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Financial Ratios | Top 28 Financial Ratios (Formula, Types) - YouTube
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financial ratios watch the video till
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below welcome everyone and welcome to
the topic of financial ratios well on a
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quick the note let me just give you what
exactly we are going to learn as you can
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see we here we have a complete chart of
so you can see there's liquidity ratio
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turnover ratio operating profit a
profitability ratio business risk ratio
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financial ratios stability coverage for
the interest purpose so this will be a
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short summary or a snapshot of what we
are going to do today all this are the
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head points or the head ratios and below
that are all the type of ratios under
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that particular header like you know for
example liquidity has current quick
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absolute in cash ratio and so on and so
forth we are going to study for the rest
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so let's begin but remember one thing
that you know financial ratios are the
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key indicators of the financial
performance of the company and I usually
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derived from the three statements that
includes your balance sheet P&L and cash
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flow statement so these financial ratios
will help in analyzing the company's
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profitability liquidity assume the risk
as well as the financial stability now
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we are going to study the list of the
top 28 of financial ratios which formula
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and dikes okay let's begin there are few
types of the list of the financial
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ratios we will start with how about the
first one is we will try a new look at
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the liquidity ratios okay in that in the
liquidity ratio this is the first type
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it was below thin in that you know the
first type of the financial ratios is a
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liquidity ratio and this basically aims
to a determine you know the ability of
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the business to meet its financial
it can be short term or probably to
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maintain its short term date paying
ability so liquidity ratios can be
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calculated by multiple ways let's begin
with the first one within the same
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first the current ratio okay
now current ratio is basically is a
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working capital ratio or its so
basically a banker's ratio and the
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current ratio expresses the relationship
between the relationship of for current
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assets to current liabilities now the
current ratio formula is current assets
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CA divided by current liabilities okay
and a company's current ratio can be
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compared with the past current ratios so
this will help you determine if the
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current ratio is high or low at this
period of time the ratio will be one is
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considered to be idle that is conditions
are twice of the current liability then
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no issued it will be good in repaying the
liability of the ratio is less than two
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repayment of the liability will be
difficult and works effects most effects
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can be seen the second is you know the
asset test ratio of the quick ratio now
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the current ratio is generally used to
evaluate an enterprise overalls of short
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term solvency or liquidity position but
what happens many times it is desirable
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no the more immediate position or
probably the instant debt paying ability
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of a firm then that indicated by the
current ratio over the asset ratio of
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the financial ratio is used so it is
related to the most liquid assets or to
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the current liabilities the formula is
basically what we call as the the quick
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assets okay
divided by the the current liabilities
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well that's the formula of quick ratio
the third one is the absolute liquidity
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the ratio now what is the absolute
liquidity ratio so when we talk about
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the absolute liquidity ratio it helps to
calculate the actual liquidity and that
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the inventory and the receivables are
excluded from the current assets so for
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a better view of liquidity some assets
are excluded it may not represent the
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current cash flow ideally ratio
calculated 1:2 so the absolute
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liquidity is equal to your cash plus
marketable securities plus the net
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receivables and debtors then comes the
fourth one as the cash ratios
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well the cash ratio is useful for the
company who is undergoing differential
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trouble the formula goes as cash plus
marketable securities divided by your
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current liabilities now if this ratio is
high then it reflects the under
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utilization of the resources and if the
ratio is low then it can lead to problem
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in the repayment of the well this
was the type of the liquidity ratio the
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second type is the what we call as the
turnover ratios or the turnover
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financial ratios when we talk about it
on our financial ratios the second this
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second type of the financial ratio
analysis is the turnover ratio and the
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turnover ratio is also known as the
activity ratio
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this type of ratio indicates the
efficiency with which enterprise
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resources are utilized like for each
asset type financial research can be
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calculated separately okay we will start
with in the activity ratio that is your
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turnover financial ratio we will start
with the inventory turnover ratios now
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these financial measures this financial
ratio measures a relative size of the
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inventory and the influences of the
amount of the cash available to pay the
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liabilities so the inventory turnover
ratio formula is equal to the cost of
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goods sold COGS divided by the average
inventory okay well the next one in the
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in the same turnover financial ratio
is the debtors turnover ratio so this is
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basically the receivable turnover we
show you it shows how many times a
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receivable was turned into cash during
the period the next is the capital turnover
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ratios
well the capital turnover ratio measures
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the effectiveness with which the form
uses the financial ratio so the capital
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turnover ratio is is basically the net
sales that is the cost of goods sold Co
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GS divided by the capital employed
the fourth is the asset non over ratio
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well the financial ratio reveals the
number of the times and net tangible
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assets are turned over during the year
higher the ratio is better so the asset
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turnover ratio formula is basically your
turnover divided by the what we call as
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the net tangible asset then comes you
know the net working capital ratio in
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the same net working capital raised turnover
ratio so this financial ratio indicates
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whether or not the working capital has
been effectively utilized in making the
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sales so the net working capital
signifies the excess of the current
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assets or current liabilities the net
working capital is equal to the net
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sales divided by the net working capital
well the next one goes as 6/1 the cash
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conversion cycle now what is this so the
cash conversion cycle is the total limit
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or the time taken by the form to
convergence cash outflow into cash
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inflows so the cash conversion cycle
formula is equal to the receivable days
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- plus the inventory days less the
payable days so this were the types of
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all the turnover or the activity ratios
third is the operating profitability
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ratios
well this the third type of the
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financial ratio analysis is the
operating profitability ratio and the
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profitability ratio basically helps to
measure the profitability of the company
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through the efficiency of the business
activity it goes something like this
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the first one is the earning margin now
earning margin it is the ratio of the
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net income turnover expressed in
percentage so it refers to the final net
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profit that is used so that the formula
goes something like this the net income
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divided by the turnover
x 100 okay second is your
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return on capital employed or return on
the investments so this financial ratio
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measures the profitability in relation
to the total capital that is employed is
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the business enterprise the formula is
basically the return on investment the
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ROI is equal to the profit before
interest and tax okay divided by the
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total capital employed okay
the third formula is the return on
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equity it's called the return on equity
ROE is a short form now return on
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equity is derived by taking the net
income divided by its shareholders
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equity so it provides a return which
management realizing from the
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shareholders equity so the return on
equity formula the returns I'll just
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write the ROE is equal to the profit
after tax that is your Pat - the
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preference dividend divided by the
ordinary shareholders equity fund and
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that will be multiplied by 100 the next
one is your EPS which is also known as
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earning per share EPS is derived by
derived by dividing the profit of the
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company by the total number of shares
outstanding it means you know the EPS is
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equal to your earning after-tax less the
preference dividend divided by the the
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number of for ordinary shares so the
investor uses all the about ratios
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before investing and makes the maximum
profit and analyzes the risk though the
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ratio it is easy for him to compare and
predict the future growth of the company
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it is also it also simplifies the financial
statement well let's go for the fifth
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one that is before we go next we have
another type that is fourth one the
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business risk ratios now what is the
business risk see this is the fourth
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type of the financial ratio analysis and
is the business risk ratio so here we
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measure how sensitive is the company's
earning with respect to its fixed cost
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as well as the assumed debt on the
balance sheet well in that the first one
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that we have is the operating leverage
so the operating leverage is basically
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the percentage change in the operating
profit a little bit to its sales so it
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measures how sensitive the operating
income is to basically the change in the
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revenues now greater the use of the
fixed assets greater will be the impact
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of the change in the sales in operating
income the formula goes something like
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this is the operating OL leverage is
equal to the percentage change in EBIT
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divided by the percentage change you can
change in sales the next is called the
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financial ratio okay when we talk about
financial ratios financial leverage is
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the percentage change in the net profit
related to its operating profit and it
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measures how sensitive the income is to
the change in the operating in comes
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with a financial leverage primarily
originates from the company's financial
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decision that is the use of the debt so
the financial leverage formula is equal
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to the percentage change in net income
divided by the percentage change
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in EBIT okay the next one is the
total leverage now the total leverage is
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the percentage change in the net profit
relative to its sales so the total
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leverage measures how sensitive the net
income is to the change in the sales so
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the total leverage formula goes
something like this is equal to the
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percentage change in net profit divided
by the percentage net change in sales the
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next in our list fifth one is the
financial risk ratio now which kind of
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ratios are financial reservation so this
is a fifth type of the financial risk
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analysis in the financial risk ratio and
here we measure how leverage is the
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company and how it is placed with
respect to its debt repayment some of
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the ratios are like the debt equity
ratio which measures it's basically your
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long-term debt divided by the short term
funds and it helps to measures the
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extent of the equity to repay its debt
so it is used for the long term
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calculation in that the second one is
the interest coverage ratio one of the
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very important ratio that is used now
these financial signifies the ability to
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form to pay interest on the assumed debt
so the interest coverage formula is
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basically what we call as the a EBITDA
divided by the interest expense now
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higher the interest coverage ratio
implies greater the ability of the form
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to pay its interest and if the interest
coverage is less than one then EBITDA is
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not sufficient to pay off the interest
which implies finding other ways to
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arrange the funds the next thing that we
are going to discuss is the stability
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ratios this is the sixth type what kind
of stability ratios are there first is
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the fixed asset ratio now this ratio is
used to know whether the company is
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having sufficient fun funds or not to
meet the long-term business need then
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the formula is they fixed assets divided
by the capital employed the idle is 0.67
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if the ratio is less than 1 then it can
be used for purchase of fixed assets the
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next type is in the same category is the
ratio to current asset sorry current
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asset to fixed asset the ratio and now
the formula for the ratio to current
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asset a fixed asset is current asset
divided by the fixed asset ratio and if
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the ratio basically increases the profit
increases in the reflects the business
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and is basically expanding let me
quickly run you through the sum of the
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type of the coverage ratio now the type
of the coverage ratio that you can use
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is like fixed interest cover fixed
dividend cover okay so those are the
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kind of the coverage ratios that can be
used then you have the control financial
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ratios analysis and it includes like
capacity ratios activity ratios and
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efficiency ratio which is basically your
standardized for the actual production
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you had where the actual RS so I hope
you guys have got a fantastic idea
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regarding this particular topic if you
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