Statement Analysis Tools and Accounting Ratios Test - 47

Net Profit Ratio is the ratio of after tax profits to net sales. It reveals the remaining profit after all costs of production , administration, and financing have been deducted from sales, and income taxes recognized.

Financial statement analysis is a post mortem of business transactions. Because it involves analysis of each and every transactions in detail.

Common Size financial statement is Vertical Analysis of financial statements in which each account is expressed as a percentage of the value of sales. It enables easy analysis between companies or between time periods of a company.

working capital turnover ratio is also referred to as net sales to working capital. It shows the company's effectiveness in using its working capital.

Liquid ratio is a ratio that measures a company's ability to pay short term and long term obligations. This is done by comparing a company's most liquid assets, those that can be easily converted to cash, with short term obligations.

Liquid Ratio is also known as Acid Test Ratio which helps in assessing the short term liquidity position of the firm.

Trade payable turnover ratio is a ratio of credit purchases to average trade creditors. It measures the speed with which a company pays its suppliers.

Loan taken for more than one year can be termed as long term borrowings

Current assets will reduce by that much amount as cash is paid and liabilities will reduce by that amount as outstanding liabilities will decrease

Fictitious Assets (unamortized expenses) are subtracted while calculating capital employed:

i.e. Share Capital + Reserves and Surplus + Long term borrowings – Fictitious Assets