# Ratio Calculation From Financial Statement

Ratio Calculation From Financial Statement Profit and Loss a/c of Beta Manufacturing Company for the year ended 31st March 2010. Exercise Problem1 Kindly download this link to view the exercise. Given in pdf format. You are required to find out: a)      #Gross Profit Ratio b)      #Net Profit Ratio c)      #Operating Ratio d)      Operating #Net Profit to Net Sales Ratio a. GROSS FORFIT RATIO = Gross profit ÷ #Sales × 100 = 50,000 ÷ 1,60,000 × 100 = 31.25 % b. #NET PROFIT RATIO = Net profit ÷ Sales × 100 = 28,000 ÷ 1,60,000 × 100 = 17.5 %  c. OPERATING RATIO = #Cost of goods sold + Operating expenses ÷ Sales × 100 Cost of goos sold = Sales – Gross profit = 1,60,000 – 50,000 = Rs. 1,10,000 Operating expenses = 4,000 + 22,800 + 1,200 =  Rs. 28,000 Operating ratio = 1,10,000 + 28,000 ÷ 1,60,000 × 100 = 86.25 % d. OPERATING NET PROFIT TO NET SALES RATIO = Operating Profit ÷ Sales × 100 Operating profit = Net profit + Non-Operating expenses – Non operating income = 28,000 + 800 – 4,800 =  Rs. 32,000 Operating Net Profit to Net Sales Ratio = 32,000 ÷ 1,60,000 × 100 = 20 % What is a Financial statement? It is an organised collection of data according to logical and consistent #accounting procedure. It combines statements of balance sheet, income and retained earnings. These are prepared for the purpose of presenting a periodical report on the program of investment status and the results achieved i.e., the balance sheet and P& L a/c. Objectives of Financial Statement Analysis: To help in constructing future plans To gauge the earning capacity of the firm To assess the financial position and performance of the company To know the #solvency status of the firm To determine the #progress of the firm As a basis for #taxation and fiscal policy To ensure the legality of #dividends Financial Statement Analysis Tools  Comparative Statements Common Size Statements #Trend Analysis #Ratio Analysis Fund Flow Statement Cash Flow Statement Types of Financial Analysis Intra-Firm Comparison Inter-firm Comparison Industry Average or Standard  Analysis Horizontal Analysis Vertical Analysis Limitations Lack of Precision Lack of Exactness Incomplete Information Interim Reports Hiding of Real Position or Window Dressing Lack of Comparability Historical...

# What is the Purpose of Financial Accounting

The purpose of accounting is to provide the information that is needed for sound economic decision making. The main purpose of financial accounting is to prepare financial reports that provide information about a firm’s performance to external parties such as investors, creditors, and tax authorities.