Module Code: ABZ2019AC113

Module Title: Fundamentals of Financial Ratios

Delivered By: Zhang Y., Agnes A., and Barbara M.

Session Number: Session-11, Wednesday, August 14, 2019

Design Tools on Financial Ratios-PART II

In section 5.0 of this module, few design tools were introduced. Those tools are to estimate the liquidity and leverage ratios of an organisation. Those ratios are based on the values reported in the balance sheets of the organisation. In today’s session, few design tools that are based on the income statements and the balance sheets of an organisation are presented. These tools are to estimate the profitability ratios such as the gross profit ratio, net profit ratio, and operating profit ratio of an organisation. These ratios are of interest for both the shareholders and the creditors of an organisation.

iGross Profit Ratio Version 1.0

iGross Profit Ratio Version 1.0 estimates the gross profit ratio of an organisation, given the revenue(i.e., net sales) and the gross profit. The tool also plots the graph of gross profit ratio versus the revenue.

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iOperating Profit Ratio Version 1.0

iOperating Profit Ratio Version 1.0 estimates the operating profit ratio of an organisation. The inputs to the tool are the income from operations and the revenue. These values are extracted from the income statements.The tool also plots the graph of operating profit ratio versus the revenue.The plot is made under the assumption that the income from operations remains the same, but the revenue changes around the given value.

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iNet Profit Ratio Version 1.0

iNet Profit Ratio Version 1.0 estimates the net profit ratio of an organisation, given the revenue and the net profit. The tool also plots the graph of net profit ratio versus the revenue.The plot is made under the assumption that the net income remains the same, but the revenue changes around the given value.

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iROA Ratio Version 1.0

iROA Ratio Version 1.0 estimates the return on total asset ratio of an organisation. The inputs to the tool are the income from operations and the average total asset. These values are extracted from the income statements and the balance sheets of the organisation.The tool also plots the graph of ROA versus the average total asset.

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iROE Ratio Version 1.0

iROE Ratio Version 1.0 estimates the return on total equity ratio of an organisation. The inputs to the tool are the net income and the average total equity. The net income and the average total equity are extracted from the income statements and the balance sheets of the organisation, respectively.The tool also plots the graph of ROE versus the average total equity.

LEARN/TEST

You have reached the end of today's session.

Good luck! Hope you enjoy.