ratio analysis with examples

2. Ratio Analysis:
Liquidity Ratio:
 A class of financial metrics that is used to
determine a company's ability to pay off its
short-terms debts obligations. Generally, the
higher the value of the ratio, the larger the
margin of safety that the company
possesses to cover short-term debts.

3. Current Ratio
 The current ratio is a reflection of financial strength. It is the
number of times a company’s current assets exceed its current
liabilities, which is an indication of the solvency of the business.
The Current Ratio formula is

4. Shell Petroleum
Particular Year 2013 Year 2012 Year 2011 Year 2010 Year 2009
Current
Assets
29,867,704 33,719,963 36,772,57
0
25,489,760 21,363,250
Current
Liabilities
33,039,308 38,791,588 40,694,84
8
30,407,710 25,169,302
Current
Ratio
0.90 0.87 0.90 0.84 0.85

5. Current Ratio
Acid test or quick
ratio
Cash Ratio
Working capital
Sales to working
capital

6. 0.9
0.87
0.9
0.84
0.85
0.8
0.82
0.84
0.86
0.88
0.9
2013 2012 2011 2010 2009
shell

7. Analysis
 Current ratio of 2013 is 0.90 and 2012 is 0.87 so ,the
current ratio of 2013 is better than 2012.year 2013 is
better short term financial position than year
2012.Because its labilities are covered better wit a higher
current ratio.
Current ratio of 2012 is 0.87and 2011 is 0.90 so ,the
current ratio of 2011 is better than 2012.year 2011is better
short term financial position than year 2012.Because its
labilities are covered better wit a higher current ratio

8. Acid Test or Quick Ratio
In finance, the Acid-test or quick ratio or liquid ratio
measures the ability of a company to use its near cash or
quick assets to extinguish or retire its current liabilities
immediately

9. Shell Petroleum
Particular Year 2013 Year 2012 Year 2011 Year 2010 Year 2009
Current
assets -
inventory
29,867,704-
17,818,412
33,719,963-
17,353,514
36,772,570
-
17,847,222
25,489,760
-
12,348,438
21,363,250
-
13,076,718
Current
labilities
33,039,308 38,791,588 40,694,848 30,407,710 25,169,302
Acid-test
Ratio
0.36 0.42 0.46 0.43 0.33

10. 0.9
0.36
0.42 0.46
0.33
0
0.2
0.4
0.6
0.8
1
2013 2012 2011 2010 2009
shell

11. Analysis
 The result Acid test or quick ratio of five year shell company is
given:
 Acid test ratio year 2013 is 0.36 and 2012 is 0.42. Shell company
needs to improved its current liquidity position
 Acid test ratio year 2012 is 0.42 and 2011 is 0.46. Shell company
needs to improved its current liquidity position

12. Cash ratio
The ratio of a company's total cash and cash equivalents to its current liabilities.
The cash ratio is most commonly used as a measure of company liquidity. It can
therefore determine if, and how quickly, the company can repay its short-term
debt. A strong cash ratio is useful to creditors when deciding how much debt, if
any, they would be willing to extend to the asking party.

13. Shell Petroleum
Particular Year 2013 Year 2012 Year 2011 Year 2010 Year 2009
Cash
equivalents
+M security
(5,299,630)
+
131,412
(8,781,515)
+
81,061
(14,306,585
)
+ 66,532
(8,941,413)
+
305,384
(5,083,378)
+
250,050
Current
liabilities
33,039,308 38,791,588 40,694,848 30,407,710 25,169,302
Cash Ratio (0.15) (0.22) (0.34) (0.28) (0.19)

14. Analysis
 The Result of cash Ratio of five year shell company is given
bellow:
 The liquidity of a shell company is decrease all year,because the
cash ratio of a company should be one or greater then one so, The
shell company should increase liquidity.because every year cash
ratio is less then one therefor the shell company should increase
liquidity.

15. Working Capital:
 The working capital of a business is an indication of the
short run solvency of the business . compute working
capital as fellows:

16. Shell Petroleum
Particula
r
Year 2013 Year 2012 Year 2011 Year 2010 Year 2009
Current
assets--
current
Liabilities
29,867,70
4
33039308
33,719,963
38791588
36,772,57
0
40694848
25,489,76
0
30407710
21,363,25
0
25168302
Working
capital
-3171604 -5071625 -3922278 -4917950 -3805052

17. Analysis
 The five year working capital result of shell company is
given bellow:
 The five year result of working capital is not better
because the shell company current assets is less than
current liabilities . therefore company performance is not
good . company should more increase current assets
than current liabilities.

18. Sales to working capital
 The relationship between Net Sales and Working Capital is a
measurement of the efficiency in the way working capital is
being used by the business. It shows how working capital is
supporting sales

19. Shell Petroleum
Particular Year 2013 Year 2012 Year 2011 Year 2010 Year 2009
Net sales 287,991,9
22
244,316,8
75
247,506,5
37
223,813,5
92
177,110,2
08
Average
working
capital
-4121614 -4446951 -4420114 -4361501 -5137443
Sale to
working
capital
-69.8 -54.9 -55.9 -51.3 -34.5

20. Analysis
 The five year sales to working capital result of shell company
is given bellow:
The five year result of sales to working capital is not better
because the shell company achieved less net sales. therefore
company performance is not good. company should more
increase net sales because sales to working capital is negative
whose show the shell company performance is not good