 Dear learners, after going through the discussions regarding financial statements, historical financial statements and then pro forma financial statements. Now let's talk about another important topic that is ratio analysis. Ratio analysis is a tool used to determine the financial help or operational efficiency of a company. A small example of this, if you are comparing your financial results with another company, then you can see that you can't compare your profit with its profit figure directly because there are many different factors in it. Most importantly, the sales volume of the company can double. You see? So that way its profit will also increase. But what does that profit mean? Is it that the company is performing better than you? It can be. And it can't be. So how will we know that the company is performing better than your company? Here comes the rule of ratio analysis. You calculate the ratio of profit margin, which takes profit and sales. And the ratio of profit and sales is generated. You also take out the profit margin of your company. And the company you are comparing with, you also take out the profit margin of that company. Now the profit margin of both companies is basically something that you can compare. This figure will tell you whether you are performing better than that company or not. So from here you can understand what ratios do. Because you can't directly compare figures in that way. So you use the tool of ratio analysis for comparison purpose. If we talk about usages, then there is an inter-company comparison. Why do you perform ratio analysis? Because you have to compare your performance against your competitors. Then there is an inter-company comparison. Do you see the performance of departments within the company? And then establishing future trends. This is also an important usage in ratio analysis. And while conducting ratio analysis, there are different segments. There are different assessments in which some ratios come under the head of profitability. Some ratios are measuring your liquidity. And some ratios are measuring your overall financial stability. You have to remember one thing about ratios. Whenever you try to understand a ratio, I will tell you the points that you have to remember. First of all, what is the purpose of a ratio that you are calculating? Then what is its formula? Like I just named a ratio profit margin. So what is its formula? Net income divided by net sales. Then you should know that the items that are coming in this, the net income items, you have to get from which particular financial statement. That's important. You should know this. And then you should calculate it. Then you should know its proper unit. This is its resulting figure. It is in percentage or it is in times. Or it is some other unit. And then the final and the foremost important thing is that you should interpret it. If you have calculated the profit margin, then you should interpret the point that has come in this. How to interpret this resulting figure? So we read the statements in our last topics. We read the historical, we read the pro-forma. We also read them. We have tried to take some data from them and calculate some ratios and explain the concept of how ratios are calculated and how their interpretation is interpreted. So students, you can see on the screen ratio analysis. We have taken three basic heads. Profitability ratios, liquidity ratios and financial stability ratios. In profitability ratios, we have taken three basic heads. Return on assets, return on equity and net profit margin. Similarly, gross profit margin or operating profit margin can be used. These are broad things. But for the sake of understanding, we have selected some key ratios for you. If you look at return on assets, the formula is in front of you, net income divided by average total assets. How to take out average total assets? You have to take total assets of year, total assets of last year and divide their addition on 2. So what will be your average total assets? So when you divide this, you have a resulting figure that you are seeing for 3 years. 13.8 hat, 12.4 hat, 8.91 hat. So from 16 to 18, we are showing the results that the return on assets is increasing. The resources you have put on assets, the resources of your business how much you are earning against them. This ratio is telling you. There are two main resources. Your main resources assets are two sources in which one is your debt and one is your equity which you contributed from your pocket. So our second ratio is showing you the return on that source that how much percent you are earning on your contributed equity. And the third ratio on which we have just talked that income over sales and you see what is your profit margin. 14.8 percent. That is to say that on every 100 rupees you are earning 14.8 percent on sales. It is very easy. If you want to understand it, then you can say that how much you are earning on every 100 rupees 14.8 percent. And if you want to compare with any other company, then you have to see how much they are earning. Then you will have an idea of how much they are earning or how much your competitor or company is earning. In liquidity ratios we see that how quickly the company can liquidate the assets and how quickly the short term obligations that are due within one year can meet them. The key ratios are current ratio and quick ratio. And you know where these two figures will meet and the balance sheet will meet. 2.90 for the year 2018 If I keep this in simple words for you, then you can understand that to pay one rupee on current liability you have 2.90 rupees in your pocket. You see that is to pay 1 rupee on liability and you have to save 1 rupee on money. This means your liquidity position is very good. If you have a due then you have 2.90 rupees in your pocket. So that is how you see your liquidity position and quick ratio is also a refined form. We do one thing that instead of current assets we take quick assets which cannot be liquidated as inventories. So we minus the inventories from simple current assets and divide the remaining figures on current liabilities. I will tell you that these ratios you compare them with a benchmark and see where you are standing and performing better or not performing better. So similarly on the next screen you can see those are the ratios but we took historical data and calculated these ratios for you and in the same way we took data from your data and for 19 or 20 for 2020 you can see projected ratios. So that is how you can perform ratio analysis. These were specific ratios just for the sake of understanding you can search more on this in different heads and any possible ratios so you can search them out and similarly you can perform ratio analysis of your company and you can see where you are actually standing.