Ratio Analysis

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Balance Sheet ( Format only For Understanding Of Ratio Analysis)
Shareholders Fund		Non Current Assets
Sahre Capital	2800000	Tangible Fixed Assets	2000000
Reservse & Surplus	600000	Intangible Fixed Assets	500000
Money Received Agst	200000	Non Current Investment
Share Worked		Trade Investment	200000
Non Current Liablilities		Nontrade investment	100000
Long Terms Borrowings	800000	Long Term Loans & Advance	800000
Other Long Term Liabilities		Other Non Current Assets	50000
Long Terms Provisions		(discount on issue of Shares
(PF,Gratuty,Provision For		& Debenture)
Long Term Warranty)		Current Assets
Current Liabilities		Inventories (RM,WIP,FG,Loose	250000
Short Term Borrowings	200000	Tools,Spare Parts)
Trade Payable (Bills Payable,	150000	Trade Receivable	150000
Creditors)		(Debtors-Prov.For Doubtfull
Other Current Liabilties	150000	Debts, BR)
(Outstanding Exp,Advance Income,		Cash & Cash Equivalent	400000
Calls In Advance,Unclaimed		(Cash,Bank,Draft,FD,)
Dividend etc)		Short Terms Loans & Advances	250000
Short Term Provisions	150000	Current Investment
(Provision For Tax,Proposed Dividend,		Trade Investment
Provision For Short Term Warranty)		Nontrade investment
		Other Current Assets
		Prepaid Expenses	350000
		Advance Tax
		Accrued Income
		Discount on Issue Of Debentures	0
		/Shares
	5050000		5050000
Important Terms
If information About Non Trade Investment & Expenses/Losses Appearing In B/S Are Not Given In Ques.
Then We Assumed They Are Nill
Unless Otherwise Specifically Mention , Investment Will Be Assumed To be Trade Investment
Ratio
Non Current Assets:- All Items Of Non Current Assets Execpt Expenses/Losses Appering Uner The Head
Other Sub Head "Other Non Current Assets"
Current Assets:- All Items Of Current Assets Except Expenses/Losses Appearing Under The Sub Head Other
Current Assets.
Shareholders Fund:-Equity Share Capital,Prefrenatial Share Capital,Reserves.Money Received Agst. Share
Warrant.
Minus Discount/Loss On Shares/Debentures Appearing In Balance Sheet
Sahre Capital	2800000
Reservse & Surplus	600000
Money Received Agst	200000
	3600000
Less
Discount/Loss On Shares	50000
	3550000
Equity Shareholders Fund:-Shareholders Fund-Prefrence Share Capital
Non Current Liablilities:- Also Called Long Term Debts It Includes All Items Of Non Current Liabilities
Current Liablilities :-It Includes All Items Of Current Liablilities
Woking Capital :- Cuurrent Assets-Current Liabilities (Net Current Assets)
Current Assets	1400000
Current Liabilities	650000
WC	750000
Quick Assets :- Also Called Liquid Assets  ( Current Assets-Inventories-Prepaid Advance Exp.)
Capital Emloyed :- It Means Total Amount Employed/Uses In Business From Long Term Sources
(i)    Share Capital	2800000	Source Side
(ii)   Resurves & Surplus	600000
(iii)  Money Received Agst. Share Warrant	200000
(iv)  Non Current Liablilities	800000
	4400000
Minus :-
(i)  Discount/Loss On Issue Shares/Debenture	50000
(ii) Non Trade Investment	100000
	150000
CE	4250000
Methos II :-
All Non Current Assets (Except Non Trade Investment/Losses)
Plus Net Current Assets (WC)
Example 1 :-
Share Capital	2000000
Reserves & Surplus	700000
Long Term Liability	800000
Current Liablilities	400000
Calculate Capital Employed
Capital Employed :-	3500000
Example 2 :-
Equity Share Capital	2500000
Prefrence Share Cpaital	1800000
Reserve & Surplus	300000
Non Current Liablilties	500000
Investment	200000
Calculate Capital Employed
Capital Employed :-	5100000
Liquidity Ratios:-
Liquidity ratios asses a business’s liquidity, i.e. its ability to convert its assets to cash and pay off its obligations without any significant difficulty (i.e. delay or loss of value). Liquidity ratios are particularly useful for suppliers, employees, banks, etc. Important liquidity ratios are:
1. Current Ratio:-	Current Assets/Current Liabilities
A current ratio of 1 or more means that current assets are more than current liabilities and the company  should not face any liquidity problem. A current ratio below 1 means that current liabilities are more than  current assets, which may indicate liquidity problems. In general, higher current ratio is better.
2. Quick Ratio:-	Cash+Marketable Securities+Receivables
	Current Liabilities
Prepayments are subtracted from current assets in calculating quick ratio because such payments can’t be easily reversed. Inventories are also excluded because they are not directly convertible to cash, i.e. they result in accounts receivable which in turn results in cash flows and because their net realizable value drops when they are sold in panic situation.
3. Cash Ratio:-	Cash + Cash Equivalents
	Current Liabilities
It measures the ability of a business to repay its current liabilities by only using its cash and cash equivalents and nothing else.A cash ratio of 1.00 and above means that the business will be able to pay all its current liabilities in immediate short term. Therefore, creditors usually prefer high cash ratio. But businesses usually do not plan to keep their cash and cash equivalent at level with their current liabilities because they can use a portion of idle cash to generate profits. This means that a normal value of cash ratio is somewhere below 1.00.
4.Cash Conversion Cycle :-	Cash Conversion Cycle = DSO + DIO – DPO.
Generally, short cash conversion cycle is better because it tells that the company’s management is selling inventories and recovering cash from those sales as quickly as possible while at the same time paying the suppliers as late as possible.
DSO is days sales outstanding = Average Accounts Receivable × 365 ÷ Credit Sales DIO is days inventory outstanding = Average Inventories × 365 ÷ Cost of Goods Sold DPO is days payables outstanding = Average Accounts Payable × 365 ÷ Cost of Goods Sold
Solvency Ratios:-
Solvency ratios assess the long-term financial viability of a business i.e. its ability to pay off its long-term obligations such as bank loans, bonds payable, etc. Information about solvency is critical for banks, employees, owners, bond holders, institutional investors, government, etc. Key solvency ratios are: