Sunday, April 22, 2012

Analysis of Financial Ratios

 Index of concepts
  1. Aa to Az
  2. Ba to Bz
  3. Ca to Cz
  4. Da to Dz  
  5. Ea to Ez
  6. Fa to Fz
  7. Ga to Gz
  8. Ha to Hz
  9. Ia to Iz
11. Ka to Kz
24. Xa to Xz

Subject: Investment Analysis

Chapter/Topic: Financial statement analysis
_______________________________________________________________

 

Concept Definition and Explanation

 
The line items in financial statements in isolation convey little meaning. hence analysts calculate ratios from line items of financial statements and compare ratios over time, across companies and with some standard ratios considered as ideal.
 
Reilly and Brown divided financial rations into five major categories. These categories capture the important economic characteristics of a firm.
 
1. Common size statements.
2. Internal liquidity
3. Operating performance
4. Risk analysis
5. Growth analysis 
 
1. Common Size Statements.
 
In common size balance sheet all accounts/line items are expressed as a percentage of total assets. Hence one can compare statements of different sized firms for their composition of assets and liabilities.
 
In common size income statements all line items are expressed as percentage of sales.
 
2. Internal Liquidity
 
This category of ratios compare near-term financial obligations such as accunts payable and notes payable to current assets or cash flows that will be available to meet these obligations.
 
 
3. Operating Performance
 
Two subcategories are used in this category. Efficiency ratios calculate the ratio of dollars of sales generated to various asset or capital categories. Profitability ratios analyze the profits as a percentage of sales and as a percentage of assets and capital employed.
 
 
4. Risk Analysis
 
This set of ratios examine the factors that cause a firm's net income to vary.
 
 
5. Growth Analysis 
 
The important measure in this category is sustainable growth rate
 
g = Percentage of Ernings Retained * Return on Equity
 
g = RR * ROE 
References:
Reilly, Frank and Keith Brown, Investment Analysis and Portfolio Management, 7th Edition, Thomson-South Western, 2003
_____________________________________________________________________________

Knols

XYZ
 
 

Related Knols

 
 
______________________________________________________________________________

Books

 
 
 
______________________________________________________________________________

Research Papers

 
 
_______________________________________________________________________________

Concept Articles

 
 
_________________________________________________________________________________________________________
 
 

 
 

Related Article Directories

 

 
 




Original knol - http://knol.google.com/k/narayana-rao/analysis-of-financial-ratios/2utb2lsm2k7a/ 862

No comments:

Post a Comment