# Ratio Analysis Has Five Ratios To Identify The Financial Statement Accounting Essay

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## Introduction

What is financial statement and why it is important for an organization? A financial statement is a formal record written to describe the financial health of company. The organization will include summarized data of its income statement, balance sheet, liabilities and often include cash flow statement. Financial statement are usually compiled on a quarterly and annual basis. The purpose to do this financial statement in order to compare our identify the financial position analysis with our competitor. There are four main types for financial statement, balance sheets, profit account and loss accounts, cash flow statements and income statements. Balance sheets provide the whole financial condition of a company in accurate form. It shows the tangible and intangible goods that the company. Next are profit and loss accounts. Profit account and loss accounts provide the income and expenses of the company within the given time. Accruals also include. It will be used after profit and loss account statement is prepared. Next is cash flow. Cash flow show how money is predicted to move around within a given time. It will be useful to plan for future expenses. It shows whether the money will be enough to carry out the planned activities. It also shows whether the coming in money is enough to cover up expenses. Liquidity is determine by this cash flow. Lastly is income statement. Income statements use to measure the sales and expenses of the company within a given time. It also shows the results of accounting during operating.

Ratio analysis has five ratios to identify the financial statement. The five ratios are Liquidity ratio, Asset utilization ratio, Leverage ratio, Profitability ratio and Market value ratio. Liquidity ratio is to determine the company ability to pay off its short-terms debts. Mostly to cover up short term the value of ratio should be higher so that the company will be safe. Asset utilization ratio is used to determine how quickly various account are converted into sales or cash. Leverage ratio is used to giving idea to change in output so it will affect operating income and measure company's mix of operating costs. Fixed and variable costs are the two types of operating costs. It depend on the company and the industry but the mix will differ. Profitability ratio is indicating the goods financial health and identifying the effective of the organization is being managed to earn a satisfactory profit and return in investment. Market value ratio is the final group of the ratio that gives has the stock price its earnings per share of the organization.

Table below is showing the accounting ratio for both Bursa Malaysia Holding Berhad and Landmark Berhad for the year 2009 .

Liquidity Ratios

Ratios

Equation

Net working capital

Current assets - Current liabilities

RM 63,290,000 - RM 10,319,000 = RM 52,971,000

RM 279,774,000 - RM 26,135,000 = RM 253,639,000

Current

Current assets

Current liabilities

RM 63,290,000

RM 10,319,000

= RM 6.13

RM 279,774,000

RM 26,135,000

= RM 10.70

ACID-TEST (Quick) Ratio

[Current asset- (Inventory +Prepaid expenses)] / Current liabilities

[RM 63,290,000 -RM 320,000] /

RM 10,319,000

= 6.10

[RM 279,774,000 - RM 1,077,000] /

RM 26,135000

= 10.66

Asset Utilization (activity) Ratio

Ratio

Equation

Account receivable turnover

Net credit sale

Average account receivable

RM 18,234,000

RM 2,087,000

= 8.74 time

RM 46,605,000

RM 5,366,500

= 8.68 time

Average collection period

365_________

Account receivable turnover

365

8.74

= 41.8 day

365

8.68

= 42.1 day

Inventory turnover ratio

Cost of goods sold

Average inventory

RM 10,141,000

RM 323,500

= 31.35 time

RM 17,984,000

RM 1,161,500

= 15.5 time

Total asset turnover

Net sale

Total fixed asset

RM 18,234,000

RM 80,998,000

= 0.23

RM 46,605,000

RM 2,102,172,000

= 0.022

Total asset turnover

Net sale

Total asset

RM 18,234,000

RM 144,288,000

= 0.13

RM 46,605,000

RM 2,381,946,000

= 0.02

Leverage Ratios

Ratio

Equation

Debt ratio

Total liabilities

Total asset

RM 39,662,000

RM 144,288,000

= 0.27

RM 675,642,000

RM 2,381,946,000

=0.28

Debt / equity ratio

Total liabilities

Stock holder's equity

RM 39,662,000

RM 104,461,000

= 0.38

RM 675,642,000

RM 1,325,712,000

= 0.51

Times interest earned ratio

Earnings before interest tax

Interest expense

RM 7,444,000

RM 2,936,000

= 2.54

RM 2,998,000

RM 3,052,000

= 0.98

Profitability Ratios

Ratio

Equation

Gross profit Margin

Gross profit

Net sale

RM 8,111,000

RM 18,234,000

= 0.44

RM 28,792,000

RM 46,605,000

= 0.62

Net profit margin

Net profit

Net sale

RM 5,910,000

RM 18,234,000

= 0.32

RM 9,515,000

RM 46,605,000

= 0.20

Return on total asset

Net income

Average total asset

RM 5,190,000

RM 160,471,500

= 0.032 x 100

=3.2%

RM 9,515,000

RM 2,384,163,500

=0.039 x 100

=3.9%

Return on common equity

Earnings available to common stockholder / Average stockholder equity

RM 5,910,000

RM 101,507,000

= 0.0058 x 100

= 0.58%

RM 9,515,000

RM 1,325,733,000

=0.0071 x 100

=0.71%

Market value ratios

Ratio

Equation

Earnings per share

(Net income - Preferred dividends) / Total common share outstanding

RM 5,190,000

RM 928,867,000

= 0.0056

RM 9,515,000

RM 480,682,000

=0.02

Price / earnings ratio

Market price per share

Earnings per share

NA

NA

Book value per share

(Total stockholder's equity - Preferred dividend) / Shares outstanding

RM 104,626,000

RM 928,867,000

=0.11

RM 1,705,691,000

RM 480,682,000

=3.55

Dividend yield

Dividends per share

Market Price per share

NA

NA

Dividend payout

Dividend payout

Earnings per share

NA

1 / 0.02 = 50

Conclusion