A.

LIQUIDITY RATIOS - SHORT TERM SOLVE

No Ratio Formula Numerator
Inventories
+ Debtors
1 Current Ratio
Current Assets +Cash & Bank
Current Liabilities +Bills Receivables/Accruals
+Short term Loans
+Marketable Investments

Current Assets
2
Quick Ratio or Quick Assets Less: Inventories
Acid test Ratio Current Liabilities Less: Prepaid Expenses

(Cash + Marketable Cash In Hand

Absolute Cash +Balance at Bank
3
Ratio securuties) +Marketable securuties & short Term
Current Liabilities investments
ORT TERM SOLVENCY
Denominator
Sundry Creditors (For Goods)
+Outstanding Expenses +Bills
payable
+Short Term Loans & advances
+Bank Overdraft/ Cash Credit
Significance
Ability to repay short term
commitmnets prompltly. Ideal
ratio is 2:1.High ratio indicates
existence of idle current assets

Sundry Creditors (For Goods)

+Outstanding Expenses +Bills
Ability to meet immediate
payable
liabilities.Ideal ratio is 1.33:1
+Short Term Loans & advances
+Bank Overdraft/ Cash Credit

Sundry Creditors (For Goods)

+Outstanding Expenses +Bills
Availibility of cash to meet short
payable
term commitments
+Short Term Loans & advances
+Bank Overdraft/ Cash Credit
 B. CAPITAL STRUCTRE RATIOS-INDICATOR OF FINANCING TECH

No Ratio Formula

1 Debt Equity Ratio

Debt
Equity

2 Proprietary Ratios
Proprietary Funds
Total Assets
ATIOS-INDICATOR OF FINANCING TECHNIQUES AND LONG TERM SOLVENCY

Numerator Denominator

Equity Share Capital

Long term borrowed funds, ie Debentures,Long +Reserves and Surplus
term loans from institutions Less Accumulated losses
if any

Net Fixed Assets

Equity Share Capital
+ Total Current Assets
+Reserves & Surplus
(Only tangiable Assets will
Less Accumulated losses
be included)
ONG TERM SOLVENCY

Significance

Indicates relationship between debt &

Equity, Ideal ratio is 1:2

Shows extent of owners fund utilised in

financing assets
 C. TURNOVER / ACTIVITY / PER
No Ratio Formula

Turnover or net sales

1 Working Capital Turnover Ratio
Net Working Capital

Stock/Finished goods Turnover Cost of Goods Sold

2
ratio (STR) Average Stock

Credit Sales
3 Debtors Turnover ratio (DTR)
Average Accounts receivable

Credit Purchases
4 Creditors Turnover ratio (CTR)
Average Accounts payable
C. TURNOVER / ACTIVITY / PERFORMANCE RATIOS
Numerator Denominator

Sales Net of returns Current Assets Less Current liabilities

For Manufacturers
Opening Stock
+Cost of production
Opening Stock +Closing Stock
less Closing stock
2
For Traders
Opening Stock
+ Purchases
Less Closing stock

Account Receivable (AR)= Debtors+ BR

Credit Sales net of returns Average AR=
Opening Bal+Closing Bal
2

AP= Creditors+ BP
Credit Purchases Net of returns if Average AP=
any Opening Bal+Closing Bal
2
OS
Significance

Ability to generate sales per rupee of Fixed Assets

Indicates how fast inventory is used / Sold

A higher turnover ratio generally indicates fast moving
material while low ratio may mean dead or excessive stock.

Indicates speed of collection of credit sales

Indicates Velocity of debt payment

 D. PROFITABILITY RATOS BASED O
No Ratio Formula

Gross profit
1 Gross profit Ratio
Sales

Operating profit
2 Operating profit Ratio
Sales

Net profit
3 Net profit Ratio
Sales
COGS+Office and
Administrative
4 Operating Ratio Expenses+Selling and
Distribution Expenses
Sales

F. PROFITABILITY RATOS OWNERS

No Ratio Formula

Return on investment (ROI) or Total Earnings

5
return on net capital employed Total Shareholder Funds

Earnings After Tax

6 Return on Equity
Net Worth

(total income- preference

Diluted EPS dividend)/ (outstanding
shares + diluted shares)

(PAT-Preference Dividend)
7 Earnings Per Share
Number of Equity Shares

Dividend
8 Dividend Per Share Number of Equity
Shares

9 Price Earning Ratio

Market Price Per Share
Earning Per Share
PROFITABILITY RATOS BASED ON SALES
Numerator Denominator

Sales Less Cost of goods sold

sales net of returns

Sales Less Cost of sales

or
Net profit sales net of returns
Add Non operating expenses
Less Non operating Incomes

Net profit sales net of returns

COGS+Office and Administrative

Expenses+Selling and Distribution sales net of returns
Expenses

ROFITABILITY RATOS OWNERS VIEW POINT

Numerator Denominator

Earnings before Interest and taxes

Equity Share Capital
Add: Non Operating incomes like
+reserves & Surplus
rents,interest and dividends
Less Accumulated Losses

Net Fixed Assets

+Net working Capital
Profit After Taxes
Less External Liabilites(Long
Term)

Number of Equity shares

Profit After Taxes Outstanding=
Less Preference Dividend Equity Share Capital
Face value per share

Number of Equity shares

Profit distributed to equity share Outstanding=
holders Equity Share Capital
Face value per share

Market Price Per Share Earning Per Share

 Significance
High GP ratio => low cost of production and
high sales
Low GP ratio => high cost of production and
low selling price

Indicator of Operating performance of

businesss
http://www.myaccountingcourse.com/financial-
ratios/operating-margin-ratio

Indicator of overall profitabillity

Indicator of the degree to which organisation

expenses are covered by its core business

Significance
Overall profitability of the business for the
capital employed; indicates the return on the
total capital employed.
Comparison of ROCE with rate of interest of
debt leads to financial leverage. If ROCE>
Interest rate, use of debt funds is justified

Profitability of Equity funds invested in the

business

https://www.fool.com/knowledge-
center/formula-for-calculating-diluted-earnings-
per-share.aspx

Return or income per share, whether or not

distributed as dividends

Amounts of dividend distributed per share

Indicates how much investors are willing to

pay per rupee of current earnings
 E. COVERAGE RATIOS - ABILITY TO SERVE FIX
No Ratio Formula

Earnings before
1 Interest Coverage Ratio Interest & Tax
Interest
OVERAGE RATIOS - ABILITY TO SERVE FIXED LIABILITIES
Numerator Denominator

Sales
Less variable cost
Less Fixed Cost(excluding Int) Interest on debt Fund
or
EAT+Tax+ Interest
ABILITIES
Significance

Indicates ability to meet interest obligations of the

current year. Should be generally greater than 1