AGENDA ACTIVITY RATIOS MEANING: Accounting ratios that measure a firm's ability to convert different accounts within their

balance sheets into cash or sales. DISCRIPTION: Companies will typically try to turn their production into cash or sales as fast as possible because this will generally lead to higher revenues. EXXAMPLE: Such ratios are frequently used when performing fundamental analysis on different companies. The asset turnover ratio and inventory turnover ratio are good examples of activity ratios.

AGENDA ACTIVITY RATIOS

INVENTORY TURN OVER=COGS/AVG.INVENTORY ACCOUNT RECIEVABLE TURN OVER=NET SALES/AVG RECIEVABLE FIXED ASSET TURN OVER=NET SALES/AVG.FIXED ASSETS TOTAL ASSET TURN OVER=NET SALES/AVG.TOTAL ASSETS PAY ABLE TURN OVER=PURCHASES/AVG.ACCOUNTS PAYABLE PAYMENT PERIOD IN DAYS=365/PAYABLE TURN OVER OPERATING CYCLE=INVENTORY T.O=ACC ECIEVABLE T.O CASH CYCLE=OPERATING CYCLE-AVG.PAYMENT PERIOD CYCLEINVENTORY T.O IN DAYS=365/INVENTORY T.O RECIEVABLE T.O IN DAYS=365/RECIEVABLE .O

INVANTORY TURN OVER

   MEANING: A ratio showing how many times a company's inventory is sold and replaced over a period. FORMULA: INV.TURN OVER=C.O.G.S/AVG.INVENTORY CALCULATION: FOR 2007 FOR 2008 DISCRIPTION: COGS (cost of goods sold) may be substituted because sales are recorded at market value, while inventories are usually recorded at cost. Also, average inventory may be used instead of the ending inventory level to minimize seasonal factors.  ANALYSIS: A low turnover implies poor sales and, therefore, excess inventory. A high ratio implies either strong sales or ineffective buying. 510000/70000=7.285 690000/70000=8.85

INVENTORY TURN OVER IN DAYS

 MEANING: A ratio showing how many DAYS a company's inventory is sold and replaced over a period. FORMULA: 365/INVENTORY TURN OVER CALCLATION: FOR 2007 365/7.285=50.137 FOR 2008 365/9.85=37.05

 

ACCOUNT RECIEVABLE TURNOVER

 MEANING: An accounting measure used to quantify a firm's effectiveness in extending credit as well as collecting debts. The receivables turnover ratio is an activity ratio, measuring how efficiently a firm uses its assets. Formula: ACC.RECIEVABLE TURNOVER=NET SALES/AVG.RECIEVABLE Some companies' reports will only show sales - this can affect the ratio depending on the size of cash sales. CALCULATION: FOR 2007 FOR 2008  DISCRIPTION: By maintaining accounts receivable, firms are indirectly extending interestinterestfree loans to their clients. A high ratio implies either that a company operates on a cash basis or that its extension of credit and collection of accounts receivable is efficient.  ANALYSIS: A low ratio implies the company should re-assess its credit policies in order reto ensure the timely collection of imparted credit that is not earning interest for the firm. 850000/110000=7.727 1200000/150000=8

RECIEVABLE TURN OVER in days

 MEANING: An accounting measure used to quantify a firm's effectiveness in extending credit as well as collecting debts. The receivables turnover ratio is an activity ratio, measuring how many days a firm uses its assets. Formula: 365/ACCONTS RECIEVABLE T.O CALCULATION: FOR 2007 365/7.727=47.236 FOR 2008 365/8=45.625

FIXED ASSET TURN OVER

MEANING: A financial ratio of net sales to fixed assets. The fixed-asset turnover ratio fixedmeasures a company's ability to generate net sales from fixed-asset investments fixedspecifically property, plant and equipment (PP&E) - net of depreciation. A higher fixedfixed-asset turnover ratio shows that the company has been more effective in using the investment in fixed assets to generate revenues.  FORMULA: FORMULA: The fixed-asset turnover ratio is calculated as: fixedNET SALES /AVG.FIXED ASSET CALCULATION: FOR 2007 FOR 2008 ANALYSIS:  This ratio is often used as a measure in manufacturing industries, where major purchases are made for PP&E to help increase output. When companies make these large purchases, prudent investors watch this ratio in following years to see how effective the investment in the fixed assets 850000/290000=2.931 1200000/411150=2.91

TOTAL ASSET TURN OVER

 MEANING: The amount of sales generated for every dollar's worth of assets. It is calculated by dividing sales in dollars by assets in dollars.  Formula: Also known as the Asset Turnover Ratio. NET SALES/AVG.TOTAL ASSET CALCULATION: FOR 2007 FOR2008  850000/928000=0.915 1200000/1090000=1.10

ANALYSIS Asset turnover measures a firm's efficiency at using its assets in generating sales or revenue - the higher the number the better. It also indicates pricing strategy: companies with low profit margins tend to have high asset turnover, while those with high profit margins have low asset turnover.

PAYABLE TURNOVER
   MEANING A short-term liquidity measure used to quantify the rate at which a shortcompany pays off its suppliers. FORMULA: Accounts payable turnover ratio is calculated by taking the total purchases made from suppliers and dividing it by the average accounts payable amount during the same period. PURCHASES/AVG.ACC.PAYABLE

CALCULATION: FOR 2007 FOR 2008 300000/123000=2.439 250000/161500=1.547

ANALYSIS The measure shows investors how many times per period the company pays its average payable amount.

PAYMENT PERIOD IN DAYS

 MEANING:
A short-term liquidity measure used to quantify the rate at which a company pays off its suppliers in how many days  FORMULA: payment period in days is calculated by YEAR DAYS divided by PAY ABLE TURN OVER. 365/payable turn over

CALCULATION: FOR 2007 FOR 2008

365/2.439=149.65 365/1.545=236.245

OPERATING CYCLE
 MEANING: Expressed as an indicator (days) of management performance efficiency, the cycle. operating cycle is a "twin" of the cash conversion cycle. While the parts are the same - receivables, inventory and payables - in the operating cycle, they are analyzed from the perspective of how well the company is managing these critical operational capital assets, as opposed to their impact on cash. FORMULA: INVENTORY TURN OVER IN DAYS+RECIEVABLE TURN OVER IN DAYS CALCULATION: FOR 2007 FOR 2008 50.137+47.236=97.37 37.05+45.625=82.675

CASH CYCLE
MEANING: A metric that expresses the length of time, in days, that it takes for a company to convert resource inputs into cash flows. The cash conversion cycle attempts to measure the amount of time each net input dollar is tied up in the production and sales process before it is converted into cash through sales to customers. This metric looks at the amount of time needed to sell inventory, the amount of time needed to collect receivables and the length of time the company is afforded to pay its bills without incurring penalties. Also known as "cash cycle". CALCULATED AS: OPERATING CYCLE AVG.PAYMENT PERIOD CALCULATION: 2007 97.3797.37-149.65= -52.28 2008 82.67582.675-192.947= -110.272 DISCRIPTION: Usually a company acquires inventory on credit, which results in accounts payable. A company can also sell products on credit, which results in accounts receivable. Cash, therefore, is not involved until the company pays the accounts payable and collects accounts receivable. So the cash conversion cycle measures the time between outlay of cash and cash recovery. ANALYSIS This cycle is extremely important for retailers and similar businesses. This measure illustrates how quickly a company can convert its products into cash through sales. The shorter the cycle, the less time capital is tied up in the business process, and thus the better for the company's bottom line.

S.NO

RATIOS INVENTORY TURN OVER INVENTORY T.0 IN DAYS RECIVEABLE TURN OVER RECIEVABLE T.O IN DAYS FIXED ASSET T.O TOTAL ASSET T.O OPERATING CYCLE CASH CYCLE PAYABLE TURNOVER PAYABLE T.O IN DAYS

2007 7.2 50 7.7 47 2.9 0.9 89 5

2008 9.8 37 8 45 2.9 1 90 4.56 4.27 85.44

STATUS INCREASE DECREASING INCREASE DECREASING STABLE INCREASING INCREASING DECREASING INCREASING INCREASING

RESULT FAVOURABLE FAVORABLE FAVORABLE FAVORABLE FAVOURABLE FAVOURABLE FAVOURABLE UNFAVOURABLE UNFAVORABLE UNFAVOURABLE

1. 2. 3. 4. 5. 6. 7. 8. 9. 10.

4.5 80.5