How I analyse ratio in financial statement | Accounting ratio analysis | Financial ratio analysis

Friends, today’s video is going to be on Financial Ratio Analysis We have already made a video, where we have talked about basis financial analysis We will carry forward it, We will continue this series, And today we will talk about how to analyse ratios The major ratios, from investor perspective Or with the perspective of when we analyse financials We will talk about major ratios, Obviously, we can’t discuss all the ratios, So today we will discuss about major ratios, When you have the mind-set of investor, What things he keeps in mind while analysing, and what things we should see So, keeping those ratios in mind, we will talk Already the video we made in part one that is up on channel, So, you can also watch it by clicking on "I" button And in this one we will talk about ratios, So, let’s go and try to understand ratios We already had made a video in which I already explained you When any financial result declares, so how you should read it, And there we talked about Profit & Loss account, Balance sheet & Cash flow If you had watched that video till the end, then I had told you that there is some analysis, which I will tell you in another video, Some analysis that you have to do while checking financials, So that you can understand that is the company growing or not Or if it’s going backwards in terms of growth, So, for understanding all these things, we need some analysis, We are going to discuss about the same in this video, But before watching this video, I will highly recommend you check the last video that I made, First try to understand how to read balance sheet, cash flow statement & profit & loss account, If you already know about all those, so you can directly start this video, But still, I will highly recommend you to watch that video So, let’s now understand analysis in this video that What things we should see while reading financial statements, As you know we have discussed about Angel Broking in that video, Angel broking is a brokerage house, Now let us understand what kind of analysis is important, So, whenever you open any financial result, So first you will see there will be P & L and balance sheet, Let me tell you one thing, your P & L and Balance sheet You’re P & L and as you know we have 4 quarter in a year, So, for June & December quarter, Only P & L is required while declaring company's financial results, Otherwise in September & March quarter They also have to provide Balance sheet as well as cash flow statement, So, let’s understand what else we have to see, And we will start now So, let’s first see from Profit & loss account, So, when you will see it, So first of all, here I already told this thing that You have to give quarterly results as well yearly, Here you can see, we have to give comparison of Year to end and quarterly, So today we will only talk about year to end, we are talking about analysis right now, So, we won’t discuss about quarter, The analysis I will tell you for year to end, you can apply the same on quarter, And accordingly, you can understand all the things When we see year end, then we have details of 31 march 2021 & 31 march 2020, So here as we have discussed before, first there is revenue and then expenses, After that profit, And after that we got profit after tax, So first we will see, lets first start from beginning, So here if I’ll see, my revenue, you will see year on year, I mean in between 2020-2021, my revenue increased My other income, I mean the income I am getting from other than revenue, And revenue from operation is income in getting from operation, So here you will see my income or revenue is increasing, Now let us keep plotting them so that we can get better understanding later, Here let me plot it in excel, And here I will write the figure of March 2021, And here we will have the figures of 2020, Okay? Now when I will see my revenue, all my figures are in millions, So here also we will have figures in million, So, if I will talk about March 2021, then you will see, my turnover is of 12636 million, .84 And last year it was 7246.24 So, you can see my turnover, it increased by around 5390 million rupees, If I will talk in percentage terms, my revenue is increasing 74%, Now how I found out percentage difference, My increase divides by my previous year revenue, So, from this I understood that my revenue is increased by 74%, And obviously everybody knows its reason that cause of Covid, A lot of people invested, so that’s the reason of opening up of so many DEMAT accounts, So, the income of brokerage fund increased, We have already discussed all that, If you haven’t watched the video then you can check out that video, I will give the link in description as well as I button, so you can check out, My revenue increased by 74% After that if I will see expense ratio, Expense ratio means, how much expenditure increased, So here you will see expense ratio, total expense, We have already discussed what things we count in total expenses, 8878 was my last year's figure, 8, Last year it was 6359, So here again if I will see in percentage terms, So first it increased by 2519, And my expenditure is increased by 39% only My revenue is increasing by 74%, but my expenditure is increasing by 39%, So somewhere it shows that company is doing well, If you will compare the ratio of revenue & expense, Here you saw that my revenue increased so much But my expenditure didn’t increase that much That means somewhere it might have impacted my profitability, And when we will find PBT ratio, then you would be able to see it, Now if we see PBT ratio, this year profit is 4111 and last year it was 1187, Again, when we see its percentage, So, you will see my profit is increased by 246%, Now what’s its reason, Because as in able to find it from here Because the pace at which my revenue increased is more than the pace At which expenses increased, So obviously, its impact will be visible in profit, on my PBT ratio, So, my PBT ratio, My PBT amount is, I have found it by finding the difference here, That how much my profit percentage increased, So, my profit is increased by 246% And here if, let us also check PBT percentage, in comparison to revenue, If you see my profit percentage, Here as you can see my profit is 32% of revenue, Last year it was 16%, So somewhere it is showing that if company will grow like this, So, the company have a very bright future, Now let us talk EBITDA, EBITDA means earning before interested tax deprecation and amortization, Now it means, the profit I found before depreciation, And I didn’t consider tax in it, Now I will add interest, i.e., Finance cost & depreciation, Now what is its logic, why people prefer this thing, now what the reason is for this, Now the reason is very simple, When I talk about depreciation or amortisation, Amortisation is on my intangible asset, The intangible assets such as software, we have already discussed it all, So that will be amortisation, And depreciation will be on tangible assets, on land & machinery or plant, So, all of these are my non-cash items, all of amortisation & depreciation, Now my finance cost is the fund in lending after borrowing for company, I’m paying the finance cost on that, So that’s why people generally consider after removing finance cost, We see profitability after removing it, Before I’m doing business by borrowing funding, So that’s why after removing all my expenditure, After that I sees my profitability, I mean the investor checks, Now when I talk about EBITDA, so whatever is my PBT, In PBT, now my finance cost i.e., 389.34 plus my depreciation, 183.6 So, this is my EBITDA of this year And if I want to find for last year then I will add it to the profit 48.59, finance cost as you can see, After that I will add 209 in depreciation & amortisation, & I will see in percentage terms then my present is 37 & 26, If I talk about EPS, now EPS means Earning per share So here I will remove all the tax and all, Now the profit I got after removing tax, i.e., 2698.56, my profit, I will divide it by my number of shares, whatever will be my number of shares, And now we will get our number of shares, and after that we will get out EPS There are 2 types of EPS, Let us write here, Basic EPS, and diluted EPS, So, company will give you by finding them that What are basic EPS and what is Diluted EPS, So now try to understand it that whatever is my profit, 2968, We don’t consider other comprehensive income, Now try to understand this that Other comprehensive income is a kind of income, that is variable in nature, I mean it is not confirmed that it will incur or not, So that’s why we put it in comprehensive income, \ You can understand comprehensive income in this way, That’s why, we don’t find anything by considering profit, So, I already told you this thing, you can watch that video, So, you can see my basic EPS of this year is 38.6, Last year it was 11.44, diluted EPS is 38.32, and last year, it was same So, if I talk about, what is the difference, I have told you what my basic EPS is, We find out EPS by dividing my earning with my profit after tax, And divide it by number of shares, and then we get our basic EPS, But if I talk about my diluted EPS, how to find out my diluted EPS, Basically, let’s assume there are some shares, The shares which can convert into equity shares in future, Diluted, as the name suggest, which can get diluted, Let’s take an example, let’s say you issued preference shares for your company, Now you gave an option, Or there is possibility that my preference share can convert into equity shares, So, the company sees, first they found out basic EPS, And for diluted shares, the company thinks that If those shares were equity shares on today’s date, so what would be my EPS So, we find EPS in this way, Now let us talk about PE ratio as well, My PE ratio is price earnings ratio, Like the price that is currently in market, the earning against that, what is its ratio, That means, for earning of every single rupee, that company is making, How much amount am I ready to give for that? So, if I talk about Angel Brooking’s share price, Let’s see, its 1186 rupee, Let’s take example that it is my price 1186, divide by Whatever is, Whatever is, Whatever is my profit after tax, So, profit is 2968.56 but you have to multiply it by total number of shares, You have to find its market cap, Means, either you divide it by PE, divide it by EPS, Let’s do this thing, let’s divide it by EPS, We have both ways, Either we take the full market cap and divide it by total, Secondly, if I divide my EPS with Price, 38.6 Here you will see my PE ratio is of 30.73 Now we can’t compare it from last one as We only know the profit but we don’t know the share price, so let’s ignore that, So right now, my Price Earning ration is 30.73%, Price per Book value, whatever is my book value, what is my price against that, You have to see that, So here, you can check this thing here as well, it’s our website of Money control, If you will search Angel broking, you will get it here So, price upon my book value, so it is 8.88, So now how to find it out, Now take the current price, Now here you will see the price ratio is little different 26.34% It is because June’s result is also declared, So, they have found PE ratio on the basis of June, And here we are considering the data of March, So that’s why my PE ratio is little different Otherwise, if you compare with this year profit, you’re EPS, So, your PE ratio will be alright, Price upon book value, so here my current price, whatsoever is my price, It is 1187, 1187 divide by book value, book value per share i.e., 38.83 So, you can calculate it yourself This is my 8.88 it is here, so here I got the amount of price upon book value, After that we have equity under company So now what you have to do, You have to see equity under company, now let us come to balance sheet, And let’s see this thing, My equity under company, that means, 818.27 plus 10491.7, If I see the last year then 719.95 plus 51944.24 So here you will see somewhere my equity under company Equity means whatever is my company's shareholders net worth, So somewhere it is increasing, So, if my company’s net worth is increasing, so it means company is viable, Company is going to grow in future, So, you will see that they had issued the share this time, But if you will see that company’s equity or net worth of shareholders, It’s increasing year on year, So, it’s a positive sign for company After that if I will talk about debt equity ratio, So, it means the borrowing of my company, how much is my equity against that, Borrowing for this year is 1174.69 last year it was 4908.79, I will divide it by my equity, So here sees the ratio is of 1.04 means around 104, And if I see the last year one so its 83%, So, see that there is no such impact, I will say it’s more like ideal situation, We are getting the ratio of 1:1, So, it is an ideal situation, So, if the debt is this much then there is no need to worry, Even if the ratio against borrowing is 1:1, there are no issues, Return on Equity means, whatever is my profit, PAT, Profit after tax divides by my equity, So, let’s just move it to side, So, whatever is my return on equity, whatever is my PAT, PAT divides by my equity's value, So, my PAT is, you will see my PAT is 296.56 296.56 will divide it by our equity, Now our next year figures, 823.46 divide by equity into the company, Now in it you are seeing that, whatever is your equity invested, How much profit after tax you are getting? The share of profit after tax is fully of equity shareholders, If we have preference shareholders in company, Then we do have to pay the dividend, And the rest is of equity shareholders, So, if you see then there is 26% growth of company, And here I’m also talking about book, in not talking about share, Like what’s the price of share, So here we are only talking about book, so the growth is of 26% in books, I mean the return is 26%, as per me it’s a good return As if I’m investing 1 rupee then in getting 1.25 rupees in return, So, this is good return, And you will see that year to year my PAT profit after tax increased by 100%, My return of equity increased, And you already know the reason about which we already discussed that Why my expense ratio decreased, that’s why my PAT, and return on equity increased, So, all the ratios are somewhat interlinked altogether, So, these were the entire ratio, which are important ratios for analysing When you get results, So that you can quickly analyse and then take decision accordingly, So, these were all the ratios, So, I hope you are able to understand how to analyse ratios, But still if you have doubt you can ask in comment section, Now this was all about ratios, Now if you want to ask any specific ratio, Then I will make another video on other ratios, Till now we have discussed about all the important for the purpose of analysis, Now let it once go through results again that what else we can see, We already have talked about profit and loss, If you want to know why my expense ratio is increasing or decreasing Then you can see it here, that why is it increasing or decreasing, Ultimately see that employee’s expenses are not increased as such, It is only increased a bit, as you worked with your previous employees only, So, there was no need of hiring, and when you needed some then you did, So here sees the expense of employee is not increased as such, Like if my income is increasing by 74% Then my employee expenses are increasing by 10-15 present, So that’s why we got this major impact on my amount And after that if I will talk about depreciation, Now here also see, now on what we charge depreciation on? On your fixed assets, now you would not have purchased any other fixed assets, Now if your employees didn’t increase then what’s the need of fixed assets, Why there will be need of building, why there will we need computers, I mean your need of these will only increase if your employees will increase So that’s why you will see that depreciation is reduced year by year And this also impacted my profitability These were the basis reasons, that you can anise by expense ratio That can help you understand what is happening So, after that we will see, when I scroll down Other than this, you can see investor’s updates, the investor’s calls, Earning calls, you can also hear all these things by going there That what were the reason, and why what how, You can also see financial position here, that How much trade payable do I have, and how much they increased year on year? My current assets are increasing at what rate, My liabilities are increasing at what pace, You can analyse all these things year on year, by going to balance sheet, We have already discussed about equities, So, these all are the things that you can analyse by going in Balance sheet & profit and loss account, So, these were the things that you should see in financial results, I have talked from important perspective today, If you further have any doubt then you can surely ask in comment section, If you liked the video then make sure hit the like button, Do subscribe the channel, Thank you so much 🙂

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