Ratio Analysis for Investment: Alpha Ltd vs Beta Ltd

ACCOUNTING AND
FINANCE FOR MANAGER

Table of Contents
INTRODUCTION...........................................................................................................................3
MAIN BODY...................................................................................................................................3
(A) Calculation of ratios.............................................................................................................3
..........................................................................................................................................................4
(B) Interpretations of Ratio.......................................................................................................11
(C) the suitability for potential investment in one of the company...........................................13
CONCLUSION..............................................................................................................................13
REFERENCES..............................................................................................................................14

INTRODUCTION
In the present era every firm wants to know its overall financial performance to show its
investors that how much they earn or efficiently manage the liquidity. Ratio analysis helps the
company to analyse liquidity, operational efficiency, and profitability of the firm by comparing
two years financial performance. In this current report the suitability for potential investment in
one company will be highlighted. The present study will identify that which firm is most
appropriate for investment with the help of ratio analysis.
MAIN BODY
(A) Calculation of ratios
Liquidity ratios
1) Current Ratio:
Particulars Formula Alpha Ltd Beta Ltd
Current assets 114950 122220
Current liability 53950 127220
Current ratio Current asset/current
liability
2.13 0.96
Current ratio
0
0.5
1
1.5
2
2.5
2.13
0.96
alpha
beta
2) Quick ratio:

Particulars Formula Alpha Ltd Beta Ltd
quick assets 44075 42420
Current liability 53950 127220
Quick ratio Quick asset/current
liability
0.82 0.33
Quick ratio
0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
0.9 0.82
0.33
alpha
beta
Profitability Ratios
1) Gross Profit Ratio:
Particulars Formula Alpha Ltd Beta Ltd
Gross profit 84000 78750
Net sales 4,20,000 3,15,000
GP Ratio GP/Net sales x 100 20.00% 25.00%