Ratio analysis
How to turn the three statements into comparisons. These lessons start with growth and share-of-revenue tables, then build the liquidity, profitability and debt ratios one at a time, and finish by splitting return on equity into margin, asset turnover and borrowing.
The examples are Titan, which keeps thin margins on a lot of stock and borrowed more this year, and Info Edge, which keeps wide margins on services and holds a large portfolio of shares. Every ratio is built from printed lines, with the formula stated, and the lessons show where the same ratio gives different answers depending on how it is defined.
5 lessons, about 2 hours 3 minutes of reading in all. Start at the top and go in order.
After this module you will be able to
- read an income statement as growth and as a share of revenue
- work out the current, quick and cash ratios and say what each leaves out
- build gross, operating and net margins, and return on assets, equity and capital employed
- measure debt with debt to equity and interest cover, and stress-test the cover
- split return on equity into margin, asset turnover and the equity multiplier
The lessons
- Reading Statements with RatiosWhat ratio analysis is for, how growth and share-of-revenue comparisons work, and where ratios mislead, with a live example and real accounts.
- Liquidity RatiosThe current, quick and cash ratios, how each is built and what it misses, with a live calculator and the real balance sheets of Titan and Info Edge.
- Profitability RatiosGross, operating and net margin, and return on assets, equity and capital employed, built from real statements with a live calculator and Titan and Info Edge.
- Debt and Coverage RatiosDebt to equity, the debt ratio and interest cover, with a stress-test calculator and the real balance sheets of Titan and Info Edge.
- DuPont AnalysisSplit return on equity into net margin, asset turnover and the equity multiplier, with a live calculator and Titan's and Info Edge's real accounts.