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Ratio AnalysisManagerial Finance
PresentersOmer Shahzad MB-12-08
Ali Asghar MB-12-34
Zeeshan Ahmad MB-12-09
Babar Chaudhary MB-12-545
4
3
2
1
Saleem Malik MB-12-23
Financial Ratios
Market Ratios
Profitability Ratios
Debt Ratios
Activity Ratios
Liquidity Ratios
Our Organization
Vision:
Market leader in the motorcycle industry, emerging as a global competitive center of production and exports.
Ali AsgharMB-12-
34
Liquidity Ratios
Firm’s ability to satisfy its short-term obligations as they come
due.
Current Ratio
Liquidity Ratios
Quick Ratio
Current Ratio
Looks at the ratio between current assets and current
liabilities.
𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝑟𝑎𝑡𝑖𝑜=𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐴𝑠𝑠𝑒𝑡𝑠
𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐿𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠
Ratios 2008 2009 2010 2011 2012
Current Ratio
1.31 1.25 1.49 1.45 1.45
𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝑟𝑎𝑡𝑖𝑜=𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐴𝑠𝑠𝑒𝑡𝑠
𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐿𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠
Mostly Current Ratio of 2 is consider acceptable. For Atlas Honda, current ratio less than 2 is acceptable and has improved during last 5 years and remain stable in last 2 years at level of 1.45 which is quite acceptable.
2008 2009 2010 2011 20121.1
1.15
1.2
1.25
1.3
1.35
1.4
1.45
1.5
1.55
1.31
1.25
1.49
1.45 1.45
Current Ratio
Current Ratio
Quick Ratio
Is similar to the current ratio but it excludes inventory
from current assets.
𝑄𝑢𝑖𝑐𝑘𝑟𝑎𝑡𝑖𝑜=𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐴𝑠𝑠𝑒𝑡𝑠− 𝐼𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑦
𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐿𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠
Ratios 2008 2009 2010 2011 2012
Quick Ratio
0.84 0.70 1.02 0.9 1
𝑄𝑢𝑖𝑐𝑘𝑟𝑎𝑡𝑖𝑜=𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐴𝑠𝑠𝑒𝑡𝑠− 𝐼𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑦
𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐿𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠
A Quick Ratio of 1 or greater is acceptable. For Atlas Honda, Quick Ratio mostly remain below 1 and remain
deteriorating.
2008 2009 2010 2011 20120
0.2
0.4
0.6
0.8
1
1.2
0.84
0.7
1.02
0.9
1
Quick Ratio
Quick Ratio
2008 2009 2010 2011 20120
0.2
0.4
0.6
0.8
1
1.2
1.4
1.6
1.311.25
1.491.45 1.45
0.84
0.7
1.02
0.9
1
Liqidity Ratios
Current Ratio Quick Ratio
According to company financial statement they are in Strong Liquidity position but their liquidity position is not that good as they stated. Company liquidity position appear to have remain stable but below acceptable criteria. Company may have problem to satisfy its short term obligations when they come due. But, it is also a fact that company do not have paid all its short term obligations at the same time so company can manage to pay its short liabilities.
Liquidity Ratios
Omer ShahzadMB-12-
08
Activity Ratios
Measures the speed with which various accounts are converted into
sales or cash-inflows or cash-outflows.
Inventory Turnover Ratio
Activity Ratios
Average Collection Period
Average Payment Period
Asset Turnover Ratio
Inventory Turnover Ratio
Measures the activity of a firm’s inventory.
𝐼𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑦 𝑇𝑢𝑟𝑛𝑜𝑣𝑒𝑟=𝐶𝑜𝑠𝑡𝑜𝑓 𝐺𝑜𝑜𝑑𝑠𝑆𝑜𝑙𝑑
𝐼𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑦
Ratios 2008 2009 2010 2011 2012
Inventory Turnover
Ratio
7.13 10.36 14.15 15 16.3
𝐼𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑦 𝑇𝑢𝑟𝑛𝑜𝑣𝑒𝑟=𝐶𝑜𝑠𝑡𝑜𝑓 𝐺𝑜𝑜𝑑𝑠𝑆𝑜𝑙𝑑
𝐼𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑦Inventory turnover for ATLAS HONDA is improved very fast during last 5 years and a level of 16.3 is quite remarkable.
Higher Inventory Turnover leads to reducing holding cost and increase the net income and profitability. But company need to
remain conscious about inventory turnover because higher level of inventory turnover may indicate inadequate inventory
level, which may leads to a loss for the business.
2008 2009 2010 2011 20120
2
4
6
8
10
12
14
16
18
7.13
10.36
14.15
15
16.3
Inventory Turnover
Inventory Turnover
Asset Turnover Ratio
Indicates the firm’s efficiency to use assets for generating sales.
𝐴𝑠𝑠𝑒𝑡𝑠𝑇𝑢𝑟𝑛𝑜𝑣𝑒𝑟=𝑆𝑎𝑙𝑒𝑠
𝑇𝑜𝑡𝑎𝑙 𝐴𝑠𝑠𝑒𝑡𝑠
Ratios 2008 2009 2010 2011 2012
Asset Turnover
Ratio
2.39 1.84 3 3.38 3.47
𝐴𝑠𝑠𝑒𝑡𝑠𝑇𝑢𝑟𝑛𝑜𝑣𝑒𝑟=𝑆𝑎𝑙𝑒𝑠
𝑇𝑜𝑡𝑎𝑙 𝐴𝑠𝑠𝑒𝑡𝑠
It is generally consider that the higher the firm total asset turnover, the more efficiently its assets have been used. Asset turnover for ATLAS HONDA is improving and have
excellent level.
2008 2009 2010 2011 20120
0.5
1
1.5
2
2.5
3
3.5
4
2.39
1.84
3
3.383.47
Asset Turnover
Asset Turnover
2008 2009 2010 2011 20120
2
4
6
8
10
12
14
16
18
7.13
10.36
14.15
15
16.3
2.391.84
33.38 3.47
Turnovers
Inventory Turnover Asset Turnover
Average Collection Period
Shows the time needed to collect accounts receivables.
𝐴𝑣𝑒𝑟𝑎𝑔𝑒𝐶𝑜𝑙𝑙𝑒𝑐𝑡𝑖𝑜𝑛𝑝𝑒𝑟𝑖𝑜𝑑=𝐴𝑐𝑐𝑜𝑢𝑛𝑡𝑠𝑅𝑒𝑐𝑒𝑖𝑣𝑎𝑏𝑙𝑒
𝐴𝑛𝑛𝑢𝑎𝑙𝑆𝑎𝑙𝑒𝑠×365
Ratios 2008 2009 2010 2011 2012
Average Collection
Period
7 Days 8.5 Days 6 Days 4.5 Days 6 Days
𝐴𝑣𝑒𝑟𝑎𝑔𝑒𝐶𝑜𝑙𝑙𝑒𝑐𝑡𝑖𝑜𝑛𝑝𝑒𝑟𝑖𝑜𝑑=𝐴𝑐𝑐𝑜𝑢𝑛𝑡𝑠𝑅𝑒𝑐𝑒𝑖𝑣𝑎𝑏𝑙𝑒
𝐴𝑛𝑛𝑢𝑎𝑙𝑆𝑎𝑙𝑒𝑠×365
ATLAS HONDA have very good credit and collection policies. Average collection period of less than 1 week is
amazing.
2008 2009 2010 2011 20120
1
2
3
4
5
6
7
8
9
7
8.5
6
4.5
6
Average Collection Period
Avg. Collection Period
Average Payment Period
Shows the time needed to pay accounts payables.
𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝑃𝑎𝑦𝑚𝑒𝑛𝑡𝑝𝑒𝑟𝑖𝑜𝑑=𝐴𝑐𝑐𝑜𝑢𝑛𝑡𝑠 𝑃𝑎𝑦𝑎𝑏𝑙𝑒𝐴𝑛𝑛𝑢𝑎𝑙 𝑃𝑢𝑟𝑐 h𝑎𝑠𝑒𝑠
×365
Ratios 2008 2009 2010 2011 2012
Average Payment Period
61 Days 76 Days 48 Days 51 Days 50 Days
𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝑃𝑎𝑦𝑚𝑒𝑛𝑡𝑝𝑒𝑟𝑖𝑜𝑑=𝐴𝑐𝑐𝑜𝑢𝑛𝑡𝑠𝑃𝑎𝑦𝑎𝑏𝑙𝑒𝐴𝑛𝑛𝑢𝑎𝑙 h𝑃𝑢𝑟𝑐 𝑎𝑠𝑒𝑠
×365
Average payment period is decreased as compared to 2009. But company still using its credit worth very well
and taking full advantage of credit period from suppliers.
2008 2009 2010 2011 20120
10
20
30
40
50
60
70
80
61
76
4851 50
Average Payment Period
Avg. Payment Period
2008 2009 2010 2011 20120
10
20
30
40
50
60
70
80
78.5
64.5
6
61
76
4851 50
Periods
Avg. Collection Period Avg. Payment Period
Activity Ratios
The company’s assets performance appears to be in a good shape. It is clear that company has efficiently use the various components of working capital cycle. It has been able to effectively control the receivables and inventories.
Zeeshan AhmadMB-12-
09
Debt Ratios
Indicates the amount the firm uses to generate profits from
others’ money.
Debt Ratios
Debt RatioFixed-Payment Coverage Ratio
Times Interest Earned Ratio
Debt Ratio
Measures the proportion of total assets financed by the
firm’s creditors.
𝐷𝑒𝑏𝑡 𝑅𝑎𝑡𝑖𝑜=𝑇𝑜𝑡𝑎𝑙 𝐿𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠𝑇𝑜𝑡𝑎𝑙 𝐴𝑠𝑠𝑒𝑡𝑠
Ratios 2008 2009 2010 2011 2012
Debt Ratio
60.89 55.63 54.33 51.95 50.54
𝐷𝑒𝑏𝑡 𝑅𝑎𝑡𝑖𝑜=𝑇𝑜𝑡𝑎𝑙 𝐿𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠𝑇𝑜𝑡𝑎𝑙 𝐴𝑠𝑠𝑒𝑡𝑠
The higher degree of debt ratio shows the greater the firm’s degree of indebtedness. Debt ratio for Atlas Honda
in 2008 was nearly 61% which was not very favorable for the organization. But during the last 5 years, the debt
ratio decrease continuously and reach to nearly 50% which is not very good but fair enough.
2008 2009 2010 2011 20120
10
20
30
40
50
60
70
60.89
55.6354.33
51.9550.54
Debt Ratio
Debt Ratio
Times Interest Earned Ratio
Measures the firm’s ability to make contractual interest payments. It is
also called Interest Coverage Ratio.
𝑇𝑖𝑚𝑒𝑠 𝐼𝑛𝑡𝑒𝑟𝑒𝑠𝑡 𝐸𝑎𝑟𝑛𝑒𝑑𝑅𝑎𝑡𝑖𝑜=𝐸𝑎𝑟𝑛𝑖𝑛𝑔𝐵𝑒𝑓𝑜𝑟𝑒 𝐼𝑛𝑡𝑒𝑟𝑒𝑠𝑡∧𝑇𝑎𝑥𝑒𝑠
𝐼𝑛𝑡𝑒𝑟𝑒𝑠𝑡
Ratios 2008 2009 2010 2011 2012
Times Interest Earned Ratio
4.98 2.4 10.56 16 139.26
𝑇𝑖𝑚𝑒𝑠 𝐼𝑛𝑡𝑒𝑟𝑒𝑠𝑡 𝐸𝑎𝑟𝑛𝑒𝑑𝑅𝑎𝑡𝑖𝑜=𝐸𝑎𝑟𝑛𝑖𝑛𝑔𝐵𝑒𝑓𝑜𝑟𝑒 𝐼𝑛𝑡𝑒𝑟𝑒𝑠𝑡∧𝑇𝑎𝑥𝑒𝑠
𝐼𝑛𝑡𝑒𝑟𝑒𝑠𝑡
Interest Coverage Ratio of Atlas Honda increase during the last 5 years but you can see a surprising increase in this ratio in 2012. You can understand this increase by
comparing Debt and Interest coverage ratio.
2008 2009 2010 2011 20120
20
40
60
80
100
120
140
160
4.982.4
10.5616
139.26
Interest Coverage Ratio
Interest Coverage Ratio
2008 2009 2010 2011 20120
20
40
60
80
100
120
140
160
60.8955.63 54.33 51.95 50.54
4.982.4
10.5616
139.26
Debt Ratios
Debt Ratio Interest Coverage Ratio
Debt Ratios
In this graph you can see a negative relationship between Debt and Interest coverage ratio. As the company debt ratio decrease, the company times interest earned ratio increase rapidly. It is due to company policy introduced in 2010 to reshape its balance sheet approach and worked to reduce the interest bearing liabilities to improve its balance sheet. The outcome of this policy is the Achievement of “DEBT FREE STATUS” in 2012.
M. SaleemMB-12-
23
Profitability Ratios
Measures the firms’ profits with the given level of sales.
Gross-Profit Ratio
Profitability Ratios
Net-Profit Ratio
Earning Per Share
Operating-Profit Ratio
Return on Total Assets
Return on Common Equity
Gross-Profit Ratio
Measures the percentage of each sales dollar remaining after the
firm has paid for its goods.
𝐺𝑟𝑜𝑠𝑠 𝑃𝑟𝑜𝑓𝑖𝑡 𝑅𝑎𝑡𝑖𝑜=𝑆𝑎𝑙𝑒𝑠−𝐶𝐺𝑆
𝑆𝑎𝑙𝑒𝑠=𝐺𝑟𝑜𝑠𝑠 𝑃𝑟𝑜𝑓𝑖𝑡
𝑆𝑎𝑙𝑒𝑠
Ratios 2008 2009 2010 2011 2012
Gross-Profit Ratio
7.46 7.02 7.82 7.5 7.3
𝐺𝑟𝑜𝑠𝑠 𝑃𝑟𝑜𝑓𝑖𝑡 𝑅𝑎𝑡𝑖𝑜=𝑆𝑎𝑙𝑒𝑠−𝐶𝐺𝑆
𝑆𝑎𝑙𝑒𝑠=𝐺𝑟𝑜𝑠𝑠 𝑃𝑟𝑜𝑓𝑖𝑡
𝑆𝑎𝑙𝑒𝑠
Gross profit margin for ATLAS HONDA is unstable and mostly deteriorating. But separate using gross profit
margin for measuring company profitability is not a good measure.
2008 2009 2010 2011 20126.6
6.8
7
7.2
7.4
7.6
7.8
8
7.46
7.02
7.82
7.5
7.3
Gross Profit Margin
Gross Profit Margin
Operating-Profit Ratio
Measures the percentage of each sales dollar remaining after all costs &
expenses other than Interests and Taxes are deducted.
𝑂𝑝𝑒𝑟𝑎𝑡𝑖𝑛𝑔 𝑃𝑟𝑜𝑓𝑖𝑡 𝑅𝑎𝑡𝑖𝑜=𝑂𝑝𝑒𝑟𝑎𝑡𝑖𝑛𝑔 𝑃𝑟𝑜𝑓𝑖𝑡
𝑆𝑎𝑙𝑒𝑠
Ratios 2008 2009 2010 2011 2012
Operating-Profit Ratio
6.02 4.4 4.65 4.62 4.3
𝑂𝑝𝑒𝑟𝑎𝑡𝑖𝑛𝑔 𝑃𝑟𝑜𝑓𝑖𝑡 𝑅𝑎𝑡𝑖𝑜=𝑂𝑝𝑒𝑟𝑎𝑡𝑖𝑛𝑔 𝑃𝑟𝑜𝑓𝑖𝑡
𝑆𝑎𝑙𝑒𝑠
Operating profit margin for ATLAS HONDA decreased in 2009, but remain quite stable after that.
2008 2009 2010 2011 20120
1
2
3
4
5
6
7
6.02
4.44.65 4.62
4.3
Operating Profit Margin
Operating Profit Margin
Net-Profit Ratio
Measures the percentage of each sales dollar remaining after all costs &
expenses including Interests and Taxes are deducted.
𝑁𝑒𝑡 𝑃𝑟𝑜𝑓𝑖𝑡 𝑅𝑎𝑡𝑖𝑜=𝐸𝑎𝑟𝑛𝑖𝑛𝑔𝑠 𝐴𝑣𝑎𝑖𝑙𝑎𝑏𝑙𝑒 𝑓𝑜𝑟 𝐶𝑜𝑚𝑚𝑜𝑛𝑆𝑡𝑜𝑐𝑘h𝑜𝑙𝑑𝑒𝑟
𝑆𝑎𝑙𝑒𝑠
Ratios 2008 2009 2010 2011 2012
Net-Profit Ratio
3.37 1.63 2.78 3.08 3.16
𝑁𝑒𝑡 𝑃𝑟𝑜𝑓𝑖𝑡 𝑅𝑎𝑡𝑖𝑜=𝐸𝑎𝑟𝑛𝑖𝑛𝑔𝑠 𝐴𝑣𝑎𝑖𝑙𝑎𝑏𝑙𝑒 𝑓𝑜𝑟 𝐶𝑜𝑚𝑚𝑜𝑛𝑆𝑡𝑜𝑐𝑘h𝑜𝑙𝑑𝑒𝑟
𝑆𝑎𝑙𝑒𝑠
Net profit margin also decreased during 2009 but company recovered very well and its net profit
continuously increasing from last 3 years.
2008 2009 2010 2011 20120
0.5
1
1.5
2
2.5
3
3.5
4
3.37
1.63
2.78
3.083.16
Net Profit Margin
Net Profit Margin
2008 2009 2010 2011 20120
1
2
3
4
5
6
7
8
9
7.46
7.02
7.827.5
7.3
6.02
4.44.65 4.62
4.3
3.37
1.63
2.783.08 3.16
Profitibility Ratios
Gross Profit Margin Operating Profit Margin Net Profit Margin
Earnings Per Share (EPS)
Represents the dollar amount earned on behalf of each outstanding share of
common stock.
𝐸𝑃𝑆=𝐸𝑎𝑟𝑛𝑖𝑛𝑔𝑠 𝐴𝑣𝑎𝑖𝑙𝑎𝑏𝑙𝑒 𝑓𝑜𝑟 𝐶𝑜𝑚𝑚𝑜𝑛 h𝑆𝑡𝑜𝑐𝑘 𝑜𝑙𝑑𝑒𝑟
𝑁𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 h𝑆 𝑎𝑟𝑒𝑠𝑜𝑓 𝐶𝑜𝑚𝑚𝑜𝑛𝑆𝑡𝑜𝑐𝑘𝑂𝑢𝑡𝑠𝑡𝑎𝑛𝑑𝑖𝑛𝑔
Ratios 2008 2009 2010 2011 2012
Earnings Per
Share (EPS)
4.75 14.86 11.39 16.03 16.74
𝐸𝑃𝑆=𝐸𝑎𝑟𝑛𝑖𝑛𝑔𝑠 𝐴𝑣𝑎𝑖𝑙𝑎𝑏𝑙𝑒 𝑓𝑜𝑟 𝐶𝑜𝑚𝑚𝑜𝑛 h𝑆𝑡𝑜𝑐𝑘 𝑜𝑙𝑑𝑒𝑟
𝑁𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 h𝑆 𝑎𝑟𝑒𝑠𝑜𝑓 𝐶𝑜𝑚𝑚𝑜𝑛𝑆𝑡𝑜𝑐𝑘𝑂𝑢𝑡𝑠𝑡𝑎𝑛𝑑𝑖𝑛𝑔
Over the years, the company is focused on maintaining steady growth in EPS. In 2012, company delivered EPS
of Rs.16.74 which is outstanding.
2008 2009 2010 2011 20120
2
4
6
8
10
12
14
16
18
4.75
14.86
11.39
16.03
16.74
Earning Per Share
Earning Per Share
Profitability Ratios
The Company’s Gross profit margin declined but it is due to the higher cost of goods sold. While the Operating and Net profit margin is improving so we can evaluate that company profitability is improving.
Babar HussainMB-12-
54
Return on Total Assets (ROA)
Measures the overall effectiveness of the management in generating profits with its available assets. It is also called Return
on Investment (ROI).
𝑅𝑂𝐴=𝐸𝑎𝑟𝑛𝑖𝑛𝑔𝑠 𝐴𝑣𝑎𝑖𝑙𝑎𝑏𝑙𝑒 𝑓𝑜𝑟𝐶𝑜𝑚𝑚𝑜𝑛 h𝑆𝑡𝑜𝑐𝑘 𝑜𝑙𝑑𝑒𝑟
𝑇𝑜𝑡𝑎𝑙 𝐴𝑠𝑠𝑒𝑡𝑠
Ratios 2008 2009 2010 2011 2012
Return on Total Assets (ROA)
8.07 3 8.36 10.42 10.98
𝑅𝑂𝐴=𝐸𝑎𝑟𝑛𝑖𝑛𝑔𝑠 𝐴𝑣𝑎𝑖𝑙𝑎𝑏𝑙𝑒 𝑓𝑜𝑟𝐶𝑜𝑚𝑚𝑜𝑛 h𝑆𝑡𝑜𝑐𝑘 𝑜𝑙𝑑𝑒𝑟
𝑇𝑜𝑡𝑎𝑙 𝐴𝑠𝑠𝑒𝑡𝑠
The higher the firm’s return on total asset consider the better. Return on total asset of ATLAS HONDA appear to
be improved in last 3 year and rose to 11% despite significant in assets base on account of capacity
expansion.
2008 2009 2010 2011 20120
2
4
6
8
10
12
8.07
3
8.36
10.42
10.98
Return on Asset
Return on Asset
Return on Common Equity (ROE)
Measures the return earned on the common stockholders’ investment
in the firm.
𝑅𝑂𝐸=𝐸𝑎𝑟𝑛𝑖𝑛𝑔𝑠 𝐴𝑣𝑎𝑖𝑙𝑎𝑏𝑙𝑒 𝑓𝑜𝑟 𝐶𝑜𝑚𝑚𝑜𝑛𝑆𝑡𝑜𝑐𝑘h𝑜𝑙𝑑𝑒𝑟
𝐶𝑜𝑚𝑚𝑜𝑛𝑆𝑡𝑜𝑐𝑘 𝐸𝑞𝑢𝑖𝑡𝑦
Ratios 2008 2009 2010 2011 2012
Return on
Common Equity (ROE)
20.65 6.76 18.30 21.68 22.21
𝑅𝑂𝐸=𝐸𝑎𝑟𝑛𝑖𝑛𝑔𝑠 𝐴𝑣𝑎𝑖𝑙𝑎𝑏𝑙𝑒 𝑓𝑜𝑟 𝐶𝑜𝑚𝑚𝑜𝑛 h𝑆𝑡𝑜𝑐𝑘 𝑜𝑙𝑑𝑒𝑟
𝐶𝑜𝑚𝑚𝑜𝑛𝑆𝑡𝑜𝑐𝑘 𝐸𝑞𝑢𝑖𝑡𝑦
Return on equity also have the same case like ROA. It is also improved after declining in 2009 and now rose to
22% due to steady income growth.
2008 2009 2010 2011 20120
5
10
15
20
25
20.65
6.76
18.3
21.6822.21
Return on Equity
Return on Equity
2008 2009 2010 2011 20120
5
10
15
20
25
8.07
3
8.36
10.4210.98
20.65
6.76
18.3
21.6822.21
Returns
Return on Asset Return on Equity
Market Ratios
Relates the firms’ market value as measured by its current share price,
to certain accounting values.
Price/Earnings Ratio
Market Ratios
Market/Book Ratio
Price/Earnings Ratio (P/E)
Measures the amount that investors are willing to pay for each dollar of a
firm’s earnings.
𝑃 /𝐸𝑅𝑎𝑡𝑖𝑜=𝑀𝑎𝑟𝑘𝑒𝑡 𝑃𝑟𝑖𝑐𝑒 𝑃𝑒𝑟 𝑆 h𝑎𝑟𝑒𝑜𝑓 𝐶𝑜𝑚𝑚𝑜𝑛𝑆𝑡𝑜𝑐𝑘
𝐸𝑎𝑟𝑛𝑖𝑛𝑔𝑠 𝑃𝑒𝑟 𝑆h𝑎𝑟𝑒
Ratios 2008 2009 2010 2011 2012
Price/Earnings
Ratio (P/E)
14.1 18.7 10.9 8.8 8.5
𝑃 /𝐸𝑅𝑎𝑡𝑖𝑜=𝑀𝑎𝑟𝑘𝑒𝑡 𝑃𝑟𝑖𝑐𝑒 𝑃𝑒𝑟 𝑆 h𝑎𝑟𝑒𝑜𝑓 𝐶𝑜𝑚𝑚𝑜𝑛𝑆𝑡𝑜𝑐𝑘
𝐸𝑎𝑟𝑛𝑖𝑛𝑔𝑠 𝑃𝑒𝑟 𝑆h𝑎𝑟𝑒
The higher level price earnings ratio consider the better. Price earnings ratio for ATLAS HONDA decrease during previous years but it not due of low earning but due to the higher market price of ATLAS HONDA’s shares.
2008 2009 2010 2011 20120
2
4
6
8
10
12
14
16
18
20
14.1
18.7
10.9
8.8 8.5
Price Earning Ratio
Price Earning Ratio
DuPont System of Analysis
System used to dissect the firm’s financial statement and to assess its financial
condition.
The two measures of this this system are:
1.Return on total assets (ROA)2.Return on common equity (ROE)
DuPont Formula
Multiplies the firm’s net profit margin by its total asset turnover to calculate the firm’s
return on total assets.
𝑅𝑂𝐴=𝐸𝑎𝑟𝑛𝑖𝑛𝑔𝑠 𝐴𝑣𝑎𝑖𝑙𝑎𝑏𝑙𝑒 𝑓𝑜𝑟𝐶𝑜𝑚𝑚𝑜𝑛 h𝑆𝑡𝑜𝑐𝑘 𝑜𝑙𝑑𝑒𝑟
𝑆𝑎𝑙𝑒𝑠×
𝑆𝑎𝑙𝑒𝑠𝑇𝑜𝑡𝑎𝑙 𝐴𝑠𝑠𝑒𝑡𝑠
⇒𝑅𝑂𝐴=𝐸𝑎𝑟𝑛𝑖𝑛𝑔𝑠 𝐴𝑣𝑎𝑖𝑙𝑎𝑏𝑙𝑒 𝑓𝑜𝑟 𝐶𝑜𝑚𝑚𝑜𝑛 h𝑆𝑡𝑜𝑐𝑘 𝑜𝑙𝑑𝑒𝑟
𝑇𝑜𝑡𝑎𝑙 𝐴𝑠𝑠𝑒𝑡𝑠
Ratios 2008 2009 2010 2011 2012
Return on Total Assets (ROA)
8.07 3 8.36 10.42 10.98
𝑅𝑂𝐴=𝐸𝑎𝑟𝑛𝑖𝑛𝑔𝑠 𝐴𝑣𝑎𝑖𝑙𝑎𝑏𝑙𝑒 𝑓𝑜𝑟𝐶𝑜𝑚𝑚𝑜𝑛 h𝑆𝑡𝑜𝑐𝑘 𝑜𝑙𝑑𝑒𝑟
𝑇𝑜𝑡𝑎𝑙 𝐴𝑠𝑠𝑒𝑡𝑠
Modified DuPont Formula
Relates the firm’s return on total assets to its return on common equity using financial
leverage multiplier.
𝑅𝑂𝐸=𝑅𝑂𝐴×𝐹𝐿𝑀
⇒𝑅𝑂𝐸=𝐸𝑎𝑟𝑛𝑖𝑛𝑔𝑠 𝐴𝑣𝑎𝑖𝑙𝑎𝑏𝑙𝑒 𝑓𝑜𝑟𝐶𝑜𝑚𝑚𝑜𝑛 h𝑆𝑡𝑜𝑐𝑘 𝑜𝑙𝑑𝑒𝑟
𝑇𝑜𝑡𝑎𝑙 𝐴𝑠𝑠𝑒𝑡𝑠𝑥
𝑇𝑜𝑡𝑎𝑙 𝐴𝑠𝑠𝑒𝑡𝑠𝐶𝑜𝑚𝑚𝑜𝑛𝑆𝑡𝑜𝑐𝑘 𝐸𝑞𝑢𝑖𝑡𝑦
⇒𝑅𝑂𝐸=𝐸𝑎𝑟𝑛𝑖𝑛𝑔𝑠 𝐴𝑣𝑎𝑖𝑙𝑎𝑏𝑙𝑒 𝑓𝑜𝑟𝐶𝑜𝑚𝑚𝑜𝑛 h𝑆𝑡𝑜𝑐𝑘 𝑜𝑙𝑑𝑒𝑟
𝐶𝑜𝑚𝑚𝑜𝑛𝑆𝑡𝑜𝑐𝑘𝐸𝑞𝑢𝑖𝑡𝑦
Ratios 2008 2009 2010 2011 2012
Return on
Common Equity (ROE)
20.65 6.76 18.30 21.68 22.21
𝑅𝑂𝐸=𝐸𝑎𝑟𝑛𝑖𝑛𝑔𝑠 𝐴𝑣𝑎𝑖𝑙𝑎𝑏𝑙𝑒 𝑓𝑜𝑟 𝐶𝑜𝑚𝑚𝑜𝑛𝑆𝑡𝑜𝑐𝑘h𝑜𝑙𝑑𝑒𝑟
𝐶𝑜𝑚𝑚𝑜𝑛𝑆𝑡𝑜𝑐𝑘 𝐸𝑞𝑢𝑖𝑡𝑦