LIQUIDITY RATIOS
1. Current ratio = Current assets Current liabilities
Current assets = Cash in hand, bank balance, debtors, bills receivable, stock, prepaid expense, accrued income, and short term investments (marketable securities). Or Current assets = working capital + current liabilities. Or Current assets = total assets fixed assets. Or Current assets = capital employed + current liabilities fixed assets. Current liabilities = Creditors, bills payable, outstanding expense, provision for taxation, net of advance tax, bank overdraft, income received in advance. Or Current liabilities = total debts. long term debts. Or Current liabilities = total assets capital employed.
2.
Quick ratio/ Acid-test ratio/ Liquidity ratio
Quick assets = Current liabilities
stock prepaid expenses.
Quick assets = Current assets
Solvency ratios
1. Debt. equity ratio= Long term debt. Share holder fund
Long term debt. = debentures + long term loans. Share holder fund = equity share capital + preference share capital +
reserves and surplus fictitious assets (miscellaneous expenditure).
Share holders fund = total assets
total debt.
2.
Debt ratio=
Long term debt. Capital employed (total assets)
Capital employed = long term debt. + share holder fund.
3.
Proprietary ratio=
Share holder fund Capital employed (net assets)
4.
Total assets to debt ratio=
Total assets Long term debt.
5.
Interest coverage ratio= Net profit before interest & tax Interest on long term debt.
cost of goods sold) operating expenses + non operating income non operating expense.
Interest on long term debt.:- interest on debentures + interest on long term Net profit before interest and tax:- gross profit (net sales
loans.
Activity / Turn over ratios
1. Stock (inventory) turn over ratio= Cost of goods sold Average stock
Cost of goods sold = sales
gross profit. closing
Cost of goods sold = Opening stock + purchases + direct expenses
stock.
Average stock = opening stock + closing stock
2.
Debtors(receivables) turn over ratio =
Net credit sales
Average accounts receivables
Average accounts receivables =(opening debtors+B/R)+(closing debtors+B/R)
3.
Creditors(payables) turn over ratio =
Net credit purchases
Average accounts payables
Average accounts payables =(opening creditors+B/P)+(closing creditors+B/P)
4.
Working capital turn over ratio=
Net sales Net working capital
Net working capital = current assets
current liabilities
5.
Fixed assets turn over ratio=
Net sales Net fixed assets
Net fixed assets = fixed assets
depreciation
Profitability ratios
1. Gross profit ratio= Gross profit x 100 Net sales
Gross profit = net sales Net sales = sales
cost of goods sold.
sales return.
(Cost of goods sold + 2. Operating ratio= Operating expenses) x 100 Net sales
Operating expense = factory expenses, office expenses, selling expenses, etc.
3. Operating profit ratio = Operating profit x 100 Sales or
{100
Operating profit = sales
Operating ratio}
cost of operation.
4. Net profit ratio= Net profit x 100 Net sales
Net profit = profit after tax.
5. Return on investment (or capital employed)=
assets non operating assets.
Profit before interest,tax &divi. Capital employed
fictitious
Capital employed = share capital + reserves + long term loans
6. Return on share holders fund= Profit after tax Share holders fund 7. Earning per share = profit available for equity share holder (net profit after tax dividend on preference shares) Number of equity shares 8. Book value per share= Equity shareholders funds No. of equity shares
Equity share holders funds = shareholders funds
preference share capital.
9. Dividend payout ratio=
Dividend per share Earnings per share
10. Price earning ratio= Market price of a share Earnings per share
