RATIO ANALYSIS

S.N NAME FORMULA NUMERATOR DENOMINATOR STANDAR SIGNIFICANCE

.
D
1 CURRENT RATIO / WORKING Current Assets ÷ Current Inventories / Stocks, Debtors & Sundry Creditors, Outstanding 2:1 Measures a company's ability
CAPITAL RATIO Liabilities B/R, Cash & Bank, Receivables, Expenses, Short Term Loans, Bank to pay its short-term debts
Accruals, Short Term Loans and Overdraft / Cash Credit, Provision
advances, Marketable for Taxation, Proposed Dividend,
Investments/ Short Term Unclaimed Dividend
Securities
2 QUICK RATIO / LIQUID RATIO Quick Assets (Liquid Assets) ÷ Current Assets (-) Inventories (-) Sundry Creditors, Outstanding 1:1 Measures a company's ability
/ ACID-TEST RATIO Current Liabilities Prepaid Expenses Expenses, Short Term Loans, Bank to pay its short-term
Overdraft / Cash Credit, Provision obligations immediately
for Taxation, Proposed Dividend,
Unclaimed Dividend
3 ABSOLUTE LIQUID RATIO Absolute Liquid Assets ÷ Cash in Hand, Cash at Bank and Sundry Creditors, Outstanding 0.5:1 Measures a company's ability
Current Liabilities Marketable securities Expenses, Short Term Loans, Bank to pay its short-term debts
Overdraft / Cash Credit, Provision using its most liquid assets
for Taxation, Proposed Dividend,
Unclaimed Dividend
4 STOCK (INVENTORY) Cost of Revenue from Sales – Gross Profit / (Opening Inventory + Closing No thumb Measures the velocity of
TURNOVER RATIO / STOCK Operations (COGS) Or Revenue Opening Stock + Purchase + Inventory) ÷ 2 rule. But conversion of stock into
VELOCITY from Operations (Sales) ÷ Direct Expenses – Closing Stock higher ratio sales.
Average Stock is better.
STOCK CONVERSION PERIOD = 365 days / 12 months ÷ Stock (Inventory) Turnover Ratio / Stock Velocity
5 TRADE RECEIVABLES OR Net Credit Revenue from Revenue from Operations (Opening Trade Receivables + No thumb Indicates the number of
DEBTORS TURNOVER RATIO Operations ÷ Average Trade (Sales) – Sales Return – Cash Closing Trade Receivables) ÷ 2 rule. But times the debtors are turned
Receivables Sales Trade Receivables = Sundry higher ratio over during the year.
Debtors + Bills Receivables is better.
AVERAGE COLLECTION PERIOD = 365 days / 12 months ÷ Trade Receivables Or Debtors Turnover Ratio
6 TRADE PAYABLES OR Net Credit Purchase ÷ Average Purchase – Purchase Return – (Opening Trade Payables + No thumb Indicates the number of
CREDITORS TURNOVER Trade Payables Cash Purchase Closing Trade Payables) ÷ 2 rule. But times the creditors are
RATIO Trade Payables = Sundry Shorter turned in relation to
Creditors + Bills Payables payment purchase.
period is
better.
AVERAGE PAYMENT PERIOD = 365 days / 12 months ÷ TRADE PAYABLES OR CREDITORS TURNOVER RATIO
7 WORKING CAPITAL Cost Of Revenue from Sales – Gross Profit / (Opening Working capital+ Higher ratio Indicates the velocity of
TURNOVER RATIO Operations (COGS) Or Revenue Opening Stock + Purchase + Closing Working capital) ÷ 2 is better. utilization of net working
from Operations ÷ Average Direct Expenses – Closing Stock Working Capital = Current capital.
Working Capital Assets – Current Liabilities
8 GROSS PROFIT RATIO (Gross Profit ÷ Net Revenue Gross Profit as per Trading Revenue from Operations (Sales) Higher ratio Measures a company's
from Operations) × 100 Account / Sales - COGS – Sales Return is better. profitability by comparing
gross profit to sales
9 NET PROFIT RATIO (Net Profit ÷ Net Revenue from Net Profit as per P & L A/c Revenue from Operations (Sales) Higher ratio Indicates the efficiency of
Operations) × 100 (either before tax or after tax, – Sales Return is better. management in the
depending upon data) operations of firm.
10 OPERATING RATIO (Operating Cost ÷ Net Revenue Cost of Revenue from Revenue from Operations (Sales) Lower ratio It is a yardstick for operating
from Operations) × 100 Operations [COGS] (+) – Sales Return is better. efficiency
Operating Expenses (e.g. Office
and Administrative Expenses,
Selling and Distribution
Expenses, Depreciation)
11 OPERATING PROFIT RATIO (Operating Profit ÷ Net Revenue Sales – Operating Cost / Revenue from Operations (Sales) Higher ratio Indicates the overall
from Operations) × 100 Sales Less Cost of Sales / – Sales Return is better. efficiency of the firm.
OR 100 – Operating Ratio Net Profit as per P & L Account
(+) Non-Operating Expenses
(e.g. Loss on sale of assets,
 Preliminary Expenses written
off, etc.)
(-) Non-Operating Incomes (e.g.
Rent, Interest & Dividends
received)
12 DEBT-EQUITY RATIO Debt ÷ Equity Debentures, Long-Term Loans Equity Share Capital, Preference 2:1, but Indicates the proportionate
from Banks, Financial Share Capital, Reserves & Surplus generally claims of owners and
Institutions, Long-term lower ratio outsiders on firm’s assets.
provisions is better.
13 SOLVENCY RATIO Outsider’s Liabilities ÷ Total Total Assets – Shareholders’ Net fixed assets + Current assets Higher ratio
Assets funds is better.
14 PROPRIETARY RATIO Equity ÷ Total Assets Equity Share Capital, Preference Net fixed assets + Current assets 50%, but Indicates the extent to which
Share Capital, Reserves & higher ratio the assets of the firm can be
Surplus is better. lost without affecting the
interest of creditors.
15 Total Assets to Debt Ratio Total Assets ÷ Debt Net fixed assets + Current Debentures, Long-Term Loans 1:1, but Measures the proportionate
assets from Banks, Financial Institutions, lower ratio of total assets funded by
Long-term provisions is better. long-term debts.
16 INTEREST COVERAGE EBIT (Net Profit Before Interest EAT (Net Profit after interest and Interest on Non-Current Liabilities Higher ratio Measures a company's ability
RATIO / DEBT SERVICE and Tax) ÷ Fixed Interest tax) + Tax + Interest is better. to pay its interest expenses
RATIO / FIXED CHARGES
COVER RATIO / TIMES
INTEREST EARNED
17 RETURN OM CAPITAL EBIT (Net Profit Before Interest EAT (Net Profit after interest and Equity + Debt / Higer Ratio Measures the overall
EMPLOYED (ROCE) / and Tax) ÷ Capital Employed tax) + Tax + Interest Total Assets – Current liabilities / is better. profitability of the business.
RETURN ON INVESTMENTS Fixed Assets + Working Capital
(ROI)
18 RETURN ON EQUITY (ROE) / [EAT (Net Profit After Tax) – Net Profit After Tax - Preference Equity Share Capital Higer Ratio Measures a company's
RETURN ON NET WORTH Preference Dividend] ÷ Equity Dividend is better. profitability by comparing net
Share Capital income to shareholder equity
19 EARNINGS PER SHARE (EPS) Residual Earnings ÷ Numbers of Net Profit After Tax - Preference Numbers of Equity Shares --------- Income per share, whether
Equity Shares Dividend for not distributed as
dividend.