21/06/2006                                                                                    Page: 5

ACCOUNTS BASICS

RATIO ANALYSIS:  Financial analysts need a yardstick to evaluate the efficiency and performance of any business unit.  Ratio analysis studies numerical or quantitative relationship between two variables or items.

MAIN RATIO ANALYSIS TYPES: 

   1.LIQUIDITY RATIO: Current Ratio =>  Current Assets/ Current Liabilities.

                                   Current Assets --> Cash, Bank, Stock, Investments, Prepaid

                                                Expenses, Bills Receivable, Sundry Debtors.

                                   Current Liabilities --> Sundry Creditors, Bills Payable, Outstanding

                                                Expenses.

                                   Liquid Ratio   =>  Quick Assets/Current Liabilities.

                                   Quick Assets --> Cash, Bank, Stock.

   2.DEBT RATIO:       Debt Equity Ratio --> Long Term Debt / Shareholder's Equity.

   3.INTEREST COVERAGE RATIO: Earnings before Interest and Tax / Interest.

   4.DIVIDEND COVERAGE RATIO: Earnings after Tax / Dividend on Preference Shares.

   5.TOTAL FIXED COVERAGE RATIO: Earnings before Interest and Tax / Fixed Charges.

      Fixed charges include Interest on Loan, Preference share dividend, prepayment of

      Principal Amount.

   6.PROFITABILITY RATIO:  Gross Profit Ratio --> Gross Profit / Sales x 100.

                                          Net Profit Ratio --> Net Profit /  Sales x 100.

   7.DEBTORS TURNOVER:  Net Credit Sales / Average Debtors.

                                        Average Debtors = Op Drs + Cl Drs / 2.

      Collection Period:       360 / Debtors Turnover Ratio = No. of days.

   8.CREDITORS TURNOVER:  Net Credit Purchases / Average Creditors.

                                           Average Creditors = Op Crs + Cl Crs / 2.

      Collection Period:       360 / Creditors Turnover Ratio = No. of days.

   9.FIXED ASSETS TURNOVER:  Cost of Sales / Net Fixed Assets.

  10.OPERATING RATIO:  Expenses + Cost of Goods Sold / Sales.

       Expenses include all operating expenses except financial charges.

       Financial charges includes Interest, Taxes, Extraordinary losses.

  11.RETURN ON ASSETS:  Net Profit after Tax / Total Assets.

  12.RETURN ON CAPITAL:  Net Profit after Interest, Tax / Shareholders equity.

  13.TURNOVER RATIO:  Inventory Turnover = Cost of Goods Sold / Average Inventory.

        Average Inventory = Op Stock + Cl Stock / 2.