FACTORS Share Value

Competitive edgeEarningsCapital structureManagementOperating efficiencyFinancial Performance

Historic Value of StockP/E ratioEconomic ConditionStock Market condition

Future PricePresent Price

Factors for company analysisCOMPETITIVE EDGE OF THE COMPANY

MARKET SHARE GROWTH OF SALES STABILITY OF THE SALES SALES FORECAST

EARNINGS OF THE COMPANY

CAPITAL STRUCTURE

MANAGEMENT

OPERATING EFFICIENCY

FINANCIAL PERFORMANCE

Ratio Analysis

Liquidity ratios

Efficiency ratios

Leverage Ratios

Profitability ratios

Liquidity RatiosMeasure of ability of the firm to meet its

current obligations.Quick measure of liquidityLack of sufficient liquidity – poor credit

worthiness, loss of creditors confidence etc.Very High – idle assets earn nothing.

Liquidity ratios

Current ratio: current assets / current liabilities

Quick ratio: (current assets-inventories)/current

liabilities

Leverage RatiosT o judge the long term position of the firm.Ratios indicate mix of funds provided by owners

and lenders.There should be an appropriate mix of debt and

owners equity in financing the firm’s assets.To calculate the financial risk and firm’s ability

of using debt to shareholders’ advantage.Computed from Balance Sheet and P/L account.

LEVERAGE RATIOSDebt equity ratios: Total debt/shareholder’s equity

Interest Coverage Ratio: EBIT/Interest charged

Debt Service Coverage Ratio: EBIT/Total Debt Service

ACTIVITY/EFFICIENCY RATIOSBetter management of assets, the larger the

amount of sales.

Activity ratios are employed to evaluate the efficiency with which the firm manages and utilizes its assets.

Indicate the speed with which assets are being converted or turned over into sales.

Involves the relationship between sales and assets.

EFFICIENCY RATIOSInventory turnover ratio: Net sales/turnover

Debtors turnover ratio: Net credit sales/ average debtors

Asset turnover ratio: Net Sales/Total assets

Profitability RatiosIt is used to give us an idea of how likely it is that a

company will turn a profit, as well as how that profit relates to other important information about the company.

Profitability Ratios can be found to have relation with several important factors of conducting a business.

This gives the formation to different types of profitability ratios.

PROFITABILITY RATIOS IN AIRTEL

Return on Capital Employed: EBIT/ (Capital + Reserve + Long Term Liability)

Gross profit margin: (Revenue-Cost of Goods Sold)/Revenue

Net profit margin: Net profit/ Sales

Operating profit margin: EBIT/ Sales

DU PONT ANALYSIS