2. 1. 2 1.

Total Debt Curent

Ratio
Assets
Total QuickLiqud
Ratio Liabities
Current
(Shareholders
Funds)
Equity Liquid Current
Assets
Debt Asset to Ratio
Equity Liabilities
Current
to Assets
Acid Rato
Debt Debt Ratio
or Test
Ratio Quick
Ratiol
Assets

business.
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e.2:g1.Ratio,
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Ratios

term Non-current
Working
Provisions). Equity Debt Note:Current Quick Current
Working +
Equivalents LooseIntangible Total
Debt = Advances) Non-current
Current
(Shareholders' = Quick Liabilities Assets Liabilities
Assets.
Inventories
Tools Assets Long-term
public
rrowings+Long-term
Long-term Capital Capital Assets
=Current
Assets
Short-term + and +
Current =
Assets
(Trade) deposits) have
=Current - and
Stores Non-current+ Non-current(Property, Borrowings,
Current
Short-term+Other Cash Net and
Funds) prepaid sameAssets- Current
Non-current
Assets Investments + Equvalents Spates
of
Loans
and Assets-Current Long-term meaning Liabilities Current Ivestrerts
Provision Petiark
[Current Assets = expensesInventornes Borrowings
Spares) Liabilities Plant Share and
and (i.e., Lonse
asAssets+Short-term
Advances
Investnents
+(Property, Long-term
+and Capitai
Provisicns. in Short for
Investments
Trade debentures, are - Shor Doubttul Inentories
Equipment Current Tos)
Liabilities.
(Long-term
-Reserves not Prepaid term
Provisions.Receivables considered term Trade
+Other Plant
+ Loans Ratio.
Expenses.Provisions Loans
Debts) Trade
(Excluding
+
Long-term Payables
Inventories Borrowings + andmortgage and
investments. Receivables
Curient and Intangible
and
+ Surplus. as Advances Cash
Cash Equipment Advances) +Other Katios
Accounting
Stores
Assets])(includingLoans +Long loans. and
and Assets
Cash and
+
 3.94
dby the p n r t Hhee he n hghee h
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Ths sh my trnes the nteresthegm re P ttekee teest andAPrAt ater aTas interet
t e mts vahe to (y nterest Hgher the
k ame se the lernder s in respect o payment

Ts rat shmthe arTUUt ol Long term ebts in Captal Pure Ratin Detd mears Lcng term etts, e, Non cunt Lattes
Empyed Low atio means more security to lenders and
hagh vatio means lesser security to lenders
CapitalEmpiyed aretiders Funds +Longtm ett

. ACTIVvITY RATIOS/TURNOVER RATIOS

Invtory Turnover Ratie This ratio measures how fast Inventory is moving and Times Average iventory
Cas a Aevene trom generating sales. Higher the ratio, more efficient Opening inventory + CloSing Iventory
Opeasons management of inventories and vice versa. 2
Aveage inventay
Trade Recaivabies Turnover Ratio This ratio shows effciency in the collection of amount due Times Trade Receivabies means debtors plus blls necervabie.
Credt Aevenue from from trade receivables. Higher the ratio, better it is since Provision for Doubtful Debts is not deducted.
Cperations Rindicates that debts are being collected more quickly.
Average Trede Recevables
Aerage Trade Recevabies (Opening Debtors + Opening Bilis Recervabie) +
(Closing Debtors + Closing Bits Recervable)
2
3 Trade Payables Turnover Ratio It shows the number of times the creditors are turned over Times Trade Payables means creditors plus bils payable.
Net Gedt Purchases in relation to purchases. Ahigh turnover ratio or shorter
payment period shows the availability of less credit or Average Trade Payables
Average Trade Payabies
eary payments. (Opening Creditors +Opening Blls Payable) +
(Closing Creditors +Closing Bills Payable)
4. Working Capital Tunover Ratio This ratio shows the number of times working capital has Times Working Capital =Current Assets-Current Liabilities
Revenue from Operations been enployed in the process of carrying on business.
Working Captal Higher the ratio, better the effciency in the utilisation of
working captal.
S. Foed Assets Turnover Rabo This retio shows the efficiency with which the fxed assets Times Revenue from Operations means Gross Revenue ess Sales Return, tay
Revenue from Operations have been used in earning revenue from operations In terms of sales, t means Gross Sales less Sales Return e Net Sales
FLed Awts (e, durng the year A high ratio means effcient utilisation of
Net Fied Assets means Foed Assets Cost) - Deprcatio.
hd a t s e Mw ratio means lnethcient utilisation
 of sales.
Times Reverue from opeations means Gross Revenue less Sales Return in terms
MtAma ur aphal Erploydunover Ratio Capltal
Revenue from Dperations
Ths ratioEmployedd
shows theIs number of times Net Assets or
rotated ar used in generating
Revenue from Operations Higher turnover ratio means
It means Gross Sales less Sales Retun.
Net Assets Total Assets- Current Liabelities
AccountiRatngios
Captal Employed better and eficient utilisatlon of net assets or capital
employed and thus, higher profhtability &liquidity.
IV. PROFITABILITY RATIOS

1. Gross Profit Rado

ratio indicates the relationship between qross Gross Profit Revenue from Operations-Cost of Revenue from Operations
dronue from operations (Net Cost of Revenue from Operations
Gross Proft Prote sales).Higher =Opening Inventory (excluding Stores and Spares and Loose Tooisi -Net
Purchases
x 100 the Ratio, lower ththe cost of qoods sold.
Revenue from Operations +Direct Expenses -Closing inventory (excluding Stores and Spares and Loose
Tools).
Cost of Materials Consumed + Purchases of Stock-in-Trade Changes in
+ Direct Expenses
Inventories of Finished Goods, WIP and Stockto be nd. de
If direct erpenses are not given, assume thern
2. Operating Ratio This ratio is calculated to assess the operational Cost of Revenue from Operations
lefficiency of the business. Adecline in the operating = Opening inventory (excluding Stores and Spares and Loose Tools- Net Purchases
Cost of Revenue from Operations
|ratio, is better because it means higher margin, and +Direct Expenses-Cosing Inventory (excuding Stores and Spares and Loose Tocis)
+Operating Expenses -x100 thus, more profit.
Revenue from Operations Cost of Materials Consumed + Purchases of Stock-in-Trade + Changes in
entoioe
ries ofof FEinished Goods WIP and Stock-in-Trade Direct Expenses
Or
Or
Operating Cost Revenue from Operations - Gross Profit.
Revenue from Operations -x100 MDirect Expenses are not given, assume then to be nil.
Operating Expenses = Employees Benefit Expenses + Depreciation and
Amortisation Expenses + Other Expenses (Other than
Non-operating Expenses).
Revenue from Operations = Sales-Sales Return.
3. Operating Profit Ratio The objective of computing this ratio is to determine Operating Profit
Operating Profit the operational effciency of management. = Net Profit (Before Tax) + Non-operating Expenses - Non-operating Income.
x100 Or
Revenue from Operations -Gross Proft +
Gross Proht+other Operating Income-Other Operating Expenses
Non-operating Expenses = Interest on Long-term Borrowings + Loss on Sale of
ocetASSes
Non-operating Income = Interet +Gain (Profit) on Sale
of Fixed Assets or Non-current Assets.
Net Proft after Tax = Gross
4. Net Profit Ratio It indicates overall effciency of the business. Hlgher Proit+Other Income-Indiret Expenses- Tax.
Net Profit after Tax the net profit ratio, better the business.
100
Revenue from Operations
It assesses the overall performance of the enterprise. Capital Employed Liablities Side ApproGch: Share Capital +Reserves and Surplus
5. Return on Investment or Return on %
+Long-term Borrowings +Long-term Pravisions.
Capital Employed It measures how effciently the resources entrusted to
the business are used. Assets Side Approach: Non-Current Assets + Working Capital.
Profit before interest, Working Capital = Current Assets -Current Liabilities.
Tax and Dividend IASSume that all Non-current Investments are Trade Investments)
x100
Capital Employed (nterest on Non-trade Investments shoukd be deducted from Proft before 3.9
Tax and Dividend.) lnterest.