AAKASHAYA PATRA SEVEN STAR SMART EDUCATION SERIES PART – 55 : 29.08.2020

-


Financial Ratios

The best and the easiest way to analyze a company, is by studying its financial ratios.Benjamin Graham, popularly known as the Father of Fundamental Analysis, popularized the theory of financial ratios.

Financial ratios not only help in interpreting the financial results of a company but also allow comparison of them with previous year's results and also with financial results of other companies operating in the same industry.

When we compare financial ratios of a company for the current year with the ratios of the same company for past few years we come to know whether the performance of the company is improving or deteriorating financially.

When we compare financial ratios of a company for the current year with the ratios of another company operating in the same industry and of the same or similar size then we can come to know which company is financially better to invest in. Hence no person should invest in a company until he has analysed its financial ratios.

While computing and studying financial ratios remember one important thing. "No Single Ratio Tells the Complete Story."  There is no point in computing just one or two ratios as they will not give the entire picture about the company, telling just one or two aspects of the company. It is only when various financial ratios are calculated and studies in conjunction that the complete picture about the company emerges.

Let me explain you above mentioned points with help of a few examples. A company having a price to earnings (P/E) ratio of around 8 may appear to be cheap but when we see that other companies operating in the same sector have price to earnings ratios between 4 and 5, the company may appear valuation wise expensive.

A profit making company whose current market price is around Rs. 10 may appear to be cheap and impressive but when we come to know that company has book value of just Rs. 1 per share, making its P/BV ratio around 10, then the company appears to be undervalued and expensive.

Similarly, a company having annual sales of Rs. 500 Crore and a net profit of Rs. 200 Crore may appear to be impressive but when we come to know that the company has a debt of around Rs. 10,000 Crore then the company does not appear to be pressive.

All the ratios are not necessarily relevant to any particular analysis. The ability to select a relevant ratio or ratios to answer the research question is an analytical skill which can only be mastered with lots of practice.

Comments

Post a Comment

Popular posts from this blog

AAKASHAYA PATRA SEVEN STAR SMART EDUCATION SERIES PART – 61 : 10.10.2020

-
Image
                           Financial Ratios- Liquidity Ratio As the name indicates, these financial ratios help us to evaluate the ability of the management to use its assets and manage its liabilities effectively. Commonly used Management Efficiency Ratios include –   1. Fixed Asset Turnover Ratio 2. Working Capital Turnover Ratio 3. Total Asset Turnover Ratio 4. Inventory Turnover Ratio 5. Inventory Number of Days 6. Receivables Turnover Ratio 7. Days of Sales Outstanding   Fixed Asset Turnover Ratio: The fixed-asset turnover ratio is the ratio of net sales to the fixed assets of the company. Fixed Asset Turnover Ratio = Net Sales / Average Net Fixed Assets This ratio is used to measure the operating performance of the company, i.e., how efficiently a company is producing sales with its machines and equipment. In general, a higher fixed-asset turnover ratio indicates that a company has more effectively utilized investment in fixed assets to generate revenue.A de
Read more
-
Image
16.06.2019 AAKASHAYA PATRA SEVEN STAR SMART EDUCATION SERIES PART – 12 : Stochastic Indicator Stochastic is known as one of the reliable leading indicator to forecast the Price Reversal or Swing Reversal, its also give an idea about stock over bought position as well as stock over sold position Stochastic Indicator does not follow price or volume but it follow momentum of the trend For ready reference, Formula of the Stochastic Indicator as below : % K = (Most Recent Closing Price - Lowest Low) / (Highest High - Lowest Low) × 100 %D = 3-day SMA of %K Lowest Low = lowest low of the specified time period Highest High = highest high of the specified time period There is a two line are available in stochastic indicator, %K Line known as fast line and %D is known as slow line %D is known as a slow line because its a SMA of %K Default setting is 14 period it means it consider recent last 14 persod data as per formula in calculation We can use this Stocha
Read more

AAKASHAYA PATRA EXCLUSIVE STOCK FOR INVESTMENT: 21.06.2020

-
Image
DOLLAR INDUSTRIES LTD CMP 137 ENTRY 135 TO 130 STOPLOSS 100 TARGET 300++ TIME: 36 MONTHS Dollar Industries Limited has become one of the leading brands in the hosiery sector with an enviable 15% market share and a significant percentage in textile exports of the total production in the Indian hosiery market. It has also made a noticeable presence across social media and e-commerce platforms. Dollar has extensively penetrated across 29 states in India. Not only that, its products have also gone beyond the boundaries of the country and has emerged as the highest selling Indian innerwear brand in the UAE and the Middle East, marking its presence in places like Oman, Basra, Jordan, Qatar, Kuwait, Bahrain, Yemen, Iraq, Myanmar, Nepal, Nigeria and U.A.E. Having fused its position in Gulf countries the company is now assertively looking at the rest of the world with collections that promise to delineate the string. Dollar Industries is the only hosiery and knitwear company in India c
Read more