TRANSPORTATION

Managerial Accounting
& Control II
Submitted By- Gurjeev Nanda
Radha Rani
Udit Chauhan
Ahmita Sehgal
Ritu Satwal

RETURN ON ASSETS
It helps in finding out how the company uses its assets/investments
efficiently .
It measures the profitability of the firm in terms of assets/investments
employed .
Generally more the assets/investments more is the profit .
RETURN ON ASSETS = PROFIT AFTER TAX(PAT) 100
AVERAGE TOTAL ASSETS

Comparison
Company O and P both are of transportation firms and
have return on assets ratio of 3 and 4 respectively .
As they are of same industry we assume that the assets
employed by both of them are equal.
Company P has high ratio , therefore it is utilizing the assets
more efficiently then company O and is giving more profits
as compared to company O .
Pat for company o is 6.9% and company p is 2.3% . This
means company p is better than o .

RETURN ON EQUITY
This ratio is primarily done for owners point of view. As
they invest in the firm and should know about the profit
that the firm is making as profit belongs to them.
This ratio analyses profit available for equity share holders
in respect to investment made by them .
It tells how well the funds of equity share holders have
been used .
Return on equity ratio = PAT Preference Dividend
Equity Shareholders Fund

Comparison
Company O and P return on equity
ratio are 7 and 11 respectively
It tells us that company P is able to give
more satisfactory return to its owner
than company o .

COMPANY O

CURRENT RATIO
CURRENT RATIO=TOTAL CURRENT
ASSETS/TOTAL CURRENT LIABILITIES
TOTAL CURRENT ASSETS =CASH AND
EQUIVALENTS+RECIEVABLES+INVENTORY+OTHE
R CURRENT ASSETS
=1.8%+6.5+1.5+0.9
=10.7%

TOTAL CURRENT LIABILITY=ACCOUNTS PAYABLE+OTHER CURRENT

LIABILITIES
=12.0%+1.4
=13.4
CURRENT RATIO=TOATAL CURRENT ASSEST /TOTAL CURRENT
LIABILITIES
=10.7/13.4 X 100
=80%
QUICK RATIO
=QUICK ASSETS/CURRENT LIABILITIES
=TOTAL CURRENT ASSETS INVENTORY
=10.7 1.5
=9.2%
QUICK RATIO=9.2/13.4=6.2

COMPANY P
CURRENT RATIO
CURRENT RATIO=TOTAL CURRENT ASSETS /TOTAL CURRENT LIABILITIES

TOTAL CURRENT ASSETS =CASH AND

EQUIVALENTS+RECIEVABLES+INVENTORY+OTHER CURRENT ASSETS
=0.9%+18.7+3.9+1.3
=24.8%

TOTAL CURRENT LIABILITY=ACCOUNTS PAYABLE+OTHER CURRENT

LIABILITIES
=5.1%+21
=26.1%
CURRENT RATIO=TOATAL CURRENT ASSEST /TOTAL CURRENT
LIABILITIES
=24.8/26.1 X 100
=95%
QUICK RATIO
=QUICK ASSETS/CURRENT LIABILITIES
=TOTAL CURRENT ASSETS INVENTORY
=24.8-3.9
=20.9%
QUICK RATIO=20.9/26.1=0.8%

INTERPRETATIONS

CURRENT RATIO IS AN INDICATOR OF THE FIRMS COMMITMENT

TO MEET ITS SHORT TERM LIABILITIES WHERAS QUICK RATIO IS AN
INDICATOR OF SHORT TERM SOLVANCY OF THE COMPANY

IDEAL CURRENT RATIO IS 2 WHERAS QUICK RATIO IS 1

CURRENT RATIO OF COMPANY O IS 0.80 WHILE COMPANY P IS

.95

SINCE LIABILITIES ARE MORE AND ASSETS ARE LESS THEREFORE IT

IS NOT GOOD FOR COMPANY

IT IS NOT GOOD FOR COMPANY O TO INVEST IN QUICK ASSESTS

AS ITS QUICK RATIO IS 6.2 WHILE IDEAL RATIO SHOULD BE 1

Receivables Turnover
Ratio
This ratio measures how fast the
stock is moving through the firm
and generating sales.
This ratio is collected in times.

Interpretation
Higher the ratio, the more efficient
the management of inventories and
vice versa.
Here the ratio of company O is 7.08
and that of company P is 10.18

The ratio of company P is higher so it

is more efficient in managing its
inventories rather than company O

Inventory Turnover Ratio

This ratio indicates economy
and efficiency in the
collection of amount due
from debtors.
This ratio is donated in times.

Interpretation
Higher the ratio, better it is since it
indicates that debtors debts are
being collected more quickly
Here, the ratio of company O is 30.97
and that of company P is 49.22

As the ratio of company P is higher

which implies that company P is
more efficient in collecting from the
debtors.

Long term debt equity ratio

This ratio ascertains the soundness of

the long term financial position of the
firm

This ratio expresses relationship

between debt (long term loans) and
equity (shareholders funds)

Debt equity ratio = total long term

debt/shareholders fund

Case study

Debt equity ratio of O company =

total long term debts /shareholders fund

=14.5/44.3=0.33 or 33%

Debt equity ratio of p company = total long

term debts / shareholders fund

=13.7/42.5=0.32 or 32%

Company O has comparatively

higher debt portion relative to the
equity than the other company P.

It might not normal to the

company and might put the
company risk but indicate high
leverage.

Higher the ratio higher the risky

financial position and lower the
ratio safer the financial position.

Dividend payout ratio

The Dividend payout(DP) ratio is the

ratio between the dividend per
share(DPS)and the earning per
share(EPS)of the firm

It refers to the proportion of the EPS

which has been distributed by the
company as dividends.

DP ratio= dividend per share/ earnings

per share

Interpretation
Dividend payout ratio of company O is 46%
and the dividend payout ratio of company P
is 42%.
Company O has higher dividend payout ratio
as compare to company P.
A reduction in dividends paid is looked poorly
upon by investors, and the stock price usually
depreciates as investors seek other dividendpaying stocks.
A stable dividend payout ratio indicates a
solid dividend policy by the company's board
of directors

Price Earning Ratio

Establishes the relationship between the market price of the

share and earning per share.

It is expressed in Times, which indicates, how many times is the

market price of share to its earnings.

Computation: Price Earning Ratio = Market price per share/

Earning per share.

This ratio is helpful in governing the market price of the share.

Market price per share = Price earning ratio X Earning per share.

This is the most widely used ratio in the stock exchange by the
invertors.

A high this ratio indicates the faith of investors in the stability and
appreciation of company earnings.

Interpretation
P/E Ratio

Company O

Company P

20.9

23.3

The P/E Ratio of company O is less than that of

company P which shows that the investors have more
faith in investing in Company P as compared to
company O.
Also the company P by giving more faith to the
investors giving less risk investment which
automatically leads to low returns.
Because higher the risk, higher the return or viceversa.
On the other hand though company O is not giving
less risky investment but it is giving more returns to the
investors than the company P.

Market/Book Value Ratio

A ratio used to find the value of a company by comparing

the book value of a firm to its market value.

Book value is calculated by looking at the firm's historical

cost, or accounting value.

Market value is determined in the stock market through its

market capitalization (Market capitalization is the aggregate
valuation of the company based on its current share price
and the total number of outstanding stocks).

Establishes the relationship between the market price and

the book value of the share.

It is also expressed in Times, which indicates, how many

times is market price of the share to its book value.

Computation: Market price per share/Book value per share

Also known as price-to-book ratio.

Comparison
Market to book value ratio

Company O

Company P

1.52

2.42

In this case Company Ps ratio is more

than that of company O.

A higher P/B ratio implies

that investors expect management to

create more value from a given set of
assets, all else equal,
and/or that the market value of the firm's
assets is significantly higher than their
accounting value.

THANK YOU
!!