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In this lecture, we will learn how to calculate different financial ratios when you have balance sheet

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and PNL statement of a company with you.

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You can find balance sheets and PNL for any company from its annual report.

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Or you can visit any of financial websites such as Yahoo!

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Finance or Money Control, etc., to find balance sheets and BNN the statements of any publicly traded

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companies.

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We have already imported Off-balance-sheet and PNL, the statement of a company, so in the first step

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you can find balance sheet and in the second tab you can find BNL statement of that company.

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Using these two taps will find different financial ratios that we have discussed in the three lecture.

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First, we will discuss the profitability issues, the first issue we are going to find is gross margin,

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the formula for gross margin as gross profit divided by net sales.

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You can find gross profit and sales in the Pinelli statement.

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So if we go to PNL statement.

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Formalized gross profit by total revenue, so the gross profit is this gross margin and the total revenues,

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total sales revenue that we have in the first sell.

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If you see, we have calculated the gross margin from this BNL statement.

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You can also notice in the formula bar that if you select any cell from any different tab, you will

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find the name of that tab in the formula bar.

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So just rate equal to while using formula and then you can navigate to any tab and you can select any

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cell from any tab.

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Excel will automatically modify the address accordingly.

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So the gross margin for this company is around point thirty eight or thirty nine percent.

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Next will find the net profit margin.

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Net profit margin is net profit divided by net sales?

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Again, we can find this information in the PNL statement.

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So net profit or net income, is this divided by the revenue, which is this?

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So the net profit margin for this company is zero point zero for nine.

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If you change it to percentage, it will be around four point nine percent or five percent.

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Next, we have a return on asset, which is net profit plus interest multiplied by one minus tax rate

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divided by average total assets, you can find net profit.

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And interest and tax rate from your personal statement, and you can find total assets from your balance

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sheet.

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So let's first add net profit plus interest.

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Is the net profit plus interest?

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Now we have to multiply this term with one minus tax rate and tax rate varies from company to company,

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but in our case we are taking tax rate as 25 percent or zero point Dufay.

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So we'll multiply it with one minus zero point to five.

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This is the numerator and the denominator we have to put total average assets.

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You can find total assets from your balance sheet.

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So this is the return on assets at zero point zero zero eight, or if you convert it to percentage,

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it will be at one point eight percent or one percent.

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Next, we have an return on equity here, we have to divide net profit by total equity.

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You can find net profit from your personal statement.

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And you can find equally from balance sheet, so the net profit divided by.

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Total equity.

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So this is the total equity total or not, secretly, you can divide this.

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So are we in our cases, zero point zero nine or nine percent.

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Now, let's move on to liquidity ratios.

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The first issue is current ratio, which is current assets divided by current liabilities.

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You can find both of these items in the balance sheet.

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So this is the total current asset and.

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On the right, we have the total current liabilities for divide, these two will get to current ratio

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to the current ratio in our case is zero point six five or six to five percent.

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Non-current ratio is one of the ratios which lenders evaluate before lending money to any company,

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and they usually put a filter on this ratio for analyzing different companies.

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So let's filter.

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If the current ratio is more than 80 percent, we will return path.

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And if current ratio is less than 80 percent, we will return feel.

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So we can use if a statement.

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To get an output, according to this 80 percent threshold limit.

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If we hit enter, we'll get feed, so I'm showing you this only because you can use these ratios value

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to create a summary checklist on different ratios values according to your business requirement.

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Now, the next is cash ratio, which is cash plus marketable securities divided by current liabilities,

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you can find these values in your balance sheet.

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So assets we have cash and marketable security, we will add these two values.

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And divided by current liabilities.

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So the cash ratio in our case is zero point three five or 35 percent.

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Now, the next is quick ratio.

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Again, this is a very important ratio, which is the sum of cash plus marketable securities, plus

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receivables divided by the current liabilities.

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So, again, you can find these values in your balance sheet.

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So in the asset, you will find cash.

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Marketable securities.

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And then the receivables.

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And we have to divide this whole term by current liabilities.

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So the quicker issue.

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For this company is point five zero eight or 51 percent.

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Now let's move on to debt management ratios.

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The frustration issue we have is debt to capital ratios, which is BEP divided by debt plus equity.

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Again, you can find this terms.

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In your balance sheet.

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So the total up here is this total current liabilities plus total long term liabilities.

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Divided by debt plus equity, which is this number total liabilities and on an equity.

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So the debt to capital ratio in the case is zero point nine three or ninety three percent.

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The next issue is debt to equity ratio, which is divided by equity.

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Again, you can find this DOMS in your balance sheet total up is this.

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Current liabilities plus long term liabilities.

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This is our total debt divided by equity, which is total total owners equity.

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So the depth to equity ratio in this company is fourteen point five it.

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Now, the next is.

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Interest coverage ratio, which is about earnings before interest and tax.

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Delighted by the interest amount.

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Now you can find these items in PNL Stutman.

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So here we have earnings before tax.

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Now we want earnings before tax and interest, so we will earn interest to find a bit.

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And then we have to divide it by the total interest amount, which is this.

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So the interest coverage ratio for this company is four point five five.

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Next, we have asset management ratios.

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The first issue is a sex turnover, which is revenue divided by average, and that aside here, the

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average term means the average net asset during the whole year.

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So, for example, if you have some value in the start of January and you have some value of net asset

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in December, and you have to average it out to find the average net asset.

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But for now, I'm only using a single value that we have in the balance sheet.

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So first.

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For revenue, we will go to PNL statement.

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This is our revenue and for a site we will go to.

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Balance sheet, which is this.

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So the asset turnover is zero point one win for this company.

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The next issue we have is inventory turnover, which is cost of goods sold divided by average inventory

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balance.

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Again, here also average means the average inventory level for the whole year.

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So you can either take an average of your start of the year inventory balance and end of the year inventory

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balance or any other metric to calculate average.

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But in this case, we will take the value which we have in the balance sheet.

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So the cost of goods sold for that, we have to go to PNL a statement and you can find it here.

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Divided by average inventory level, so we will select this inventory value from our balance sheet.

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You can see that inventory turnover in our case is one point six nine.

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The next issue is inventory days, which is number of days in a period divided by.

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Inventory turnover.

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So supposing they are generally we have 365 days, so we will write 365 divided by this inventory turnover.

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So the inventory days is equal to two one six for this company.

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So that's all we calculate financial ratios when we have balance sheet and biennales statements.

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Generally, you'll need to calculate these ratios for multiple companies, and it is better to create

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a format like this.

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So if you get balance sheet for some new company, you can just update this balance sheet and update

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the PNL statement and all of your ratios will get automatically updated and the steps along with finding

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the ratios.

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You can also create text like this if you have any threshold or standards for particular financial ratios.

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This makes Decision-Making much more easy and you will be able to create some reports in just a few

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minutes.