Friday, September 23, 2016

Total Outside Liabilities to Tangible Net Worth (TOL/ TNW) Formula

TOL / TNW Formula: TOL/ TNW Ratio Formula

Meaning:

This ratio measures the total leverage employed by the business; meaning that the firm has used its net worth as a lever to raise outside funds.

Too much of leverage is not good as it may pose a problem for the organisation to repay the obligations during periods of stress.

Example: TOL/ TNW Example of NMDC Ltd.

Recommended Number:

TOL/ TNW shall be less than 3 - meaning that a business can have total outside liabilities of a maximum of three times its tangible net worth. Lower number means more safety and a higher number means weakness.

Infographic:

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Debt Equity Ratio - Formula

Debt Equity Ratio Formula: Debt Equity Ratio Formula

Meaning:

Debt Equity Ratio measures the firm's ability to meet its long-term obligations on time, by comparing with the firm's own money or net worth. As a measure of additional safety, value of intangible assets like goodwill and brands are deducted from the net worth.

Example: Example Calculation of Debt Equity Ratio of NMDC Ltd.

Required Number:

The Debt Equity Ratio must be one or below. Lower the number than one so much stronger the company is and vise-versa.

Quick Ratio - Formula

Quick Ratio Formula: Formula for Quick Ratio

Meaning:

Quick Ratio is the second important liquidity ratio that measures the organisation’s ability to meet immediate obligations on a much stringent method. Here inventories which are slower to realise or convert into cash are eliminated from the current assets.

Example: Example-Calculation of Quick Ratio of NMDC Ltd.

Desired Number:

The minimum required number for safety is 1. Below one means inadequate safety and any number more than one indicates increased margin of safety.

Current Ratio - Formula

Current Ratio Formula: Formula for Calculation of Current Ratio

Meaning:

Current Ratio is the ratio or proportion between current assets and current liabilities. Current assets mean assets that can be expected to get converted into cash within a year and current liabilities are those that mature within 12 months. It is a measure of the business’s liquidity or the ability to meet short-term obligations.

Desirable Number:

Current ratio of two is minimum stipulated. Any number above means additional safety. A number below 2 indicates weakness.

Example:
Here we present the example of calculating the current ratio of NMDC Ltd., as per the balance sheet on 31st March 2015. Example Showing Current Ratio Calculation of NMDC Ltd.

Earnings Per Share (EPS) - Formula

EPS Formula: EPS Formula

Definition:

Earnings Per Share (EPS) means the 'Net Profit' or 'Profit After Tax (PAT)' of a company reduced or converted to a single share.

Significance:

EPS is the important, denominator component in calculating Price to Earnings Ratio.

Example:

Let us consider the example of the EPS of SJVN Ltd., a company listed on Indian stock exchanges, for the financial year ending on 31st March 2015. Example Calculation of EPS of SJVN Ltd.