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M.B.A FINANCIAL REPORTING AND ANALYSIS Course Code: MBA604 Semester: 1 SLM UNITS : 8 E-lesson Unit: 6 www.cuidol.in Unit-8 (MBA 604) All right are reserved with CU-IDOL

FINANCIAL STATEMENT ANALYSIS - III 3 OBJECTIVES INTRODUCTION Student will be able to : Absolute figures expressed in monetary terms in financial statements by themselves Calculate profitaility, liquidity, turnover and are meaningless. solvency ratios Critically the strength and weakness of ratio Ration analysis is a Financial Statement analysis analysis tool basedon accounting data. Explain the significance of each component It facilitates both intra and inter firm of the cash flow statement comparison and allows the stakeholders to take informed decisions. Distinguish investing activities that affect a company's cash flow statement from the business's other transactions www.cuidol.in Unit-8 (MBA 604) INASllTITriUgThEt aOrFeDreISsTeArNveCdE AwNitDh OCNUL-IIDNOE LLEARNING

TOPICS TO BE COVERED > Advantages of Ratios > Classification of Ratios > Definitions in Ind AS 7 - “Statement of Cashflow” > Presentation of Cash Flow statement > Steps inpraparing the Cash flow statement www.cuidol.in Unit-8 (MBA 604) All right are reserved with CU-IDOL

Ratio Analysis Meaning of Ratio Analysis: Ratio analysis refers to the analysis and interpretation of the figures appearing in the financial statements (i.e., Profit and Loss Account, Balance Sheet and Fund Flow statement etc.). It is a process of comparison of one figure against another. It enables the users like shareholders, investors, creditors, Government, and analysts etc. to get better understanding of financial statements. Khan and Jain define the term ratio analysis as “the systematic use of ratios to interpret the financial statements so that the strengths and weaknesses of a firm as well as its historical performance and current financial conditions can be determined.” Ratio analysis is a very powerful analytical tool useful for measuring performance of an organisation. Accounting ratios may just be used as symptom like blood pressure, pulse rate, body temperature etc. The physician analyses these information to know the causes of illness. Similarly, the financial analyst should also analyse the accounting ratios to diagnose the financial health of an enterprise. www.cuidol.in Unit-8 (MBA 604) All right are reserved with CU-IDOL

Objectives of Ratio Analysis Interpreting the financial statements and other financial data is essential for all stakeholders of an entity. Ratio Analysis hence becomes a vital tool for financial analysis and financial management. Let us take a look at some objectives that ratio analysis fulfils. 1] Measure of Profitability Profit is the ultimate aim of every organization. So if I say that ABC firm earned a profit of 5 lakhs last year, how will you determine if that is a good or bad figure? Context is required to measure profitability, which is provided by ratio analysis. Gross Profit Ratios, Net Profit Ratio, Expense ratio etc provide a measure of the profitability of a firm. The management can use such ratios to find out problem areas and improve upon them. 2] Evaluation of Operational Efficiency Certain ratios highlight the degree of efficiency of a company in the management of its assets and other resources. It is important that assets and financial resources be allocated and used efficiently to avoid unnecessary expenses. Turnover Ratios and Efficiency Ratios will point out any mismanagement of assets. www.cuidol.in Unit-8 (MBA 604) All right are reserved with CU-IDOL

Objectives of Ratio Analysis 3] Ensure Suitable Liquidity Every firm has to ensure that some of its assets are liquid, in case it requires cash immediately. So the liquidity of a firm is measured by ratios such as Current ratio and Quick Ratio. These help a firm maintain the required level of short-term solvency. 4] Overall Financial Strength There are some ratios that help determine the firm’s long-term solvency. They help determine if there is a strain on the assets of a firm or if the firm is over-leveraged. The management will need to quickly rectify the situation to avoid liquidation in the future. Examples of such ratios are Debt-Equity Ratio, Leverage ratios etc. 5] Comparison The organizations’ ratios must be compared to the industry standards to get a better understanding of its financial health and fiscal position. The management can take corrective action if the standards of the market are not met by the company. The ratios can also be compared to the previous years’ ratio’s to see the progress of the company. This is known as trend analysis. www.cuidol.in Unit-8 (MBA 604) All right are reserved with CU-IDOL

Ratio Analysis - Advantages Ratio analysis involves four steps: (i) Collection of relevant accounting data from financial statements. (ii) Constructing ratios of related accounting figures. (iii) Comparing the ratios thus constructed with the standard ratios which may be the corresponding past ratios of the firm or industry average ratios of the firm or ratios of competitors. (iv) Interpretation of ratios to arrive at valid conclusions. Advantages of Ratio Analysis: Ratio analysis is widely used as a powerful tool of financial statement analysis. It establishes the numerical or quantitative relationship between two figures of a financial statement to ascertain strengths and weaknesses of a firm as well as its current financial position and historical performance. It helps various interested parties to make an evaluation of certain aspect of a firm’s performance. www.cuidol.in Unit-8 (MBA 604) All right are reserved with CU-IDOL

Ratio Analysis The following are the principal advantages of ratio analysis: 1. Forecasting and Planning: The trend in costs, sales, profits and other facts can be known by computing ratios of relevant accounting figures of last few years. This trend analysis with the help of ratios may be useful for forecasting and planning future business activities. 2. Budgeting: Budget is an estimate of future activities on the basis of past experience. Accounting ratios help to estimate budgeted figures. For example, sales budget may be prepared with the help of analysis of past sales. 3. Measurement of Operating Efficiency: Ratio analysis indicates the degree of efficiency in the management and utilisation of its assets. Different activity ratios indicate the operational efficiency. In fact, solvency of a firm depends upon the sales revenues generated by utilizing its assets. www.cuidol.in Unit-8 (MBA 604) All right are reserved with CU-IDOL

Ratio Analysis 4. Communication: 8. Indication of Long-term Ratios are effective means of communication and play a vital role in Solvency Position: informing the position of and progress made by the business concern to Ratio analysis is also used to the owners or other parties. assess the long-term debt-paying capacity of a firm. Long-term 5. Control of Performance and Cost: solvency position of a borrower is a Ratios may also be used for control of performances of the different prime concern to the long-term divisions or departments of an undertaking as well as control of costs. creditors, security analysts and the present and potential owners of a 6. Inter-firm Comparison: business. It is measured by the Comparison of performance of two or more firms reveals efficient and leverage/capital structure and inefficient firms, thereby enabling the inefficient firms to adopt suitable profitability ratios which indicate the measures for improving their efficiency. The best way of inter-firm earning power and operating comparison is to compare the relevant ratios of the organisation with the efficiency. Ratio analysis shows the average ratios of the industry. strength and weakness of a firm in this respect. 7. Indication of Liquidity Position: Ratio analysis helps to assess the liquidity position i.e., short-term debt All right are reserved with CU-IDOL paying ability of a firm. Liquidity ratios indicate the ability of the firm to pay and help in credit analysis by banks, creditors and other suppliers of short-term loans. www.cuidol.in Unit-8 (MBA 604)

Ratio Analysis 9. Indication of Overall Profitability: The management is always concerned with the overall profitability of the firm. They want to know whether the firm has the ability to meet its short-term as well as long-term obligations to its creditors, to ensure a reasonable return to its owners and secure optimum utilisation of the assets of the firm. This is possible if all the ratios are considered together. 10. Signal of Corporate Sickness: A company is sick when it fails to generate profit on a continuous basis and suffers a severe liquidity crisis. Proper ratio analysis can give signal of corporate sickness in advance so that timely measures can be taken to prevent the occurrence of such sickness. 11. Aid to Decision-making: Ratio analysis helps to take decisions like whether to supply goods on credit to a firm, whether bank loans will be made available etc. 12. Simplification of Financial Statements: Ratio analysis makes it easy to grasp the relationship between various items and helps in understanding the financial statements. www.cuidol.in Unit-8 (MBA 604) All right are reserved with CU-IDOL

Limitations of Ratio Analysis Limitations of Ratio Analysis: The technique of ratio analysis is a very useful device for making a study of the financial health of a firm. But it has some limitations which must not be lost sight of before undertaking such analysis. Some of these limitations are: 1. Limitations of Financial Statements: Ratios are calculated from the information recorded in the financial statements. But financial statements suffer from a number of limitations and may, therefore, affect the quality of ratio analysis. 2. Historical Information: Financial statements provide historical information. They do not reflect current conditions. Hence, it is not useful in predicting the future. 3. Different Accounting Policies: Different accounting policies regarding valuation of inventories, charging depreciation etc. make the accounting data and accounting ratios of two firms non-comparable. www.cuidol.in Unit-8 (MBA 604) All right are reserved with CU-IDOL

Limitations of Ratio Analysis 4. Lack of Standard of Comparison: No fixed standards can be laid down for ideal ratios. For example, current ratio is said to be ideal if current assets are twice the current liabilities. But this conclusion may not be justifiable in case of those concerns which have adequate arrangements with their bankers for providing funds when they require, it may be perfectly ideal if current assets are equal to or slightly more than current liabilities. 5. Quantitative Analysis: Ratios are tools of quantitative analysis only and qualitative factors are ignored while computing the ratios. For example, a high current ratio may not necessarily mean sound liquid position when current assets include a large inventory consisting of mostly obsolete items. 6. Window-Dressing: The term ‘window-dressing’ means presenting the financial statements in such a way to show a better position than what it actually is. If, for instance, low rate of depreciation is charged, an item of revenue expense is treated as capital expenditure etc. the position of the concern may be made to appear in the balance sheet much better than what it is. Ratios computed from such balance sheet cannot be used for scanning the financial position of the business. www.cuidol.in Unit-8 (MBA 604) All right are reserved with CU-IDOL

Limitations of Ratio Analysis 7. Changes in Price Level: Fixed assets show the position statement at cost only. Hence, it does not reflect the changes in price level. Thus, it makes comparison difficult. 8. Causal Relationship Must: Proper care should be taken to study only such figures as have a cause-and-effect relationship; otherwise ratios will only be misleading. 9. Ratios Account for one Variable: Since ratios account for only one variable, they cannot always give correct picture since several other variables such Government policy, economic conditions, availability of resources etc. should be kept in mind while interpreting ratios. 10. Seasonal Factors Affect Financial Data: Proper care must be taken when interpreting accounting ratios calculated for seasonal business. For example, an umbrella company maintains high inventory during rainy season and for the rest of year its inventory level becomes 25% of the seasonal inventory level. Hence, liquidity ratios and inventory turnover ratio will give biased picture. www.cuidol.in Unit-8 (MBA 604) All right are reserved with CU-IDOL

Limitations of Ratio Analysis 7. Changes in Price Level: Fixed assets show the position statement at cost only. Hence, it does not reflect the changes in price level. Thus, it makes comparison difficult. 8. Causal Relationship Must: Proper care should be taken to study only such figures as have a cause-and-effect relationship; otherwise ratios will only be misleading. 9. Ratios Account for one Variable: Since ratios account for only one variable, they cannot always give correct picture since several other variables such Government policy, economic conditions, availability of resources etc. should be kept in mind while interpreting ratios. 10. Seasonal Factors Affect Financial Data: Proper care must be taken when interpreting accounting ratios calculated for seasonal business. For example, an umbrella company maintains high inventory during rainy season and for the rest of year its inventory level becomes 25% of the seasonal inventory level. Hence, liquidity ratios and inventory turnover ratio will give biased picture. www.cuidol.in Unit-8 (MBA 604) All right are reserved with CU-IDOL

Cash Flow Statement Features of Cash Flow Statement: (i) Cash Flow Statement is very dynamic in character since it records the investment of cash from the beginning of the period to the end of the period. (ii) It is a periodical statement as it covers a particular period. (iii) This statement does not recognize matching principles. (iv) This statement helps to calculate Cash from Operations/Cash Flows from Operating Activities. (v) It exhibits the changes of financial positions relating to operational activities, investing activities and financial activities, respectively, by which an analyst can draw his conclusion. www.cuidol.in Unit-8 (MBA 604) All right are reserved with CU-IDOL

Utility of Cash Flow Statement  Cash Flow Statement is particularly useful in short-term planning.  In order to meet the various obligations, a firm needs sufficient amount of cash (e.g. payment for expenses, purchase of fixed assets, payments for dividend and taxes, etc.).  It helps the financial manager to make a cash flow projection for immediate future taking the data relating to cash from the past records.  As such, it becomes easy for him to know the cash position which may either result in a surplus or a deficit one.  However, Cash Flow Statement is an important financial tool for the management to make an estimate relating to cash for the near future. www.cuidol.in Unit-8 (MBA 604) All right are reserved with CU-IDOL

The importance of Cash Flow Statement (a) Helps to make Cash Forecast: Cash Flow Statement, helps the management to make a cash forecast for the near future. A projected Cash Flow Statement helps the management about the cash position which is the basis for all operations. (b) Helps the Internal Management: It helps the internal management to determine the financial policy to be adopted in future since it supplies information relating to funds, e.g. taking decision about the replacement of fixed assets or repayment of long-term liabilities, etc. (c) Reveals the Cash Position: It is a significant pointer about the movement of cash, i.e. whether there is any increase in cash or decrease in cash and the reasons thereof which helps the management. Besides, the management can compare the original forecast with the actual one in order to understand the trend of movement of cash and the variation therefore. (d) Reveals the result of Cash Planning: How far and to what extent the cash planning becomes successful is revealed by the analysis of Cash Flow Statement. The same is possible by making a comparison between the projected Cash Flow Statement/Cash Budget and the actual one—and the measures to be taken accordingly. www.cuidol.in Unit-8 (MBA 604) All right are reserved with CU-IDOL

The Advantages of Cash Flow Statement (a) Ascertaining Liquidity and Profitability Positions: Cash Flow Statement helps the management to ascertain the liquidity and profitability position of a firm. Liquidity means one’s ability to pay the obligation as soon as it becomes due. Since Cash Flow Statement presents the cash position of a firm at the time of making payment it directly helps to ascertain the liquidity position, the same is also applicable in case of profitability. One can understand from Cash Flow Statement how efficiently the firm is paying its obligation in various forms of expense and liability. At the same time, as the cash earning capacity of a firm can be ascertained from this statement, profitability position depends also on cash earning capacity. (b) Ascertaining Optimum Cash Balance: Cash Flow Statement also helps to ascertain the optimum cash balance of a firm. If optimum cash balance can be determined, it is possible for a firm to ascertain the idle and/or excess and/or shortage of cash position. After ascertaining the cash position, the management can invest the surplus cash, if any, or borrow funds from outside sources accordingly to meet the cash deficit. www.cuidol.in Unit-8 (MBA 604) All right are reserved with CU-IDOL

The Advantages of Cash Flow Statement (c) Cash Management: Proper management of cash is possible if Cash Flow Statement is properly prepared. The management can prepare an estimate about the various inflows of cash and outflows of cash so that it becomes very helpful for them to make plans for the future. (d) Capital Budgeting Decisions: Since capital budgeting relates to the decision of capital expenditure in various forms on a long-term basis, cash flow timing is very important for this purpose. (e) Superiority over Accrual Basis of Accounting: No doubt Cash Flow Statement or cash basis of accounting is more reliable or dependable than accrual basis of accounting—as a number of technical adjustments are made in the latter case. Cash flow accounting is free from such snags. www.cuidol.in Unit-8 (MBA 604) All right are reserved with CU-IDOL

The Advantages of Cash Flow Statement (f) Planning and Coordination: Cash Flow Statement is prepared on an estimated basis meant for the successive/next year which helps the management to know how much funds are required for what purposes, how much cash is generated from internal sources, how much cash can be procured from outside the business. It also helps to prepare cash budgets. Thus, the management can prepare plans, coordinate various activities with the help of this statement. (g) Movement of Cash: A Cash Flow Statement presents the management the flows in and flows out of cash for various purposes on the basis of which future estimates can be prepared. (h) Performance Appraisal: By comparing the actual Cash Flow Statement with the projected Cash Flow Statements, the management can evaluate or appraise the performances regarding cash. If any unfavourable variance is found, the reason for such variation is located and rectified accordingly. www.cuidol.in Unit-8 (MBA 604) All right are reserved with CU-IDOL

The Classification of Ratios  Ratios are not meant for a particular person or firm. It is very significant to various users of accounting information. One ratio is used for one particular purpose and helps the analyst to take decisions in future. For example, an auditor or a banker or an investor will be interested in the liquidity and solvency position of the firm. For this purpose he will be interested to ascertain the Current Ratio, Liquid Ratio, or Absolute, Liquid Ratio.  Similarly, the shareholders will be interested in rate of earning capacity, profitability of the firm and, at the same time, they will be interested to ascertain the Rate of Return on Capital Employed, etc. At the same time, management will be interested in almost all the financial information about the firm in order to protect the interests of the different parties. Naturally, they will be interested in various turnover ratios, etc. www.cuidol.in Unit-8 (MBA 604) All right are reserved with CU-IDOL

The Classification of Ratios 1. Liquidity Ratio: a) Current Ratio b) Acid Test Ratio c) Cash Ratio 2. Activity Ratio: a) Capital turnover Ratio b) Asset Turnover Ratio c) Net Working Capital Turnover Ratio d) Inventory Turnover Ratio e)Debtors Turnover Ratio 3. Profitability Ratios: i) Related to investments - a) Earnings Margin b) Return on Capital Employed c) Return on Equity shareholders Fund d) Return onTotal Assets ii) Related to Sales - a) Gross Profit Ratio b) Net Profit Ratio c) Operating Ratio d) Operating Profit Ratio 4. Capital Structure / Gearing Analysis / Solvency Ratios: a) Debt Equity Ration b) Interest Coverage Ratio c) Proprietary Ratio 5. Market Strength Analysis: a) Earnings per share b) Dividend per share c) Gross Dividend Yield d) Dividend Cover e) Payout Ratio f) Dividends to Cash Flow g) Price Earnings Ratio h) Net Asset Value per Share i) Cash Flow per Share www.cuidol.in Unit-8 (MBA 604) All right are reserved with CU-IDOL

Ratios may be classified as: www.cuidol.in Unit-8 (MBA 604) All right are reserved with CU-IDOL

Classification of financial ratios on the basis of function Liquidity Ratios: Liquidity ratios measure the adequacy of current and liquid assets and help evaluate the ability of the business to pay its short-term debts. Generally a business with sufficient current and liquid assets to pay its current liabilities as and when they become due is considered to have a strong liquidity position and a businesses with insufficient current and liquid assets is considered to have weak liquidity position. Short-term creditors like suppliers of goods and commercial banks use liquidity ratios to know whether the business has adequate current and liquid assets to meet its current obligations. Financial institutions hesitate to offer short-term loans to businesses with weak short-term solvency position our commonly used liquidity ratios are given below: 1. Current ratio or working capital ratio 2. Quick ratio or acid test ratio 3. Absolute liquid ratio 4. Current cash debt coverage ratio Unfortunately, liquidity ratios are not true measure of liquidity because they tell about the quantity but nothing about the quality of the current assets and, therefore, should be used carefully. For a useful analysis of liquidity, these ratios are used in conjunction with activity ratios (also known as current assets movement ratios). www.cuidol.in Unit-8 (MBA 604) All right are reserved with CU-IDOL

Classification of financial ratios on the basis of function  Profitability ratios:  Profit is the primary objective of all businesses. A business that continually suffers losses cannot survive for a long period.  Profitability ratios measure the efficiency of management in the employment of business resources to earn profits. These ratios indicate the success or failure of a business enterprise for a particular period of time.  A strong profitability position ensures common stockholders a higher dividend income and appreciation in the value of the common stock in future.  Creditors, financial institutions and preferred stockholders expect a prompt payment of interest and fixed dividend income if the business has good profitability position.  Management needs higher profits to pay dividends and reinvest a portion in the business to increase the production capacity and strengthen the overall financial position of the company. www.cuidol.in Unit-8 (MBA 604) All right are reserved with CU-IDOL

Profitability Ratios  Some important profitability ratios are given below: 1. Net profit (NP) ratio 2. Gross profit (GP) ratio 3. Price earnings ratio (P/E ratio) 4. Operating ratio 5. Expense ratio 6.Dividend yield ratio 7. Dividend payout ratio 8. Return on capital employed ratio 9. Earnings per share (EPS) ratio 10.Return on shareholder’s investment/Return on equity 11.Return on common stockholders’ equity ratio www.cuidol.in Unit-8 (MBA 604) All right are reserved with CU-IDOL

Activity Ratios  Activity ratios (also known as turnover ratios) measure the efficiency of a firm or company in generating revenues by converting its production into cash or sales. Generally a fast conversion increases revenues and profits.  Activity ratios show how frequently the assets are converted into cash or sales and, therefore, are frequently used in conjunction with liquidity ratios for a deep analysis of liquidity.  Some important activity ratios are: 1. Inventory turnover ratio Unit-8 (MBA 604) All right are reserved with CU-IDOL 2. Receivables turnover ratio 3. Average collection period 4. Accounts payable turnover ratio 5. Average payment period 6. Asset turnover ratio 7. Working capital turnover ratio 8. Fixed assets turnover ratio www.cuidol.in

Solvency Ratios Solvency ratios (also known as long-term solvency ratios) measure the ability of a business to survive for a long period of time. These ratios are very important for stockholders and creditors. Solvency ratios are normally used to: 1. Analyze the capital structure of the company 2. Evaluate the ability of the company to pay interest on long term borrowings 3. Evaluate the ability of the the company to repay principal amount of the long term loans (debentures, bonds, medium and long term loans etc.). 4. Evaluate whether the internal equities (stockholders’ funds) and external equities (creditors’ funds) are in right proportion. Some frequently used long-term solvency ratios are given below: 1. Debt to equity ratio 2. Times interest earned (TIE) ratio 3. Proprietary ratio 4. Fixed assets to equity ratio 5. Current assets to equity ratio 6. Capital gearing ratio www.cuidol.in Unit-8 (MBA 604) All right are reserved with CU-IDOL

Classification on the basis of financial statements Income statement/profit and loss ratios: Income statement/profit and loss account ratios are those ratios that are calculated by using the items of income statement/profit and loss account of a particular period only. Examples of income statement/profit and loss account ratios are net profit ratio, gross profit ratio, operating ratio, and times interest earned ratio etc. Balance sheet ratios: Balance sheet ratios are those ratios that are calculated by using figures from the balance sheet only. The figures must be used from the balance sheet of the same period. Examples of balance sheet ratios are current ratio, liquid ratio, and debt to equity ratio etc. Composite ratios: These ratios are calculated by using the items of both income statement and balance sheet for the same period. Composite ratios are, therefore, also known as mixed ratios and inter-statement ratios. Numerous composite ratios are computed depending on the need of analyst. Some examples are inventory turnover ratio, receivables turnover ratio, accounts payable turnover ratio, and working capital turnover ratio etc. www.cuidol.in Unit-8 (MBA 604) All right are reserved with CU-IDOL

Classification on the basis of importance  On the basis of importance or significance, the ratios are classified as primary ratios and secondary ratios. The most important ratios are called primary ratios and less important ratios are called secondary ratios. Secondary ratios are usually used to explain the primary ratios.  Examples of primary ratios for a commercial undertaking are return on capital employed ratio and net profit ratio because the basic purpose of these undertakings is to earn profit.  Importance of ratios significantly varies among industries therefore each industry has its own primary and secondary ratios. A ratio that is of primary importance in one industry may be of secondary importance in another industry.  Classification of ratios on the basis of importance or significance is very useful for inter-firm comparisons. www.cuidol.in Unit-8 (MBA 604) All right are reserved with CU-IDOL

SUMMARY  Meaning of Ratio Analysis  Objectives of Ratio Analysis  Advantages od Ration Analysis  Limitations of Ratio Analysis  Cash Flow Statement  Features and Utility of Cash Flow statement  Importance of Cash Flow Statement www.cuidol.in Unit-8 (MBA 604) All right are reserved with CU-IDOL

MULTIPLE CHOICE QUESTIONS Q1. Net working capital is defined as: a) Total assets minus b) The excess of current assets current assets over current liabilities c) Current liabilities less d) Marketable securities and cash Current assets Q2. Which among the following is useful in evaluating credit and collection policies a) Averge payment period b) Average Collection period c) Current ratio d) Inventory Turnover Ratio Q3. Return on proprietor's fund indicates.................... a) Utilisation of capital b) Utilisation of assets employed c) Utilisation of proprietors d) Utilisation of total resources fund Q4. Time series analysis is often used to ........................ a) Assess developing trends b) Standardize result c) Correct errors of judgement d) None of the above Ans: 1 (b) 2 (b) 3 (c) 4 (a) www.cuidol.in Unit-8 (MBA 604) All right are reserved with CU-IDOL

FREQUENTLY ASKED QUESTIONS Q1. What are the various types of Liquidity Ratio? Ans. a) Current Ratio b) Acid Test Ratio c) Cash Ratio Q2. What are the various types of Activity Ratio? a) Capital turnover Ratio b) Asset Turnover Ratio c) Net Working Capital Turnover Ratio d) Inventory Turnover Ratio e)Debtors Turnover Ratio Q3. What are the various types of Profitability Ratios? i) Related to investments - a) Earnings Margin b) Return on Capital Employed c) Return on Equity shareholders Fund d) Return onTotal Assets ii) Related to Sales - a) Gross Profit Ratio b) Net Profit Ratio c) Operating Ratio d) Operating Profit Ratio Q4. What are the various types of Capital Structure / Gearing Analysis / Solvency Ratios? a) Debt Equity Ration b) Interest Coverage Ratio c) Proprietary Ratio www.cuidol.in Unit-8 (MBA 604) All right are reserved with CU-IDOL

REFERENCES  Thomas P Edmonds, et al., Fundamenta Financial Accounting Concepts, 2011  Baruch Lev, financial Statement Analysis, New Approach, Prentice Hall, 1975, p.5.  Accounting Principles Board, Statement No 4, Basic Concepts and Accounting Principles Underlying Financial Statements of Business Enterprises, NewYork: AICPA, 1970, p.50  Financial Accounting Standards Board, Concept No 6, Elements of Financial Statements, Stamford: FASB, December 1985, p 35  The Institute of Chartered Accountants of India, Guidance note on Terms Used in Financial Statements, New Delhi, ICAI September 1983, p. 19  Ahmed Belkaoi, Accounting Theory, Thomson Learning, 2000, p. 168  Eldon S Hendriksen, Accounting Theory, Irwin, 1984, p. 459  American Institute of Certified Public Accountants, Accounting Research Bulletin, No 43, AICPA, 1968. www.cuidol.in Unit-8 (MBA 604) All right are reserved with CU-IDOL

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