CALCULATION OF VARIOUS RATIOS AND THEIR UTILITY

Name of the Ratio Formula for calculation Ratios for Anita Jewels Ltd. Utility
1. Profitability Ratios
1. PBIL to total income !"#
1$$ %
Income l &'erationa sales Net
on de'reciati and rental lease interest( before Profit
+
&'erational income includes income from
sale of scra'( )ob*'rocessin+ char+es(
char+es for technical ser,ices( duty
drawbac-s royalty etc. .uch income
comes from o'erations of the unit but does
not from 'art of sales.
1/.10 !Profit#1 /.$2 Interest 1 3.03
!e'reciation# 4 1$$ /1.35 !Net sales#
6 51.78 It does not ha,e lease rentals
and also o'erational income
9he ratios mentioned at .r.
Nos. 1 and 3 'ro,ide an
idea about the relationshi'
between 'rofit : sales.
Increase in sales is not
sufficient( if mar+in of
'rofit declines. In such
cases( detailed study
should be done to find out
the reasons for decline in
'rofitability.
3. &'eratin+ 'rofit to total income !"#
1$$ %
income l &'erationa ; sales Net
'rofit &'eratin+
&'eratin+ 'rofit 6 PBIL ; !Interest 1
lease rentals 1 de'reciation#
7/./$ 1$$ %
/1.35
1/.10
=
7. Return on ca'ital em'loyed !"#
1$$ %
<urrent s In,estment 'ayable rentals lease assets fi4ed Net
rentals Lease Interest income
l o'erationa ; non 'rofit &'eartin
+ + +
+ +
+

1$$
2.25 assets fi4ed Net
/.$2 1/10

+
+

!<urrent assets# ;$.38 !<reditors# 6
It indicates the earnin+
ca'acity of the assets
de'loyed.
<a'ita1 em'loyed should be calculated on
the basic of assetd em'loyed instead of
libilities. <a'ital( wor-;in;'ro+ress and
ad,ances a+ainst ca'ital e4'enditure are
not included in ca'ital em'loyed as these
assets do no start +eneratin+ returns.
Future lease rentals 'ayable is ta-en as
'art of ca'ital em'loyed is they re'resent
assets em'loyed. 9he non;interest bearin+
current
liabilities i.e.( Pro,isions and crediters are
e4cluded.
32.51" It does not ha,e non;
o'erational income( lease rentals(
in,estments and 'ro,isions.
/. =arnin+s 'er share !=P.# !in Rs.#
year the of end at the shares e>uity of No
di,idend &ther ; di,idend Preference ; Profit Net
5.3?
8 . 3
10 . 1/
=
It indicates the ca'acity to
ser,e the e>uity ca'ital.
9he rate of e>uity
di,idend should not be
more than earnin+s shown
by this ratio.
5. Price earnin+s ratio !times#

share 'er Barnin+
!current# share e>uity of Price @ar-et 9he share is not >uoted in the mar-et It indicates under*o,er
'ricin+ of the share in the
mar-et.
6 i,idend 'ayout ratio !"#
1$$
di,idend &ther ; di,idend
Preference ; Profit Net
i,idend =>uity

No di,idend is 'ro'osed to be declared

durin+ this year.
It indicates the 'rofit
distributed to e>uity
holders and the balance
retained within business
for in,estment.
8. Interest co,era+e ratio !times#
rentals Lease Interest
ta4 ; PBIL
+
5.10
/.$2
3.03 /.$2 1/10
=
+ +
It indicates the ability of
the unit to meet interest
and lease rental
commitments.
2. Growth Ratios
2. Increase in PBIL !"#
1$$
year 're,ious of PBIL
yer 're,ious of
PBIL ; current of PBIL

8?.$" 1$$
13.$/
13.$/ ; 31.10
=
It indicates the trend of
im'ro,ements*deterioratio
n in the earnin+ ca'acity.
0. Increase in net manufacturin+ sales
!"#
1$$
months 13 for not is year accountant
any if ( annualised be should Fi+ures
year 're,ious of sales in+ manufactur Net
year 're,ious of sales in+ manufactur Net
; year current of sales in+ manufactur Net
months. 13 for not is year accountin+
any if ( annualised be should Fi+ures

5?.35" 1$$
3?./$
3?./$ ; /1.35
=
Both the abo,e +rowth
ratios are hi+h because
ca'acity utilisation has
increased durin+ this year as
com'ared to 're,ious year.
It indicates the trend of increase*decrease
in sales.
1$. Increase in +ross fi4ed assets !"#
1$$

months. 13 for not is year accountin+ any if
( annualised be hould s Fi+ures year
're,ious of end at the !all 'ayable
rentals lease Future 'ro+ress
; in ; wor- <a'ital assets fi4ed Aross
year 're,ious end#of the !all 'ayable rentals
; lease Future 'ro+ress ; in ; wor-
ca'ital assets fi4ed Aross
; year# current of end at the !all
'ayable rentals lease Future 'ro+ress
; in wor- <a'ital assets fi4ied Aross

+
+
+
+
+
9here is no increase in +ross
fi4ed assets
It indicates the trend of in,estments
made in fi4ed assets.
7.Turno!r Ratio
11.<urrent assets holdin+ ratio
!@onths#
.toc-s of raw meterials 1 Finished
+oods
"Bor-;in ;'ro+ress 1 .tores( s'ares and
'ac-in+ in aterials 1 Recei,ables Aross
sales*13
months 3.52

/1.35*13
2.25
=
It indicates the e4tent to which the +ross
wor-in+ ca'ital is turned around in a
year.
13. Raw materials holdin+ ratio


year*13 the durin+ consumed matrial Raw
materials raw of .toc-
months 3.$

5.35*13
$.22
=
9he ratios mentioned from serial nunber
13 to 1? indicate the le,el of
17. .tores holdin+ ratio !months#


year*13 the durin+ used stores <onsumaile
stores of .toc-
months 3.$

/.5$*13
$.85
=
the holdin+s of ,arious in,entories and
recei,ables. 9hese ratios are
1/. Bor-;in;'rocef holdin+ ratio
!months#


*13 'roduction of <ost
'rocess ; in ; wor- of .toc-
months $.85

3$.12*13
1.3?
=
,ery useful for ban-s 'ro,idin+ wor-in+
ca'ital finance to )ud+e the
15. Finished +oods holdin+ ratio
!months#


sold*13 +oods of <ost
+oods finished of .toc-
months 1.5$

3$.12*13
3.53
=
efficiency of the mana+ement in
utilisation of in,entories and reco,ery of
recei,ables. If increasin+ trend is shown
in holdin+s( detailed study should be
done to find out the reasons.
1?. <ollection ratio !months#


sales*13 Aross
discounted bills for liability contin+ent !includin+ s Recei,able
month 1$

/1.35*13
7.//
=
18. 9otal income 1o net fi4ed assets
ratio !times#


'ayable rentals lease Future assets fi4ed Net
ratinal# income!o'e &ther sale Net +
$.8/

55.5$
/1.35
=
9he ratios mentioned at serial No. 18 and
12 indicate the relationshi' between total
,alue of
12. <a'ital turno,er ratio !times#


<reditors ; Pro,isions in,estment
'ayable rentals lease Future assets fi4ed Net
l# o'erationa !non income other al# !o'eration income &ther sale Net
ests currentass +
+
+ +
$.?/

$.38 ; 2.25 55.5$
/1.35
=
+
+oods sold and funds de'loyed. Inter
firm com'arison of these ratios within
same industry may indicate the
efficiency with which ca'ital assets ha,e
been used.
#.O$!ratin% Ratios
10. Raw materials to total cost !"#
1$$

cost otal
consumed meterial Raw

T
C
10./$" 1$$ 4

38.$?
5.35
=
It
does not ha,e any outside
Purchases.
9he ratios mentioned from .r. No. 10 to
38 indicate the com'arati,e cost of
,arious in'uts. Bhile 're'arin+
'rofitability estimates( the a''raisin+
officer should be ,ery careful about
estimatin+ the cost of any com'onent
which has hi+h im'ortance to total cost.
If it is not 'ossible to estimate its cost
'ro'erly( sensiti,ity analysis should be
done for that com'onent. 9he study of
these ratios may also hel' in inter firm
com'arison.
3$. &utside 'urchase to total cost !"#
1$$

cost otal
'urchase &utside

T
31. <onsumable stores to total cost !"#
1$$

cost otal
stores <onsumable

T
1?.?7" 1$$ 4

38.$?
/.5$
=
33. Power( fuel and water to total cost
!"#
1$$

cost otal
water and fuel Power

T
/.35" 41$$

38.$?
1.15
=
37. .alaries and wa+es to total cost !"#
1$$

cost otal
wa+es and salaries

T
18.0?" %l$$

38.$?
/.2?
=
3/. @ar-etin+ and sellin+ e4'enses to
total cost !"#
1$$

cost otal
sellin+ and mar-etin+ to relatin+ e4'enses the All

T
D
5.5/o*o 41$$

38.$?
1.5$
=
35. Interest and lease rentals to total
cost
1$$

cost otal
rentals lease Interest

+
T
15.$2 1$$ 4

38.$?
/.$2
=
3?. e'reciation to total cost !"#
1$$

cost otal
on e'reciati

T
1$.80" 1$$ 4

38.$?
3.03
=
38. &ther residuary cost to total cost
!"#
1$$

cost otal
cost residuary other

T
1$.$7" 1$$ 4

38.$?
3.2$
=
5.&ther Ratios
32. =4'ort sales to net manufacturin+
sales
1$$

sales in+ manufactur et
sales =4'ort

N
It does not ha,e any e4'ort
sales
9he ratios mentioned at serial No. 32 and
30 indicate the relati,e im'ortance of the
'ro)ect for earnin+*s'endin+ forei+n
e4chan+e. Eowe,er( it is better to study
e4chan+e rate of the 'ro)ect or domestic
resources cost !discussed in the cha'ter
on =conomic A''raisal# to -now the
relati,e im'ortance of the Pro)ect in the
international mar-et.
30. Im'orted raw materials and stores
to total raw materials and stores
1$$

stores and materials raw otal
stores and materials raw Im'orted

T
It does not ha,e any im'ort
of raw materials and stores
7$. Aross ,alue added to ca'ital
em'loyed !times#


creditors ; s Pro,isioil
assets <urrent s In,estment 'ayable
rentals Lease assets fi4ec Net
water and fuel Power( e4'enses
'ac-in+ stores <onsumable 'urchase
&utside materials raw of <ost 'rocess ; in
wor- and +oods finished of stoc- !&'enin+ ;
'rocess# ; in ; wor- aad +oods finish of
stoc- <losin+ sales in+ manufactur !Net
+ +
+
+
+ +
+ +
+
$./8

$.38 ; 2.25 55.5$
1.15
/.5$ !5.35 ; /1.35
=
+
+
+
No ad)ustment has been
made for le,el of stoc-s
because 'ro)ections ha,e
been made in the case studF
on the assum'tion the entire
'roduction is sold and
stoc-s are maintained at the
same le,el. Pac-in+
material has been included
in consumable stores.
It indicates the re>uirements of ca'ital
for increasin+ the +ross out'ut. All direct
mateirial in'uts are deducted from net
sales.
*
t
71. Brea-;u' ,alue of e>uity share
!Rs.#


year the of end at the shares =>uity of No
amount e,aluation arrears
di,idend Preference s*Losses. Intan+ible
sur'lus and Reser,es ca'ital .hare =>uity +
1?.3/

3.8
1.13 ; 18.0? 38.$$
=
+
It indicates real ,alue of the share as 'er
financial 'osition of the unit.