To test Name of Ratio
Liquidity and i) Current Ratio
Solvency
ii) Liquid/Quick/
Acid Test Ratio
iii) Absolute Liquid Ratio
iv) Proprietary Ratio
Capitalisation i) Debt Equity Ratio
ii) Capital Gearing Ratio
Profitability and i) Gross Profit Ratio
management
efficiency ii) Net Profit Ratio
iii) Return on Capital
Employed (ROCE)
iv) Return on Proprietors fund
v) Return on Capital
vi) Earnings per share [EPS]
vii) Dividend per share [DPS]
Management i) Stock Turnover
efficiency
ii) Debtors Turnover Ratio
iii) Debtor’s Turnover Rate
iv) Creditor’s Turnover Ratio
v) Creditor’s Turnover Rate
vi) Operating Ratio
Number of Preference shareholders’
times coverage ratio
preference
Number of Equity shareholder’s coverage
times equity ratio
dividends
Number of Interest coverage ratio
times fixed
interest covered Total coverage ratio
Relationship
between net
profitidle
The and total Fixed expenses to total cost
capacity in the ratio
Organisation
Material Material consumption to sales
consumption to ratio
sales
Wages to sales Wages to sales ratio
The future Price earning ratio
market price of
a share
Formula Parties interested
Current Assets Short-term creditors, investors,
Current Liabilities money lenders & like parties
Current assets - Stock - Prepaid Expenses -do-
Current Liabilities - Bank Overdraft - Prereceived Income
Cash + Marketable securities -do-
Quick Liabilities
Proprietor’s Fund -do-
Total Assets
[Proprietor’s funds = Equity Capital + Preference Capital + Reserves and
Surplus + Accumulated funds - Debit balances of P & L A/c and
Miscellaneous Expenses]
Debt -do-
Equity
[Debt = Long/Short-term loans, debentures, bills, etc, Equity =
Proprietor’s funds]
Fixed cost funds -do-
Funds not carrying fixed cost
[Fixed cost funds = Preference share capital, Debentures, Loans from
banks, financial institutions, other unsecured loans].
[Funds not carrying fixed cost = Equity share capital + undistributed profit
- P & L A/c (Dr. Bal.) - Misc. expenses].
Gross Profit x 100 Shareholders, Long-term
Net sales Creditors, Government
Net Profit x 100 -do-
Net sales
[Net profit may be either Operating Net profit, Profit before tax or Profit
after tax].
Net profit x 100 -do-
Capital employed
[Capital employed = Fixed Assets + Current Assets - Current Liabilities].
Profit after tax -do-
Proprietor’s funds
Profit after tax less pref. Dividend x 100 -do-
Equity Share Capital
Profit after tax less pref. Dividend -do-
Total No. of Equity Shares
Total Dividend paid to ordinary shareholders Shareholders, Investors
Number of ordinary shares
Cost of goods sold Management
Average Stock
Debtors + Bills receivable x 365 Management
Net Credit sales
Credit sales Management
Avg. Debtors + Bills receivable
Creditors + Bills payable x 365 -do-
Credit purchases
Credit purchases
Average Creditors
Operating Costs x 100
Net sales
[Operating Cost = Cost of goods sold + Operating expenses (viz.
Administrative, selling & finance expenses)]
Net profit (after Interest & Tax but before equity dividend) Preference shareholders
Preference Dividend
Net profit (after interest, tax & Pref. Dividend) Equity shareholders
Equity Dividend
Net profit (before Interest & Tax) (PBIT) Debentureholders, Loan
Fixed interests & charges creditors
Net profit (before Interest & Tax) (PBIT) Shareholders, investors,
Total fixed charges creditors, lenders
Fixed expenses Management shareholders
Total cost
Material consumption Management
Sales
Wages Management
Sales
Market price of a share (MPS) Investors, speculators
Earnings per share (EPS)
Industry
norm
2:01
1:01
1:01
60% to
75%
2:01
2:01
20% to
30%
5% to
10%
5 to 6
times
45 to 60
days
60 to 90
days
To test CALCULATE Name of Ratio
Liquidity and YES i) Current Ratio
Solvency
YES ii) Liquid/Quick/
Acid Test Ratio
YES iii) Absolute Liquid Ratio
YES iv) Proprietary Ratio
Capitalisation YES i) Debt Equity Ratio
YES ii) Capital Gearing Ratio
Profitability and i) Gross Profit Ratio
management
efficiency ii) Net Profit Ratio
iii) Return on Capital
Employed (ROCE)
iv) Return on Proprietors fund
v) Return on Capital
vi) Earnings per share [EPS]
vii) Dividend per share [DPS]
Management i) Stock Turnover
efficiency
ii) Debtors Turnover Ratio
iii) Debtor’s Turnover Rate
iv) Creditor’s Turnover Ratio
v) Creditor’s Turnover Rate
vi) Operating Ratio
Number of Preference shareholders’
times coverage ratio
preference
Number of Equity shareholder’s coverage
times equity ratio
dividends
Number of Interest coverage ratio
times fixed
interest covered
Relationship Total coverage ratio
between net
profitidle
The and total Fixed expenses to total cost
capacity in the ratio
Organisation
Material Material consumption to sales
consumption to ratio
sales
Wages to sales Wages to sales ratio
The future Price earning ratio
market price of
a share
Formula Parties interested
Current Assets Short-term creditors, investors,
Current Liabilities money lenders & like parties
Current assets - Stock - Prepaid Expenses -do-
Current Liabilities - Bank Overdraft - Prereceived Income
Cash + Marketable securities -do-
Quick Liabilities
Proprietor’s Fund -do-
Total Assets
[Proprietor’s funds = Equity Capital + Preference Capital + Reserves and
Surplus + Accumulated funds - Debit balances of P & L A/c and
Miscellaneous Expenses]
Debt -do-
Equity
[Debt = Long/Short-term loans, debentures, bills, etc, Equity =
Proprietor’s funds]
Fixed cost funds -do-
Funds not carrying fixed cost
[Fixed cost funds = Preference share capital, Debentures, Loans from
banks, financial institutions, other unsecured loans].
[Funds not carrying fixed cost = Equity share capital + undistributed profit
- P & L A/c (Dr. Bal.) - Misc. expenses].
Gross Profit x 100 Shareholders, Long-term
Net sales Creditors, Government
Net Profit x 100 -do-
Net sales
[Net profit may be either Operating Net profit, Profit before tax or Profit
after tax].
Net profit x 100 -do-
Capital employed
[Capital employed = Fixed Assets + Current Assets - Current Liabilities].
Profit after tax -do-
Proprietor’s funds
Profit after tax less pref. Dividend x 100 -do-
Equity Share Capital
Profit after tax less pref. Dividend -do-
Total No. of Equity Shares
Total Dividend paid to ordinary shareholders Shareholders, Investors
Number of ordinary shares
Cost of goods sold Management
Average Stock
Debtors + Bills receivable x 365 Management
Net Credit sales
Credit sales Management
Avg. Debtors + Bills receivable
Creditors + Bills payable x 365 -do-
Credit purchases
Credit purchases
Average Creditors
Operating Costs x 100
Net sales
[Operating Cost = Cost of goods sold + Operating expenses (viz.
Administrative, selling & finance expenses)]
Net profit (after Interest & Tax but before equity dividend) Preference shareholders
Preference Dividend
Net profit (after interest, tax & Pref. Dividend) Equity shareholders
Equity Dividend
Net profit (before Interest & Tax) (PBIT) Debentureholders, Loan
Fixed interests & charges creditors
Net profit (before Interest & Tax) (PBIT) Shareholders, investors,
Total fixed charges creditors, lenders
Fixed expenses Management shareholders
Total cost
Material consumption Management
Sales
Wages Management
Sales
Market price of a share (MPS) Investors, speculators
Earnings per share (EPS)
Industry
norm
2:01
1:01
1:01
60% to
75%
2:01
2:01
20% to
30%
5% to
10%
5 to 6
times
45 to 60
days
60 to 90
days
