A.
Liquidity Ratios :-
1. Current ratio =
Current Assets/Current Liabilities
It is customary to take 2:1 ratio as an ideal ratio of Current assets and
current liabilities.
2. Liquid Ratio =
Liquid assets/Liquid liabilities
Liquid assets = Current Assets – (Inventory + Prepaid expenses)
Liquid Liabilities = Current Liabilities – Bank overdraft
Generally a Liquid Ratio of 1:1 is preferred
3. Absolute Liquid Ratio =
Cash + Bank + Short Term securities/Current Liabilities – Bank Overdraft
The Acceptable norms for this ratio is 1:2
4. Overdue Liabilities Ratio =
Cash + Marketable Securities/Overdraft Liabilities
1.5:1 is considered as an ideal overdue liability ratio
5. Operating Cash Working Capital Ratio =
Liquid assets/Average Daily Cash Requirement
Liquid Assets = Cash + Short Term Securities = receivables
Average Daily Cash Requirement = Cost of Goods Sold + Administration &
Office Expenses + Sales & Distribution Expenses (Less depreciations & other
non cash expenses)/ Number of days in a year (365 or 360)
6. Inventory Turnover Ratio =
Cost of Goods sold/ Average Inventory at Cost
Average Inventory at Cost = Opening Stock + Closing Stock/2
Where the opening inventory is not known the closing inventory figure may
be taken as average inventory
7. Debtor Turnover Ratio =
(i) Net Credit Annual Sales/ Average Trade Debtors
Trade Debtors = Sundry Debtors + Bills Receivables + Accounts receivables
Average Trade Debtors = Opening Trade Debtors + Closing Trade Debtors/2
(ii) Average Collection Period =
a. Debtors X Days in a year/Net Average Trade Debtors
b. Debtors/Credit Sales Per Day
c. Days in the Year/Debtors Turnover
8. Working Capital Turnover Ratio =
Cost of sales/Average Working Capital
Average Working Capital = Opening Working Capital + Closing Working
Capital/2
B. Leverage Ratios :-
1. Debt equity Ratio =
Outsiders Funds/Share Holders Funds
Outsiders Funds = Debentures + Bonds + Long Term Loan
Equity Share Holders Funds = Equity Shares + Preference Share + Reserve
Capital
2. Capital Gearing Ratio =
Equity Share Capital+ Reserve & Surpluses/ Preference Share Capital +
Debentures + Bonds + Long Term Loans
3. Total Debt Equity Ratio =
Total Debt/Share Holders Equity
Total Debt = Debentures + Bonds + Bank Loan + Loan from Other Sources +
Short Term Loans + Sundry Creditors + Bills Payable + Bank Overdraft etc
4. Debt to Total Capitalisation Ratio =
Funded Debt/Total Capitalisation
Funded Debt = Debenture + Mortgaged Loan + Loans + Other Long Term
Loan
Total Capitalisation = Equity Share Capital + Preference Share Capital +
Reserves & Surpluses + Other Undistributed Reserves + Debentures +
Mortgaged Loan + Other Term Loans + Bonds
5. Proprietor Ratio or Equity Ratio =
Share Holders Funds/Total Assets
6. Fixed Assets to Net Worth Ratio =
Fixed Assets/Share Holders Funds
Fixed Assets = Fixed at cost – Depreciation
7. Fixed Assets Ratio =
Net Fixed Assets/Long Term Funds
Long Term Funds = Fixed Assets + Working Capital
Ideal Ratio is less than 1
8. Ratio of Current Assets to Proprietors Funds =
Current Assets/ Share Holders Funds
9. Interest Coverage Ratio or Debt Service Ratio =
Net Profit (before interest & taxes)/Fixed Interest /Charges
10. Cash to Debt Service Ratio =
Annual Cash Flow before Interest & Taxes/Interest + (Sinking Fund Appropriation
of Debt/Interest – Tax)
11. Fixed Charge Coverage Ratio =
Earning before Interest & Taxes (EBIT)/Total Fixed Charges
12. Dividend Coverage Ratio =
Earning after Tax/Preference Dividend
C. Operating Ratio :-
1. Operating Ratio =
(Cost of Goods Sold + Operating Expenses/Net Sales) X 100
2. Expenses Ratio =
(Particular Expenses/Net Sales) X 100
D. Turnover Ratio or Activity Ratio =
1. (Sub.)
a. Total Assets Turnover Ratio =
Cost of Goods Sold/Total Assets
b. Fixed Assets Turnover Ratio =
Cost of Goods Sold/Fixed Assets
c. Current Assets Turnover Ratio =
Cost of Goods Sold/Current Assets
Total Assets = (Fixed Assets at Cost – Depreciation) + Current Assets –
Provisions)
Fixed Assets = Fixed Assets at Cost – Depreciation
Current Assets – Provisions
2. Capital Turnover Ratio =
Cost of goods Sold/Capital Employed
(OR)
Cost of Goods Sold/Average Capital Employed
Capital Employed = Permanent Capital or Long Term Funds
Average Capital employed = (Opening Stock + Closing Stock)/2
3. Cash from operating to Sales Ratio =
(Cash from Operation/Net Sales) X 100
4. Cash Expenditure to Sales Ratio =
Cash Expenditure/Cash Sales X 100
5. Inventory to Working Capital Ratio =
Inventory/Working Capital
E. Profitability Ratio :-
1. Gross Profit Ratio =
Gross Profit = (Gross Profit/Net Sales) X 100
Gross Profit = Sales – Cost of Goods Sold
Gross Profit of 20% to 30% is desirable
2. Operating Ratio =
(Cost of Goods Sold + Operating Expenses/Net Sales) X 100
(OR)
(Operating Cost/Net Sales) X 100
3. Operating Profit Ratio =
(Operating Profit/Net Sales) X 100
(OR)
100– Operating Ratio
Operating profit = {(Net Profit + Non-Operating Expenses) – Non-Operating
Income}
4. Net Profit Ratio =
EBIT/Sales X 100
(OR)
Profit before Tax/Sales X 100
(OR)
Profit after Tax/Sales X 100
Below 20% it is not desirable
5. Cash Profit Ratio =
Cash Profit/Net sales X 100
Cash Profit = (Net Profit + Non Cash Expenses) – Non Cash Expenses
6. Cash Operating Ratio =
Cash Operating Profit/Net Sales X 100
7. Cash Profit to Cash Sales Ratio =
Cash Profit/Cash Sales X 100
8. Return on Investment =
Net Profit/Investment X 100
9. Return on Share Holders Funds =
Profit after Tax/Share Holders Fund X 100
10. Earning Per Share =
Profit Available to Share Holders/Number of Equity Share Outstanding
11. Dividend Per Share =
Amount of Total Dividend/Numbers of Equity Share Outstanding
12. Profit Earning Ratio =
Market Price of Share/Earning per Share
13. Dividend Payment Ratio =
Dividend per Share/Earning per Share X 100
