RATIO ANALYSIS of masood textile mills
RATIO ANALYSIS
Financial ratios are useful indicators of a firm's performance and financial situation. Most ratios can be calculated from information provided by the financial statements. Financial ratios can be used to analyze trends and to compare the firm's financials to those of other firms. In some cases, ratio analysis can predict future bankruptcy.
Financial ratios can be classified according to the information they provide. The following types of ratios frequently are used:
1. Liquidity ratios
2. Capital Structure and Solvency
3. Return On Investment
4. Operating Performance
5. Asset Utilization
6. Market Measures
The ratios measure the short term ability of the company to pay its current short-term liabilities.
1. Liquidity Ratio
Liquidity ratios provide information about a firm's ability to meet its short-term financial obligations. They are of particular interest to those extending short-term credit to the firm. Two frequently-used liquidity ratios are the current ratio (or working capital ratio) and the quick ratio.
i. Current ratio:
The current ratio is the ratio of current assets to current liabilities
The company have decreasing trend in current ratio in 2013 as compared to 2012 due to increase in short term liabilities. ii. Quick ratio or Acid-test ratio:
The current assets used in the quick ratio are cash, accounts receivable, and notes receivable. These assets essentially are current assets less inventory. The quick ratio often is referred to as the acid test. Finally, the cash ratio is the most conservative liquidity ratio. It excludes all current assets except the most liquid: cash and cash equivalents.
The quick ratios of the company decreased in 2013 as compared to 2012 due to increase in stock trade with an unfavorable trend. iii. Collection period:
The average collection period is the number of days, on average, that it takes a company to collect its credit accounts or its accounts receivables. In other words, this
Financial ratios are useful indicators of a firm's performance and financial situation. Most ratios can be calculated from information provided by the financial statements. Financial ratios can be used to analyze trends and to compare the firm's financials to those of other firms. In some cases, ratio analysis can predict future bankruptcy.
Financial ratios can be classified according to the information they provide. The following types of ratios frequently are used:
1. Liquidity ratios
2. Capital Structure and Solvency
3. Return On Investment
4. Operating Performance
5. Asset Utilization
6. Market Measures
The ratios measure the short term ability of the company to pay its current short-term liabilities.
1. Liquidity Ratio
Liquidity ratios provide information about a firm's ability to meet its short-term financial obligations. They are of particular interest to those extending short-term credit to the firm. Two frequently-used liquidity ratios are the current ratio (or working capital ratio) and the quick ratio.
i. Current ratio:
The current ratio is the ratio of current assets to current liabilities
The company have decreasing trend in current ratio in 2013 as compared to 2012 due to increase in short term liabilities. ii. Quick ratio or Acid-test ratio:
The current assets used in the quick ratio are cash, accounts receivable, and notes receivable. These assets essentially are current assets less inventory. The quick ratio often is referred to as the acid test. Finally, the cash ratio is the most conservative liquidity ratio. It excludes all current assets except the most liquid: cash and cash equivalents.
The quick ratios of the company decreased in 2013 as compared to 2012 due to increase in stock trade with an unfavorable trend. iii. Collection period:
The average collection period is the number of days, on average, that it takes a company to collect its credit accounts or its accounts receivables. In other words, this