Financial Ratio Analysis Course – Beginners to Advanced Level

Lecture No.1: MEANING OF RATIOS

Comparison of Two Figures is called Ratio. In this lecture you will be know about Meaning of Ratio and Types of Financial Ratios. So lets start to know about Financial Ratios
This video is about the Financial Ratio Analysis. Financial Statement Analysis is a special tool to judge the business organization’s Strength and weaknesses and help in making business decisions. This Lecture will help to understand about importance of Financial Ratios. Specially designed for B.COM, M.COM and MBA students. ACCA,, CMA and CA students can also get benefit.

We discussed here two things in Financial Ratio Analysis lecture 1:
1- Importance of Financial Ratio Analysis
2- Uses of Financial Ratios

Classifications of Ratios will discuss in the next video.
& also you will find solutions of Financial Ratio problems in the next coming videos. Hope you like this video 🙂
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Lecture No.2: Classification of Ratios
In this lecture you will know about the classification of Ratios. You will know about the Short-Term-Financial or Solvency Position 




 You will understand that Liquidity refers to the Ability of a firm to Pay off its Current obligations as and when they become due.
 1:Liquidity Ratios are used to determine how quickly and easily a company can convert into cash. 
The Company will be in Financial Troubles, if it fails to convert its assets into cash, when necessary.
 The Liquidity Ratio uses information from a firm’s financial statement to measures its liquid assets against its liabilities
Examples of Liquidity Ratios are:
  1. Current Ratio / Working Capital Ratio
  2. Quick Ratio / Liquid Ratio / Acid Test Ratio
  3. Absolute Liquidity Ratio
  4. Defence Interval Ratio

2 : SOLVENCY / LEVERAGE RATIOS:
It Shows the Long-Term-Financial or Solvency Position of the business. Solvency Ratios refers to the ability of company to meet its long-term obligations. Solvency Ratios are used to analyse the Capital Structure of the company. Solvency Ratios are also called “LEVERAGE RATIOS”.
Solvency Ratios shows a clear view that, “How much company’s sustainability is based on actual resources and how much is based on debts”. 

Example of Solvency Ratios are:
    1. Debt to Equity Ratio
    2. Total Debt Ratio
    3. Proprietory / Equity Ratio
    4. Fixed Assets Ratio
    5. Interest Coverage Ratio
    6. Fixed Assets to Net Worth




    Liquidity Ratios will discuss in the next video.
    & also you will find solutions of Financial Ratio problems in the next coming videos. Hope you like this video 🙂
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    3 : ACTIVITY / EFFICIENCY RATIOS:
     Activity Ratios also called Efficiency , Turnover  and Performance Ratios.  Activity Ratios are used to calculate how efficiently a business is using its assets and debts to produce income. A relationship between Sales and Assets OR sometime Cost of Goods Sold and Assets is developed to evaluate the activities of the company.
    For Example: 
    •  Company’s ability to Collect payment from its customers
    • Company’s ability to Repay its loans
    • Company’s ability to manage its Shareholders’ equity
    Activity / Efficiency Ratios can be use to measure:
    • Company’s Assets against its earnings
    • The amount it owes to suppliers against its inventory purchases
    Examples of Activity Ratios: 
    1.  Inventory Turnover Ratio
    2. Debtors Turnover Ratio / Velocity
    3. Creditors Turnover Ratio / Velocity
    4. Average Collection Period
    5. Average Payment Period
    6. Working Capital Ratio
    7. Fixed Assets Turnover Ratio
    4 : PROFITABILITY RATIOS
     Profitability Ratios establishing a relationship of Profit with something else. Profitability Ratio are used to measure Company’s ability to generate profit form its regular business operations. They are designed to compare a company’s income against factors like:
    • Level of Sales
    • Its Investment in inventory and other assets
    • Its share holders’ investment
    Example of Profitability Ratios:
    1. Gross Profit Ratio
    2. Operating Ratio
    3. Net Profit Ratio
    4. Return on shareholders investment
    5. Earning per share
    6. Dividend Pay-out Ratio




    Lecture No.3: LIQUIDITY RATIOS
    In Lecture no. 3, you will understand about Liquidity Ratios and classification of liquidity Ratios.
    CURRENT RATIO: 
    Current Ratio also known as Working Capital Ratio. It is Liquidity Ratio that checks that either the company has enough resources to meet its Short-Term-Liabilities. Shows relationship between Current Assets and Current Liabilities. IF Current Liabilities Increases and Current Assets are decreases then Ratio will be Less than 1. Ratio Less than 1 shows that company will face problems to paying its short-term-liabilities.
    Formula of Current Ratio :
                             Current Assets
                                                               Current Liabilities
    Current Assets include cash and all those assets which can be easily converted into cash within a short period of time, generally, one year. For example: Cash , Bank Deposits, Marketable Securities, Bills Receivable, Sundry Debtors (excluding bad debts and provision) , Inventories, Work-in-Progress, Prepaid Expenses, etc.
    Current Liabilities are those obligations which are payable within a short period of time, generally, one year. Current Liabilities are = Sundry Creditors, Bills payable, Bank Overdraft, Outstanding expenses, short-term advances, income tax payable, dividend payable, etc.
     A Satisfactory or Normal Current Ratio = 2 : 1 
    QUICK RATIO/ LIQUID RATIO

    Quick Ratio also known as Liquid Ratio and  Acid Test Ratio. Shows relationship between Quick Assets and Current Liabilities. This ratio is a best tool for determination of Liquidity position of a company.
    Formula of Current Ratio :
                                                          Quick Assets
                                       Current Liabilities
    Quick Assets = Current Assets – Inventories
     A Satisfactory or Normal Quick Ratio = 1 : 1 

    Solvency or Leverage Ratios will discuss in the next video.
    & also you will find solutions of Financial Ratio problems in the next coming videos. Hope you like this video 🙂
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    Playlist_Ratio_Analysis
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    Lecture No.4:


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