This is not the document you are looking for? Use the search form below to find more!

Report

# Data Analysis: Analyzing Data - Ratio Analysis

Document Description
Ratio analysis is an attempt to express the relationship between two or more Return to Table of Contents accounts or variables in a simpler, more comprehensive way. Ratios are usually derived from financial statements as a basis of comparison, evaluation, and prediction. Given the large number and variety of possible financial ratios, it is important to focus on those amounts that are functionally related. For example, the relationship between bad debt expense and credit sales is more meaningful than the relationship between bad debt expense and total sales. (See the modules on Sampling and Trend Analysis for more information.)
File Details
Submitter
• Name: monkey
• Documents: 474
Embed Code:

#### Showing 1 comment

by Douglas on February 16th, 2011 at 08:44 am
Can you find any kind of PDF here?
Related Documents

## Data Analysis With Spss - Reliability

Analyzing Data Using SPSS (Reliability) Obtaining Reliability of Scale Obtaining Cronbachâ€™s Alpha: Analyze -> Scale ->Reliability Analysis ...

## Data Analysis: Range, Mean, Median, and Mode

by: samanta, 11 pages

This project is a lesson in the 6th grade math unit of data analysis. The goal of this project is for the students to understand the mathematical terms of mean, median, mode, and range; and be able ...

## METHODOLOGICAL ISSUES OF DATA ANALYSIS AND INTERPRETATION

by: aldous, 32 pages

This paper discusses methodological issues of data analysis and interpretation that arose in the present author's discourse based study that investigates the system of THEME in Korean. After a brief ...

## Free Tools for Data Visualization and Analysis for Google Refine

by: batteryfast, 2 pages

Free Tools for Data Visualization and Analysis for Google Refine

## A Multivariate Statistical Analysis of Bore Well Chemistry Data - Nashik and

by: ujert2011, 10 pages

Pearson correlation matrix, Hierarchical cluster and principal component analysis (PCA) were simultaneously applied to groundwater hydro chemical data of 31 bore well locations in post monsoon 2007 ...

## QUALITATIVE RESEARCH: DATA MANAGEMENT AND ANALYSIS METHODS

by: ufuk, 35 pages

This chapter is about methods for managing and analyzing qualitative data. By qualitative data we mean text: newspapers, movies, sitcoms, e-mail traffic, folktales, life histories. We also mean ...

## Measuring the risk premium of corporate bonds: an evidence from panel data analysis

by: samanta, 25 pages

Risk premium of corporate bond is modelled by investigating panel data on yield spreads of corporate bond. Atime-varying common factor affecting the yield spread across corporate bonds is extracted. ...

## Market Research: high-quality data and in-depth analysis for small businesses

by: bizmana, 1 pages

Enabling entrepreneurs to access data and analysis typically affordable only by large companies, the Arkansas Small Business and Technology Development Center performs market research free of charge ...

## Financial Ratio Analysis: the Development of a Dedicated Management Information System

by: samanta, 8 pages

This paper disseminates the results of the development process for a financial analysis information system. The system has been subject to conceptual design using the Unified Modeling Language (UML) ...

## Introduction To Spss - Opening Data File and Descriptive Analysis

by: aleksander, 18 pages

Introduction to SPSS Opening Data File Descriptive Analysis Opening an SPSS Data File 1. File -> 2. Open -> 3. Data Choose the folder where your SPSS ...

Content Preview
Accountability Modules
Data Analysis: Analyzing Data - Ratio Analysis
WHAT IT IS
Ratio analysis is an attempt to express the relationship between two or more
accounts or variables in a simpler, more comprehensive way. Ratios are usually
derived from financial statements as a basis of comparison, evaluation, and
prediction.
Given the large number and variety of possible financial ratios, it is important
to focus on those amounts that are functionally related. For example, the
relationship between bad debt expense and credit sales is more meaningful than
the relationship between bad debt expense and total sales. (See the modules on
Many of the State’s performance measures (outcomes, outputs, efficiencies) are
expressed as ratios -- for example, administrative support cost as a percentage
of total expenditures. This module focuses only on analysis of financial ratios.
WHEN TO USE IT
Ratio analysis is useful when the goal is to reduce financial data to fewer
expressions or variables. This goal often arises when the underlying
relationships between the elements of the ratio are of interest, when data are not
expressed in absolute dollar amounts, and/or when financial condition must be
reviewed over time.
HOW TO PREPARE IT
Especially in the private sector, financial ratios are generally used to measure

current financial position, equity position, or operating results.
+
Current position ratios focus on working capital and usually serve as
supplements to the statements of income and cash flow. Current
position ratios arise in two categories, ratios measuring ability to pay
short-term obligations such as:
Acid Test Ratio = Cash + A/R + Marketable Securities
Current Liabilities
Current Ratio
= Current Assets
Current Liabilities
and ratios measuring activity (or turnover), including:
Average Collection = Average Accounts Receivable
Period for A/R Net Credit Sales/365 Days
Inventory Turnover = Cost of Goods Sold
Average Inventory
+
Equity position ratios measure long-term solvency of an entity and its
potential capacity to generate and obtain investment resources.
Examples include:
Texas State Auditor's Office, Methodology Manual, rev. 5/95
Data Analysis: Analyzing Data - Ratio Analysis - 1

Data Analysis: Analyzing Data - Ratio Analysis
Accountability Modules
Creditor’s Equity = Total Liabilities
to Total Assets
Total Assets
Debt to Equity Ratio = Total Liabilities
Owner’s Equity
+
Operating results ratios relate to statements of income rather than
financial position and most often measure profitability. Examples
include:
Profit Margin = Income
Net Sales
Return on = Investment Income
Investment
Average Portfolio Balance
RATIO ANALYSIS FOR
Ratio analysis is not as widespread in government as in the private sector. A
GOVERNMENT
general consensus exists that determining the financial position of government
units is relatively more difficult. The primary problems are weaknesses in how
key information needed for assessing financial condition is reported. Even
though reporting has improved, financial analysts must be knowledgeable
enough to draw information from a variety of sources. It is generally quite
difficult to ascertain a government entity's financial condition solely from
information contained in the entity’s financial reports.
More specifically, GASB notes the following principle weaknesses in public
sector financial reporting:
+
Economic and demographic information is reported sporadically, if at all.
+
Little interjurisdictional comparison is performed.
+
The impact of politics cannot be gleaned from financial statements.
+
Development and use of data on service efforts and accomplishments
This does not mean that financial condition cannot be assessed in public sector
entities. Such assessment can be accomplished, and ratio analysis facilitates this
process. However, general guidelines for using ratios in government are
effective only for certain units. At the state government level, financial
condition can be measured, but generalized ratios are hard to compare from state
to state since the unit of government is so large and complex.
Similarly, no generally applicable ratios have been developed for use at the level
of the individual state agency owing to the difficulty in comparing agencies.
State agencies have very different missions, values, and goals; perform widely
disparate functions; and often have quite different financial reporting
mechanisms. Thus, ratios useful for one agency may not apply to another.
Data Analysis: Analyzing Data - Ratio Analysis - 2
Texas State Auditor's Office, Methodology Manual, rev. 5/95

Accountability Modules
Data Analysis: Analyzing Data - Ratio Analysis
However, some notable success has been achieved in developing applicable
ratios for interpreting the financial condition of local governments and
institutions of higher education. These public sector units are smaller, less
complex, and generally more comparable with each other. For example, all
cities are likely to fund police departments, repair roads, and issue permits.
Universities have similar revenue sources and types of expenditures.
Nonetheless, while it may be tempting to extrapolate the use of the ratios
applicable to entities at other levels or units of government, including state
government entities, such extrapolation may yield inaccurate or misleading
results and is not advised except under the most controlled circumstances.
RATIO ANALYSIS IN
The following are some ratios and indicators used for assessing the financial
LOCAL GOVERNMENTS
condition of local governments. These indicators relate to particular conditions
which can give rise to poor financial condition. The examples below are not all
inclusive. Further, in the absence of set benchmarks, indicators must be
followed over a set period of time.
+
Ratios of economic vitality include:
Police and Social Services Expenditures
Total Expenditures
Sales Tax Collections
Sales Tax Rate
+
Ratios of financial independence and flexibility include:
Debt Service Payments
Total Revenues
Federal and State Mandated Costs
Total Expenditures
General Obligation Long-Term Indebtedness
Municipal Population
+
Ratios of municipal productivity include:
Total Number of Municipal Employees
Municipal Population
+
Ratios of postponing costs to future fiscal periods include:
Capital Outlays
Total Expenditures
Texas State Auditor's Office, Methodology Manual, rev. 5/95
Data Analysis: Analyzing Data - Ratio Analysis - 3

Data Analysis: Analyzing Data - Ratio Analysis
Accountability Modules
Notes Payable + Accounts Payable + Vouchers Payable
Total Own Source Revenues
Other indicators are deferral of infrastructure maintenance or pension
liabilities and use of long-term debt to fund current operations. Note
that such use of long-term debt may also be illegal.
+
Ratios of the soundness of financial management practices include:
Actual Revenue
Estimated Revenue
Assessed Value of Real Estate/Assessment Ratio
Selling Price
Short-Term Investment Income
Total Own Source Revenue
Total Taxes and Fees Receivable at Year End
Total Taxes and Fees Levied or Billed
Another indicator is reliance on risky or highly leveraged investments.
RATIO ANALYSIS
The following ratios have been developed and used in the college and university
FOR INSTITUTIONS OF
environment. Using these ratios requires a working knowledge of the cost
HIGHER EDUCATION
accounting terms common in the higher education environment. Although some
rough benchmarks are indicated here, it is advisable to examine changes in all
of these ratios over time.
+
Balance sheet ratios
Expendable Fund Balances (Should Be 1/1 or Higher)
Physical Plant Debt
Expendable Fund Balances
Total Expenditures and Mandatory Transfers
Net Investment in Physical Plant (Should Be 3/1 or Higher)
Physical Plant Debt
Nonexpendable Fund Transfers
Total Expenditures and Mandatory Transfers
Data Analysis: Analyzing Data - Ratio Analysis - 4
Texas State Auditor's Office, Methodology Manual, rev. 5/95

Accountability Modules
Data Analysis: Analyzing Data - Ratio Analysis
+
Contribution and demand ratios
Endowment Income
Total Educational and General Expenditures and Mandatory Transfers
Federal, State, or Local Revenues
Total Educational and General Expenditures and Mandatory Transfers
Tuition and Fees
Total Educational and General Expenditures and Mandatory Transfers
Additional demand ratios are created by dividing each of the following
expenditures by total educational and general revenues:

institutional support

instruction

operation and maintenance of plant

public service

research

scholarships and fellowships

student services
+
Credit worthiness ratios
Available Assets (2/1 or higher)
General Liabilities
Debt Service
Unrestricted Current Fund Revenues
Opening Fall FTE Enrollment for Audit Year (1/1 or higher)
Opening Fall FTE Enrollment for Base Year
Student Matriculants
+
Net operating ratios -- All the following should be positive percentages:
Net Auxiliary Enterprise Revenues
Total Auxiliary Enterprise Revenues
Net Educational and General Revenues
Total Educational and General Revenues
Net Total Revenues
Total Revenues
Texas State Auditor's Office, Methodology Manual, rev. 5/95
Data Analysis: Analyzing Data - Ratio Analysis - 5

Data Analysis: Analyzing Data - Ratio Analysis
Accountability Modules
Ratios can:
+
communicate aspects of an entity's overall economic situation more broadly
and succinctly than financial statement data alone
+
facilitate understanding how certain variables may influence each other
+
help determine a variety of financial aspects
Ratios can:
+
distort comparisons by over-reliance on book values rather than market
values
+
involve comparative norms which are statistically unreliable due to bias
and/or small sample size
+
be costly to track over time, especially when norms change
+
be difficult to obtain for use in public sector auditing
+
+
ignore unique factors which make entities fundamentally incomparable
Data Analysis: Analyzing Data - Ratio Analysis - 6
Texas State Auditor's Office, Methodology Manual, rev. 5/95

Data Analysis: Analyzing Data - Ratio Analysis

Share Data Analysis: Analyzing Data - Ratio Analysis to:

example:

http://myblog.wordpress.com/
or
http://myblog.com/

Share Data Analysis: Analyzing Data - Ratio Analysis as:

From:

To:

Share Data Analysis: Analyzing Data - Ratio Analysis.

Enter two words as shown below. If you cannot read the words, click the refresh icon.

Share Data Analysis: Analyzing Data - Ratio Analysis as:

Copy html code above and paste to your web page.