Ratio Analysis

    -Relationship between items or groups of items in the financial statement.
    -What is financial statement?
     Income statement
     Balance sheet
   
-expressed in terms of another figure
-mathematical yardstick- measures the relation ship between two figures

I    Balance Sheet Ratios:
    1. Current Ratio    = Current Assets / Current Liabilities  Std 2:1  
    2. Liquid Ratio     = Quick Assets / Quick Liabilities      Std 1:1
    3. Proprietary Ratio    =  Proprietor’s Fund* / Total Assets  Std  Neither be  
                         too high or too low
*Equity + R.S + Pref+ Surplus - Miscellaneous   

        4.Stock working capital Ratio:= stock / Working capital     Std 1:1
Higher ratio indicates weak working capital
    5. Capital Gearing Ratio = Fixed income bearing securities /Non fixed income                        bearing securities
High geared = fixed interest bearing securities are greater than equity
shareholders fund
Low geared = just opposite to the above  Std 1:4
6. Debt Equity Ratio = Long term debts / Shareholders Funds  Std 2:1

7. Fixed Assets Ratio = Fixed Assets / Long term funds   
II. Revenue Statement Ratios:
       
        8.Gross Profit Ratio = Gross Profit / Net Sales 100
       
        9.Operating Ratio = Operating Cost / Net Sales 100
                         Manufacturing Concern – high
                         Other firms’  -low
        10.Expenses Ratio = Concerned Expense / Net Sales 100   
       
        11.Net Profit Ratio = Net profit / Net Sales 100

        12.Net Operating Profit Ratio = Operating Profit / Net Sales 100
           
Operating profit = GP- all expenses including finance
       
13.Stock Turnover Ratio = Cost of Goods Sold/ Average Stock

Std.: Seasonable based on nature of production


III Combined/ Composite Ratios:

14. Return on Capital Employed = NPBIT / Capital Employed 100
            -indicate the management efficiency
-    productivity of capital utilized
-    overall efficiency.

15. Return on Proprietors Funds = NPAT / Proprietors Funds 100

16.Return on Equity Share capital = NPAT-Pref.Dividend / Equity share capital

17.Earnings per share = NPAT- Pref. Dividend / No of Equity Shares

18.Dividend / Payout Ratio = Divi. Per Equity share / EPS

19.Divi. Yield Ratio = Divi. Per share / Mkt price per share

20.Price –Earning Ratio = Mkt. Price Per Share / EPS

21.Debt Service Ratio = NPBIT / Interest
    ( Interest coverage Ratio)

22.Creditors Turnover Ratio = Credit Purchase /Average Accounts Payable  
    C.P.Period = days/ months in a year / CTR
23.Debtors Turnover Ratio = Credit Sales / Average Accounts Receivable
    D.C.Period = days/ months in a year / DTR

24.Fixed Assets Turnover Ratio = Sales / Fixed Assets

25.Total Assets Turnover Ratio = Sales / Total Assets

26.Working Capital Turnover Ratio = Sales / Working Capital

27.Capital Turnover Ratio = Sales/ Capital employed.

Definition of investment

Investment is defined as any use of resources intended to increase future production output or income. In the context of this article, investment is the use of our monetary resources to increase our income or profit.

Why is it important to know about investments?

Understanding about investments was always important, but never perhaps as important as it is today.

To begin with, there is a mismatch between our earnings and expenditure. By this, I mean that for those among us who are salaried, we earn a fixed salary per month, and this figure (hopefully) gradually keeps increasing. However, our expenditure pattern tends to be different. There is a fixed amount that we need to spend every month, which may include our day to day needs, rent / mortgage, car loan instalment, education for kids and so on. But, we would also have expenses coming on an irregular basis i.e. furniture, an occasion in the family, an expensive holiday etc. Further, we shall be working for a limited number of years, but quite likely, we will be living well beyond the retirement age. With longer lifespans and increasing health care costs in our old age, we need to plan our investments well in advance to prepare ourselves for the “golden years” ahead.

Your personality type and risk-taking ability

Before we explore areas of investing, we need to assess our own profile and risk tolerance levels. One’s risk tolerance level could differ depending on whether one is a young student starting out, a newly married couple, a middle aged working professional, a multi-millionaire businessman, a 65 year old widow etc. Our risk taking ability and willingness would vary depending on who we are and at what stage of our life and careers.

A young student starting out might have an entry level salary, limited expenses but maybe a loan to pay off. A newly married couple may have dual salaries but might be planning to buy a house and so would have to consider outflows on account of a future mortgage. A 70 year old widow would perhaps be focused on minimal risk-taking to ensure she doesn’t lose anything and makes enough return to take care of her daily expenses and some one-off health related spending.

As a general rule, I would always recommend taking a cautious approach to expenses based on our present income levels. This means that we should try and ensure that we keep our overall expenses well within our present income. For some of us, this tends to be more difficult than others, but in the long run, it’s an approach that almost always pays off. As we start saving more and more, we need to recognise that efficient use of this amount is going to ensure our sense of security and our lifestyle in the future.

Making an Investment Plan

With investments being so important for all of us, it is imperative that we spend sufficient time and effort to develop a good investment plan. Before developing an investment plan, we need to be aware of our income, our regular expenses, our irregular expenses (meaning expenses which come up once in a while) and an estimate of our future requirements.

In other words, you need to start out with taking an estimate of:

1. Present income

2. Your day to day expenses, mortgage, car loan, schooling of kids, insurance, health care etc.

3. Your one-off expenses. These can include your furniture, holidays, family occasions and events etc.

4. You finally need to make an estimate of how much you will save and how much of a nest egg you will need to build over a period of time to ensure sufficient availability as you close in on to your golden years.

Based on the above, you need to make an investment plan which should take care of:

1. Your short term needs- You need to set aside sufficient money to be able to take care of any short term requirements that you may have. These could be in the form of sudden medical emergencies, loss of job etc. Funds for these needs should be kept in liquid investments i.e. investments which can be withdrawn at short notice.

2. Your medium term needs – You may be single today, but you plan to get married in the coming few years and perhaps raise a family. You need to factor this into your investment plan considering the increased level of expenses that you might be faced with at that stage in the form of a larger house, a bigger car, schooling for child / children

3. Your long term needs – Over a longer time horizon, you need to build your nest egg to take care of your expenses post-retirement and to lead a decent lifestyle.

Types of investments

At a very broad level, we can classify investment types into:

1. Bonds: Bonds are usually securities that are in the form of debt. When one invests in a bond, one is effectively lending money to the government / company issuing the bond for a specific length of time and you will be compensated in the form of interest on a periodical basis and the original amount is paid back to you at the end of the period. The primary strongpoint of investing in a bond is the relative low level of risk. As long as you invest in a government issued bond, or a bond issued by a strong company, you will get back your interest and principal on time.

2. Stocks: Equities, or stocks, entitle you to own a small share in a business. When you invest in stocks of a company, you are a part-owner of that company i.e. a shareholder. You will be compensated from the profits of the company by way of dividends. Your primary income will come out of the dividends paid on your shares, and from capital appreciation in the value of the stocks. When you invest in stocks, you can participate in the growth of a company, and this can potentially mean a manifold rise in the value of your investments in a short period of time. However, the risk in such investments is high and you can very well lose a significant portion of your investments if the stock price falls sharply. This can be due to a sudden or gradual change in the prospects of the company which may hamper their future profitability.

3. Mutual Funds: When one buys a mutual fund, one is pooling his / her money with a number of similar investors and giving the job of buying securities (stocks or bonds) to a professional manager. Mutual Funds are set up with a specific focus, and this focus can vary significantly from one mutual fund to another. Some mutual funds would invest in bonds, which could either be government bonds or those issued by companies, some would invest in large cap stocks and others only in small cap, some might choose specific sectors e.g. automobile sector, infrastructure and others which might invest in specific markets i.e. emerging markets like China, Brazil, India etc.

4. Other investments: Other than the above broad types, there are a plethora of choices available for the investors, depending on his knowledge and understanding of the underlying assets, and his risk appetite. One can choose to invest in commodities (gold, copper, oil, agricultural products etc.), foreign exchange (investing in currencies other than your home currency), real estate (specific properties, Real Estate Investment Trusts, property derivatives etc.) and several other types. However, investing in any of these can entail significant risks for the investor. The other side of course is that one can stand to gain in a substantial manner also.

In my future articles, I will try and expand on the topics discussed above.

And I would love to hear feedback from you in the form of questions, comments and observations.

Are you thinking of investing in real estate? There is a lot of money involved in property investment so not only is there money to be made but if you're not informed then you can lose a lot. Not only do you need access to money but there is hard work and research involved in making money in the real estate business. If you have the drive then you can find buying, renovating and reselling or renting property for a profit enjoyable and rewarding. Here are some tips to acquiring property for resale or renting.

Look for a property in the best location you can afford. The best rental and resale family homes should be close to public schools and shopping centers. There should also be access to freeways and public transportation, especially in urban areas. Contact the local police department or use tools online to find out the crime rate in the neighborhood.

Once you have done your market research and decided on possible properties, you'll need to know as much as possible about each prospective property. While visiting the property look carefully for anything that will need to be replaced or repaired. Look for repairs that can be hidden and costly such as cracked hardwood floors, plumbing, mildew and electrical problems. Take notes and write these issues down so you can review them later.

Once you have done your own inspection and decided that a property looks like a possible investment, hire a professional inspector. Make sure to find a reputable and reliable inspector even if you have to spend more money. They will tell you what needs to be repaired, what should be repaired, and what work will need to be done in the future.

Don't get too attached to a property. Remember, your goal is too make money on the home. Keeping that in mind will help put things in perspective and help you not to make any hasty decisions. No matter how nice you find the property, don't be afraid to walk away from a sale.

Use professionals to help you before you decide to buy a property. An appraiser will help you determine the value of the real estate and how much it will be worth with renovations. You will also need to figure out how much renovations will cost to determine if a profit is possible.

Have your finances in order before making an offer. Financial aid is available and should be used especially if you don't have enough capital to invest in something that will turn a profit. Be careful though; a long term loan (such as 30 years) may not pay off if you'll be selling it in the short term. Use an accountant if you're unsure of the number crunching.

After you've completed the buying and selling of your first property you will be on your way to making real estate investment a hobby and a business.

By Arthur T Sample III

Maverick Money Makers. Today the world is filled with people who want to make money online from home. There are many successful marketers out there who are multi millionaires whose business is based on the internet. The internet, indeed, is a vast, virtually inexhaustible resource for business. Most people experienced in internet marketing will agree that affiliate marketing is the least costly, simplest and most effective way to start an online business. The beginning affiliate marketer needs to know how to start and where to find the tools needed to tap into the vast resources of the internet.

Mack Michaels' affiliate marketing system. Maverick Money Makers is a club. It is a club based upon the concept of affiliate marketing. The reason that most people fail in internet marketing is that the concept of internet marketing is very dynamic and often what the beginning affiliate marketer learns is obsolete by the time they are able to put it into practice. The important thing is to remain up to date and on the "cutting edge". Maverick Money Makers is designed to keep both the beginning affiliate and the advanced internet marketer out in front of the pack.

Maverick Money Makers will teach you step by step how to get started. Audios and videos are provided to teach you the same methods that Mack Michaels used to make money from home and leave his job. 24 hour support and ongoing training is provided. Everything in affiliate marketing is covered and you can advance to each level according to your own time. If you can follow this program step by step, then with a little effort your success is nearly guaranteed.

In general Maverick Money Makers provides the following strategy to insure your success step by step;

Step 1 helps you build the foundation of you business. It details the methodology of niche finding and market research. It also delivers the techniques of finding hot markets.

Step 2 shows you how to spy on the competition and use the very same powerful methods that they use. Tools are revealed for competitive, traffic, back linking, and trend analysis.

Step 3 brings you into an in depth review of keyword research. It provides a detailed understanding of the power of keywords, latent semantic indexing, meta tagging, and other parameters.

Step 4 provides the latest strategies for in page and off page search engine optimization. Search engine optimization, or SEO, is very important in order to gain a good ranking with the search engines.

Step 5 is a good primer on writing good content. Good content is premier in "preselling" your visitor in order to get the visitor to click on that affiliate link and buy.

Step 6 covers Video Marketing. Video marketing is one of the best methods of promoting any product online.

Step 7 covers the concept of social networking. Social networking is a popular activity now days and is very handy when it comes to making back links to your sites.

Inside Maverick Money Makers, you will find both beginning affiliate marketers and veterans of the concept willing to share their knowledge and ideas. Maverick Money Makers will guide you through the process and spare you from taking month after month making mistakes and spending lots of money putting a similar system together. Don't spend time trying to reinvent the wheel, join the Maverick Money Makers team today and take a shortcut to success. If you learn and apply the strategies revealed in this system, you will be able to start an online business from scratch with very little initial investment or overhead.

Although some of the more outlandish promises from advertisements could be disregarded relatively easily, many of the more elaborate debt relief scams are too confusing to be avoided at first glance by consumers without much first hand knowledge of consumer finance trickery.  The most popular debt relief scams avoid detection because they're sufficiently similar to the genuine forms of debt elimination

that have taken the country by storm over the past decade as escalating credit card

worries and ever more shaky employment prospects lead the most stalwart American couples to first consider the assistance of strangers.

 

The easiest sorts of debt relief scams to spot – and, as should be the logical consequence, the easiest scams to avoid – don't do anything for their clients whatsoever beyond taking what little money remains in the family coffers.  More than anything else, these most brazen of debt relief thieves wish to evade capture.  Accordingly, the smart ones figure out ways to confound the authorities through ever shifting websites and no fixed business address.  For borrowers hoping to avoid debt relief scams, this should send up giant warning flags whenever a business advertising itself as a debt relief specialist insists upon only receiving payment in the form of cash or money orders.

 

A craftier form of elimination scam that borrowers find harder to avoid uses federal government grants as the primary hook.  The explosion of television commercials extolling the virtues of these grants – with billions of dollars supposedly budgeted by the United States Congress for various debt reduction efforts just laying around to be claimed – has led otherwise reasonable heads of household to fork over money for what amounts to a treasure map drawn by hucksters.  In this case, the cleverest debt relief scams will couch their promises within a veneer of truth.  After all, within the entirety of the governmental budget, there are bound to be grants earmarked for the debt relief of specific groups.  However, the men and women funneling cash to afford the software and monthly administrative ‘expenses' (usually pre-paid for the coming year) packaged with applicable grant funds would be better off buying lottery tickets.

 

Anyone who spends the proper amount of time verifying the legitimacy of the debt relief organization they want to work with should not have too much trouble sniffing out obvious cases of fraud like the ones above.  However, since there's no set pricing for debt relief assistance based upon tradition, it's a bit tougher to recognize these smaller scale scams as they occur.  Indeed, one could even argue the point of whether or not a settlement negotiation scheme that features artificially raised prices would be considered a scam.  So long as the debt settlement professionals manage to legally force the lenders to drop their claims to a sizable percentage of the original credit card balances, they've then essentially done their jobs.  The very best of the debt professionals will be paid primarily on commission, but the amount of money each company charges could differ by thousands of dollars.  To a certain extent, settlement negotiators or debt management specialists who sincerely are among the tops in their field deserve the payday for convincing their clients' creditors to walk away satisfied for just fifty or sixty cents on the dollar.  However, if any one firm appears to charge significantly more than their competitors, the company may just be hoping for a clientele unaware about industry practices.  This sort of straightforward over-pricing might not send anyone to jail for debt relief scams, but any business to behave in this fashion most definitely should be avoided.

By Mike Mclaren

By Micheal James

By Joanna B.

by Erin Straker

Derrick Thomas, a 22-year-old senior at Florida A&M University, has been contemplating with money he earned during a summer internship at the Environmental Protection Agency. Ultimately, he decided to invest. "I'm young and this gives me time to learn," he says.

Thomas began by educating himself, researching investing terms on the Internet. After understanding the difference between a growth stock and a value stock, and what a stock's price-to-earnings ratio is, he began to consider the types of investments he wanted to make. He felt most comfortable with technology and pharmaceutical stocks--the former because he's a computer science major and pays close attention to the industry, and the latter because of the drug research he often reads about.

Thomas saved about $1,000 to invest. But after working to expand his knowledge base, he was still hesitant to actually make any investments. "I've never done this before," he says. "It's not like I'm going to play basketball or something, which I've done a million times. It's definitely something new."

BLACK ENTERPRISE had two New York-based financial advisers--Dale Bryant, portfolio manager of The Bryant Group, and Angela Bledsoe. a financial consultant with AXA Advisors--offer insight into what Thomas can do to start investing right out of college.

Invest in mutual funds. For someone like Thomas, individual stocks may not be the best choice. Bryant recommends mutual funds because they can give Thomas exposure to a variety of stocks in the technology or pharmaceutical industries without the risk of investing in only one or two stocks. Bledsoe suggests large-cap blended funds. "He'll have coverage in those areas (technology and pharmaceuticals) and it's not going to limit him in case of a downfall," she says.

Aim for a good asset mix. Bryant says Thomas' investments should have a variety of assets. "It's not good money management to be 100% invested in equities, even though he's a young guy and can bear a lot of risk," he says. "Being 100% invested in any kind of asset class is probably taking on too much risk." He suggests that Thomas place some of his money into mutual funds that have intermediate bonds or corporate bonds for a mix that is 70% to 80% stocks and 20% to 30% bonds and cash.

Start early and stay for the long haul. Bledsoe says, "As soon as you graduate, you have a chance at building great wealth. It's in your best interest to start as soon as possible." She explains that the reality of investing is that your best opportunity for highest returns happens when you invest over the long-term. Committing a small amount toward investing every month over the 40 years or so that Thomas will be working is the best approach.

And don't let student debt obligations stop you. Thomas will owe about $10,000 by the time he graduates in 2005, but Bryant and Bledsoe say he can still invest. Bryant advises paying off the debt first, while Bledsoe suggests balancing investing and repaying the debt. Choose the system that works for you. Thomas says, "I'm not doing this to make money [to spend]. I'm doing this so I can have long-term wealth in the future."