1010 Words5 Pages

4. Financial ratio

i. Ratio Analysis

Analysing an annual report of a company can be done by several method but the easiest is using mathematical ratios. Ratios are compared to "industry standards," or to ratios of similar companies. This helps determine if the company in question is faring better, worse or evenly in its category. The common traits analysed using the financial ratios are; liquidity, turnover, leverage and profitability. Combined it gives a fairly good insight to the companies state of well-being.

Liquidity

Liquidity ratios are used to determine a company's capacity to pay its bills from day to day. These ratios give a good idea into the basic functionality of a company. Two of the most commonly used liquidity ratios are the*…show more content…*

Sourced from: Income Statement Formula: Times Interest Earned = EBIT(operating income) / Interest Expense Calculating by substituting the figures: 13163 = 49.485 = 49.49

14) Working Capital

Sourced from: Balance Sheet Formula: Working Capital = Total Current Assets − Total Current Liabilities Calculating by substituting the figures:

32042 – 37,517 million CHF = (5,475) million

Nestle has (5,475) million CHF in working capital Efficiency Ratios 15) Asset Turnover Ratio Sourced from: Income Statement, Balance Sheet The formula: Asset Turnover Ratio = Sales / Average Total Assets Calculating by substituting the figures:

Average Total Assets = 123992 + 131901 = 255893 = 127946.5 CHF 2 2

Asset Turnover Ratio = 89469 = 0.699 = 0.7 127946.5

16) Accounts Receivable Turnover ratio

Sourced from: Income Statement, Balance Sheet

The formula: Account Receivable Turnover ratio = Sales_________ Average Accounts Receivable

Calculation by substituting the figures:

Average Accounts Receivable = Beginning Accts Receivable + Ending Accts Receivable 2

= 12252 + 12411 = 24666 = 12333 2 2

Account Receivable Turnover ratio = 89469 =

i. Ratio Analysis

Analysing an annual report of a company can be done by several method but the easiest is using mathematical ratios. Ratios are compared to "industry standards," or to ratios of similar companies. This helps determine if the company in question is faring better, worse or evenly in its category. The common traits analysed using the financial ratios are; liquidity, turnover, leverage and profitability. Combined it gives a fairly good insight to the companies state of well-being.

Liquidity

Liquidity ratios are used to determine a company's capacity to pay its bills from day to day. These ratios give a good idea into the basic functionality of a company. Two of the most commonly used liquidity ratios are the

Sourced from: Income Statement Formula: Times Interest Earned = EBIT(operating income) / Interest Expense Calculating by substituting the figures: 13163 = 49.485 = 49.49

14) Working Capital

Sourced from: Balance Sheet Formula: Working Capital = Total Current Assets − Total Current Liabilities Calculating by substituting the figures:

32042 – 37,517 million CHF = (5,475) million

Nestle has (5,475) million CHF in working capital Efficiency Ratios 15) Asset Turnover Ratio Sourced from: Income Statement, Balance Sheet The formula: Asset Turnover Ratio = Sales / Average Total Assets Calculating by substituting the figures:

Average Total Assets = 123992 + 131901 = 255893 = 127946.5 CHF 2 2

Asset Turnover Ratio = 89469 = 0.699 = 0.7 127946.5

16) Accounts Receivable Turnover ratio

Sourced from: Income Statement, Balance Sheet

The formula: Account Receivable Turnover ratio = Sales_________ Average Accounts Receivable

Calculation by substituting the figures:

Average Accounts Receivable = Beginning Accts Receivable + Ending Accts Receivable 2

= 12252 + 12411 = 24666 = 12333 2 2

Account Receivable Turnover ratio = 89469 =

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