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Type of Ratio Name of Ratio Formulae Implies Example

Current Ratio Current Assets (CA)/Current It measures firm’s ability to pay If CR is 3 or 3:1, it means the
Liquidity Liabilities (CL) current liabilities from current company has 3 times current
(CR)
Ratio assets assets over current liabilities i.e. if
CL is 50,000 Tk., CA is
150,000Tk.
Quick Ratio (CA-Inventory)/CL It measures firm’s ability to pay If CR is 2 or 2:1. it means the
current liabilities from quick company has 2times quick assets
assets (QA) over current liabilities i.e. if CL is
50,000 Tk., QA is 100,000Tk..So
inventory was Tk. 50,000
Working Capital Working Capital (WC)/ Net It measures proportion of owner’s If WCR ratio is .4 or 40%. It
Ratio (WCR) Assets (NA) or Capital investment in working capital means 40% of total owner’s
Employed (CE) investment is engaged in working
WC=CA-CL capital.
NA/CE=Total Assets (TA)-
Total Liabilities (TL)
Activity/Efficiency Accounts Total Credit Sale/ Average AR It measures how many times in a If ARTO is 10 times, it means the
Ratio Receivable (AR) or year a firm collect its AR on an company can collect its
Debtor Turnover AverageAR=(Beg.AR+End.AR average. In fact it indicates outstanding AR 10 times in a year
ratio (ARTO) )/2 collection efficiency of the firm
Days 360/ARTO It measures within how many If ARTO is 10 time then DOAR
Outstanding AR days amount of credit sale is is 36 days. It means on an average
collected from clients after 36 days of credit sale,
(DOAR)
amount is collected.
Inventory Turnover Cost of Goods Sold It measures the firm’s ability to If ITO is 18 times, it means the
Ratio (ITO) CGS)/Average Inventory convert its inventory into sale. company can sale its inventory 18
times in a year.
Days Holding 360/ITO It measures on an average after If ITO is 18 times, DHO is 20
Inventory(DHI) how many days inventory is sold. days. It means on average after
every 20 days inventory of the
firm is sold
Total Assets Total Sale/Total Assets It measures the firm’s ability to Is TATO is .8 or 80%, it means
Turnover(TATO) use its assets for productive way the firms total sale of a year is
only 80% of its total assets
Debt-Equity Total Debt/Total Equity It measures the proportion of If DE is 1.2 or 120%, it means the
Coverage lender’s contribution and owner’s firm has 1.2 time (120%) debt of
Ratio(DE)
Ratio contribution to the business its owner’s investment i.e. if
owner’s equity is 5,000Tk.ender’s
contribution to the business is
6,000Tk.
Debt-Total Total Debt/Total Assts It measures the lender’s If this ratio is .6(60%), it means
Assets Ratio contribution part into the assets out of the total assets 60% was
financed by lending money and
rest (40%) by owner’ investment
Time Interest Earning Before Interest & It measures the firm’s ability to If this ratio is 4 times, it means
Coverage(TIC) Tax(EBIT)/Interest Expense pay its interest expense from it the company can pay its interest 4
earning times from its earning
Price Earning Market Value Per It measures the time length within If this ratio is 5 times, it means
Ratio(PE) Share/Earning Per Share(EPS) which an investor can get back the invest can get back(cover)
his/her invested money as return his/her invested money within 5
years of investment without
disposing the investment
Gross Profit (Gross Profit/Sale)*100 It measure gross profit portion in If GP ratio is 30% (.3), it means
Profitability sale. It may be calculated is out of total sale the company’s
(Margin) Ratio
Ratio fraction or %. gross profit is 30% i.e. is total
sale is 500,000Tk. its gross profit
is 150,000Tk.
Net Profit Ratio (Net Profit/Sale)*100 It measure net profit portion in If GP ratio is 20% (.2), it means
sale. It may be calculated is out of total sale the company’s
fraction or %. net profit is 20% i.e. is total sale
is 500,000Tk.,its gross profit is
100,000Tk..
Return on Equity (Net Income/Total Equity)*100 It measures the % of earning that If ROE is 12%, it means the
(ROE) a company can earn on its equity company can earn 12% return on
its equity
Earning Per Income Available for Share It measures earning of each share If EPS is 16, it means each share
Share(EPS) holders(NI)/No. of Share in a year has earns 16Tk. in a year
Dividend per Total Dividend/No. of Share It measures the amount paid as If DPS is 8, it means the share
Share(DPS) dividend on each share holder will get Tk. 8 as dividend
on each share