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Accounting Ratios
Myers
Ratio
A Ratio is simply one number expressed in
terms of another. It is found by dividing
one number into the other.
Classification of Ratios
Liquidity Ratios
Current Ratio
Quick Ratio
Classification of Ratios
Activity Ratio
Stock Turnover Ratio or Inventory Turnover Ratio
Debtors of Receivables Turnover Ratio
Average Collection Ratio
Creditors or Payables Turnover Ratio
Average Payment Period
Fixed Assets Turnover Ratio
Working Capital Turnover Ratio
Classification of Ratios
Profitability Ratio
Classification of Ratios
Current Ratio =
Current Assets
Current Liabilities
Liquid assets
Liquid Liabilities
Debt
Equity
Debt to Equity ratio is also known as ExternalInternal Equity Ratio. The formula for the ratio is as
below:
Debt to Equity Ratio=
External Equities
Internal Equities
Outsiders Funds
Shareholders Funds
Debt
Equity + Debt
Proprietary Ratio:
This ratio indicates the proportion of total
assets funded by owners or shareholders. It
is calculated as under:
Proprietary Ratio =
Equity
Total Assets
Proprietors Fund
This ratio indicates the extent to which
proprietors (Shareholder's ) funds are sunk
into fixed assets. If this ratio is less than 100
%, it would mean that proprietors fund are
more than fixed assets and a part of working
capital is provided by the proprietors. This
will indicate the long term financial
soundness of business. The lower the ratio,
the better it is for the long term solvency of
the business because more proprietor's funds
will be available for working capital.
Activity Ratios
DTR =
Trade Debtors
Average Deb+ Average B/R
Deb+ B/R
Credit Sales Per Day
DTR =
Trade Creditors
Average Creditors+ Average B/P
Creditors+ B/R
Credit Sales Per Day
DTR =
Operating Ratio
This ratio expresses the relationship of cost of
goods sold plus operating expenses to Net
Sales. Formulation for this ratio is as:
Operating Ratio = Cost of goods sold +
Operating Expenses/Net sales
Operating Expenses- Operating Expenses
consist of:
Key Concepts
Accounting Ratio
Balance Sheet
Balance Sheet Ratios
Composite Ratios
Financial Analysis
Financial Ratios
Financial Statement
Interpretation
Profitability Ratio
Turnover Ratios