Definition and Explanation:

Gross profit ratio is the ratio of gross profit to net sales i.e. sales less sales returns. The ratio thus
reflects the margin of profit that a concern is able to earn on its trading and manufacturing
activity. It is the most commonly calculated ratio. It is employed for inter-firm and inter-firm
comparison of trading results.

Formula:
Following formula is used to calculated gross profit ratio (GP Ratio):

Gross profit / (Net sales 100)

Where Gross profit = Net sales - Cost of goods sold

Cost of goods sold = Opening stock + Net purchases + Direct expenses - Closing stock

Net sales = Sales - Returns inwards

Gross profit is what is revealed by the trading account. It results from the difference between net
sales and cost of goods sold without taking into account expenses generally charged to the profit
and loss account. The larger the gap, the greater is the scope for absorbing various expenses on
administration, maintenance, arranging finance, selling and distribution and yet leaving net profit
for the proprietors or shareholders.

S.
RATIOS
No.
1 Gross Profit Ratio
2 Operating Cost Ratio
3 Operating Profit ratio
4 Net Profit Ratio
5 Return on Investment Ratio
Return on Capital
6 Net Profit after Taxes/ Gross Capital Employed X 100
Employed Ratio
7 Earnings Per Share Ratio
8 Dividend Pay Out Ratio
9 Earning Per Equity Share
10 Dividend Yield Ratio
FORMULAS
Gross Profit/Net Sales X 100
Operating Cost/Net Sales X 100
Operating Profit/Net Sales X 100
Operating Profit/Net Sales X 100
Net Profit After Interest And Taxes/ Shareholders Funds or
Investments X 100
Net Profit After Tax & Preference Dividend /No of Equity
Shares
Dividend Per Equity Share/Earning Per Equity Share X 100
Net Profit after Tax & Preference Dividend / No. of Equity
Share
Dividend Per Share/ Market Value Per Share X 100
 Market Price Per Share Equity Share/ Earning Per Share X
11 Price Earnings Ratio
100
Net Profit to Net Worth
12 Net Profit after Taxes / Shareholders Net Worth X 100
Ratio

Working Capital Ratios

S.
RATIOS FORMULAS
No.
1 Inventory Ratio Net Sales / Inventory
2 Debtors Turnover Ratio Total Sales / Account Receivables
Receivables x Months or days in a year / Net Credit Sales
3 Debt Collection Ratio
for the year
4 Creditors Turnover Ratio Net Credit Purchases / Average Accounts Payable
5 Average Payment Period Average Trade Creditors / Net Credit Purchases X 100
Working Capital Turnover
6 Net Sales / Working Capital
Ratio
7 Fixed Assets Turnover Ratio Cost of goods Sold / Total Fixed Assets
8 Capital Turnover Ratio Cost of Sales / Capital Employed

Capital Structure Ratios

S. No. RATIOS FORMULAS
1 Debt Equity Ratio Total Long Term Debts / Shareholders Fund
2 Proprietary Ratio Shareholders Fund/ Total Assets
3 Capital Gearing ratio Equity Share Capital / Fixed Interest Bearing Funds
4 Debt Service Ratio Net profit Before Interest & Taxes / Fixed Interest Charges

Return on Investment - ROI

Return on investment or ROI is a profitability ratio that calculates the profits of an investment as
a percentage of the original cost. In other words, it measures how much money was made on the
investment as a percentage of the purchase price. It shows investors how efficiently each dollar
invested in a project is at producing a profit. Investors not only use this ratio to measure how
well an investment performed, they also use it to compare the performance of different
investments of all types and sizes.

For example, an investment in stock can be compared to one in equipment. It doesnt matter
what the type of investment because the return on investment calculation only looks that the
profits and the costs associated with the investment.
That being said, the ROI calculation is one of the most common investment ratios because its
simple and extremely versatile. Managers can use it to compare performance rates on capital
equipment purchases while investors can calculate what stock purchases performed better.

Formula
The return on investment formula is calculated by subtracting the cost from the total income and
dividing it by the total cost.

Gross Profit Margin

Gross profit margin is a profitability ratio that calculates the percentage of sales that exceed the
cost of goods sold. In other words, it measures how efficiently a company uses its materials and
labor to produce and sell products profitably. You can think of it as the amount of money from
product sales left over after all of the direct costs associated with manufacturing the product have
been paid. These direct costs are typically called cost of goods sold or COGS and usually consist
of raw materials and direct labor.

The gross profit ratio is important because it shows management and investors how profitable the
core business activities are without taking into consideration the indirect costs. In other words, it
shows how efficiently a company can produce and sell its products. This gives investors a key
insight into how healthy the company actually is. For instance, a company with a seemingly
healthy net income on the bottom line could actually be dying. The gross profit percentage could
be negative, and the net income could be coming from other one-time operations. The company
could be losing money on every product they produce, but staying a float because of a one-time
insurance payout.

That is why it is almost always listed on front page of the income statement in one form or
another. Lets take a look at how to calculate gross profit and what its used for.

Formula
The gross profit formula is calculated by subtracting total cost of goods sold from total sales.

Both the total sales and cost of goods sold are found on the income statement. Occasionally,
COGS is broken down into smaller categories of costs like materials and labor. This equation
looks at the pure dollar amount of GP for the company, but many times its helpful to calculate
the gross profit rate or margin as a percentage.

The gross profit percentage formula is calculated by subtracting cost of goods sold from total
revenues and dividing the difference by total revenues. Usually a gross profit calculator would
rephrase this equation and simply divide the total GP dollar amount we used above by the total
revenues. Both equations get the result.

Operating Margin Ratio

The operating margin ratio, also known as the operating profit margin, is a profitability ratio that
measures what percentage of total revenues is made up by operating income. In other words, the
operating margin ratio demonstrates how much revenues are left over after all the variable or
operating costs have been paid. Conversely, this ratio shows what proportion of revenues is
available to cover non-operating costs like interest expense.

This ratio is important to both creditors and investors because it helps show how strong and
profitable a company's operations are. For instance, a company that receives 30 percent of its
revenue from its operations means that it is running its operations smoothly and this income
supports the company. It also means this company depends on the income from operations. If
operations start to decline, the company will have to find a new way to generate income.

Conversely, a company that only converts 3 percent of its revenue to operating income can be
questionable to investors and creditors. The auto industry made a switch like this in the 1990's.
GM was making more money on financing cars than actually building and selling the cars
themselves. Obviously, this did not turn out very well for them. GM is a prime example of why
this ratio is important.

Formula
The operating margin formula is calculated by dividing the operating income by the net sales
during a period.

Operating income, also called income from operations, is usually stated separately on the income
statement before income from non-operating activities like interest and dividend income. Many
times operating income is classified as earnings before interest and taxes. Operating income can
be calculated by subtracting operating expenses, depreciation, and amortization from gross
income or revenues.

What is Return on Shareholder's funds? What does it show?

Return on Shareholders Funds is one of the ratios of overall profitability group, which indicates
the profitability of a firm in relation to the funds supplied by the shareholders or owners. This
ratio is very important from the owners point of view as it helps the firm to know whether the
firm has earned enough returns to repay its shareholders or not. This ratio is calculated in two
ways:

Formula to calculate Return on Shareholders Funds = (Net profit after taxes / Total
shareholders' funds) X 100

Formula to calculate Return on Shareholders Funds = {(Net profit after taxes - Preference
dividend)/ Shareholders' funds} X 100
 Financial Dictionary
Calculators
Articles

Net Asset Value Per Share (NAVPS)

What it is:
In finance, the net asset value per share (NAVPS) is the value of one share of a mutual fund.

The net asset value formula is used to calculate a mutual fund's value per share. A mutual fund is a pool
of investments that are divided into shares to be purchased by investors. Each share contains a
weighted portion of each investment in the collective pool. The premise of grouping in this manner is to
minimize risk by diversifying.

Definition - What is Net Asset Value Per Share?

The net asset value per share (NAVPS), is also known as simply the net asset value and as the
name suggests, it looks at the value per single share of a fund or company.

Formula
The formula to measure the net as

set value per share is as follows:

Net Asset Value Per Share = (Market Value of all Securities Held + Cash and Cash Equivalents -
Liabilities) / Number of Shares Outstanding

You can find these numbers on a companys financial statements.

Liquidity Ratios

Liquidity ratios analyze the ability of a company to pay off both its current liabilities as they
become due as well as their long-term liabilities as they become current. In other words, these
ratios show the cash levels of a company and the ability to turn other assets into cash to pay off
liabilities and other current obligations.

Liquidity is not only a measure of how much cash a business has. It is also a measure of how
easy it will be for the company to raise enough cash or convert assets into cash. Assets like
accounts receivable, trading securities, and inventory are relatively easy for many companies to
convert into cash in the short term. Thus, all of these assets go into the liquidity calculation of a
company.

Operating ratio (also known as operating cost ratio or operating expense ratio) is computed
by dividing operating expenses of a particular period by net sales made during that period. Like
expense ratio, it is expressed in percentage.

Formula:
Operating ratio is computed as follows:

The basic components of the formula are operating cost and net sales. Operating cost is equal to
cost of goods sold plus operating expenses. Non-operating expenses such as interest charges,
taxes etc., are excluded from the computations.

The following example may be helpful in understanding the computation of operating ratio:
Operating expense ratio can be explained as a way of quantifying the cost of operating a piece
of property compared to the income brought in by that property. As explained by Investopedia,
the operating expense ratio (OER) is a helpful tool in carrying out the comparisons between the
expenses of analogous properties. If a particular property piece features a high OER, an investor
should take it as a warning signal and look into the matter for why is the OER high.

The investors using this ratio can further compare any type of expense including insurance,
utilities, taxes and maintenance, to the gross income, and the sum of all expenses to the gross
income.

The operating expense ratio is, generally, calculated by dividing the operating expense of a
property by its gross operating income.

Formula

The formula for OER is,

Operating Expense Ratio = Operating Expenses / Effective Gross Income

Definition of 'Statutory Liquidity Ratio'

Definition: The ratio of liquid assets to net demand and time liabilities (NDTL) is called
statutory liquidity ratio (SLR).

Statutory Liquidity Ratio

Definition: The Statutory Liquidity Ratio (SLR) refers to the proportion of deposits the
commercial bank is required to maintain with them in the form of liquid assets in addition to the
cash reserve ratio.

Value and formula

The quantum is specified as some percentage of the total demand and time liabilities ( i.e. the
liabilities of the bank which are payable on demand anytime, and those liabilities which are
accruing in one months time due to maturity) of a bank.

SLR rate = (liquid assets / (demand + time liabilities)) 100%

Revenue Per Employee

Revenue per employee (also called sales per employee) is a financial ratio that measures the
revenue generated by each employee of the company on average. It equals the company's total
revenue divided by the average number of employees for the period.

Revenue per employee is relevant for labor-intensive industries i.e. industries in which human
capital is more important than the physical capital for revenue generation.

A similar ratio is net income per employee, which measures net income earned by each
employee on average.

Formula
Net Revenue
Revenue per Employee =
Average Number of Employees

Example
Auditing, tax and consultancy are labor-intensive industries. The big four accounting firms are
few of the world's largest professional services firms and their revenue depends exclusively on
their human capital. Calculate the revenue per share for each using the data given below for
financial year 2013.

Net Income per employee (NIPE) is a company's net income divided by the number of employees. In
general, the higher the number, the more efficient the company uses its employees, however the
numbers are only directly comparable when comparing companies of a very similar nature. There are no
rules about what constitutes a good level of income per employee, or a bad level.[
Return on Capital Employed

Return on capital employed or ROCE is a profitability ratio that measures how efficiently a
company can generate profits from its capital employed by comparing net operating profit to
capital employed. In other words, return on capital employed shows investors how many dollars
in profits each dollar of capital employed generates.

ROCE is a long-term profitability ratio because it shows how effectively assets are performing
while taking into consideration long-term financing. This is why ROCE is a more useful ratio
than return on equity to evaluate the longevity of a company.

This ratio is based on two important calculations: operating profit and capital employed. Net
operating profit is often called EBIT or earnings before interest and taxes. EBIT is often reported
on the income statement because it shows the company profits generated from operations. EBIT
can be calculated by adding interest and taxes back into net income if need be.

Capital employed is a fairly convoluted term because it can be used to refer to many different
financial ratios. Most often capital employed refers to the total assets of a company less all
current liabilities. This could also be looked at as stockholders' equity less long-term liabilities.
Both equal the same figure.

Formula
Return on capital employed formula is calculated by dividing net operating profit or EBIT by the
employed capital.

If employed capital is not given in a problem or in the financial statement notes, you can
calculate it by subtracting current liabilities from total assets. In this case the ROCE formula
would look like this:
It isn't uncommon for investors to use averages instead of year-end figures for this ratio, but it
isn't necessary.