Way to Analysis of Sri Lanka stock market (Part 2)

sri lanka stock marekt

This is the second article regarding how to analysis sri lanka stock market and from my fist article you get a basic idea about Assets, Liabilities and profitability of the company and Return on Equity (ROE). In this article you can get a Idea about Current Ratio and Earning Per Share (EPS) of company which will necessary to predict companies financial status.


Current Ratio

Current Ratio is one of the most important and basic features of Calculating companies financial status. This current ratio calculated as current assets divided by current liabilities.

I will further explain this Current Ratio on hypothetical example. ABC companies current assets and liabilities listed as follows.

Year Current Assets Current Liabilities Current Ratio
2011 200 250 1.25
2012 200 225 1.125
2013 200 200 1
2014 200 150 0.75

So From this Hypothetical example you can see this ABC Company reduced their current ration form 2011 to 2014. Reducing this current ration will show the good health of company and reducing current ratio in company is also important in this scenario.

Earning per Share (EPS)

This is the most common and most used financial calculation for investor. Most of investors follows this information to value their share and this is also a good fundamental analysis tool for consider the development of companies financial status. Earning per Share (EPS) calculated as follows. First you need to find out total earning of that company for particular year and the total number of shares of that company at sri lanka stock market.

I will explain how to calculate this Earning per Share from another hypothetical example.  For example think ABC company profit after tax and dividance pay is 100 million rupees and the total number of shares

of this company is 20 million. So the ABC companies earning per share is  = 5 rupees

From this example you can easily understand increase of earning per share is also good for the investor and if you focused to buy a share, Earning per share is also a good factor to identify the better investment.

Earning per share growing is also a considerable factor to identify the growth of the company and this is calculated as a percentage. This earning per share growth can be either positive or negative on selected time duration.  Negative earning per share growth company is very normal thing in sri lanka stock market  exchange and this dose not say that that company is now worth to invest. But investor needs to be careful if you are investing on these types of Negative earning per share growth company. If earning or profit of any company get decreased gradually.

There are much important financial information apart from Current Ratio, Earning per Share and Earning per Share growth. In my next article I will explain about The Price Earning Ratio (PE Ratio), which will considered as the most important feature in fundamental financial analysis at sri lanka stock market.