

Earnings Per Share: (NPAT/No of equity shares issued)

2.84 1.42 1.68 2.08

Interpretation: Net Profit Ratio: Higher the ratio is the better it is for the company because it give idea to improve the efficiency, Lenovo is doing good in 2011 compare to 2010Return on capital employed: The higher the return on capital employed will be the higher the return on capital the company will get, Lenovo is doing good in 2011Earnings Per Share: measures the profitability of a firm on per share basis

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