1. RATIO ANALYSIS
I) Operating Efficiency Based on Profit:
1) Gross Profit Ratio:
Gross Profit = Sales – Cost Of Goods Sold (COGS),
Sales = G/p + COGS
COGS = Sales – G/p
COGS = Opening Stock + Purchases + Direct Expenses +
Manufacturing Expenses – Closing Stock
2) Operating Ratio =
Operating Expenses = Administrative Exp + Selling & Dist. Exp.
3) Operating Profit Ratio =
4) Net Profit Ratio =
Sales XXX
Less: (COGS) (XXX)
G/P XXX
Less: (Operating
Expenses) (XXX)
Operating Profit XXX
Less: (Non
Operating
Expenses) (XXX)
Add: Non
Operating
Incomes XXX
N/P XXX
Less: (Tax) (XXX)
PAT/EAT XXX
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2. II) Operating Efficiency Based on Investment:
1) Return on Capital Employed (ROCE)=
Capital Employed = Equity Share Capital + Preference Share
Capital + Undistributed Profit + Reserves & Surplus + Long Term
Liabilities – Fictitious Assets – Non Business Assets.
2) Return on Net Worth Share holder’s Fund =
Share Holder’s Fund = Equity Share Capital + Preference Share
Capital + Reserves & Surplus – Fictitious Assets
3) Return on Equity Share Holder’s Fund:
Equity Share Holder’s Fund = Equity Share Capital + Capital
Reserves + Revenue Reserves + Balance of Profit & Loss A/c –
Fictitious Assets – Non Business Assets.
4) Return on Total Assets =
5) Earnings Per Share =
6) Price Earning (P/E)Ratio =
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3. 7) Net Cash Accrual = Cash Inflow – Cash Outflow + Depreciation
8) Payout Ratio =
Dividend per Share = Dividend Paid in % × PAR value of a
Company’s
Share
9) Retained Earning Ratio =
10) Dividend Yield Ratio =
III) Liquidity or Short Term Solvency Ratio:
i) Current Ratio =
ii) Liquidity or Acid Test Ratio =
Liquid Assets = C.A. – Inventories – Prepaid Expenses
Current Liabilities will be taken only if there is no “Bank
Overdraft”.
iii) Absolute Liquid or Super Quick Ratio or Cash Ratio =
IV) Activity or Turn Over Ratio
i) Inventory or Stock Turn Over Ratio (I T R)=
Average Stock =
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4. Average/ Inventory Turn Over Ratio =
ii) Debtor’s/Receivables Turnover Ratio (DTR) =
Average Debtors =
Trade Debtor’s = Sundry Debtors + Bills Receivables
Avg. or Debtors Collection Period =
iii) Creditor’s/Payables Turnover Ratio (CTR) =
Avg. or Creditor’s Payment Period =
iv) Working Capital Turn Over Ratio =
V) Analysis of Long Term Financial Positions or Test of Solvency
i) Debt Equity Ratio =
Outsider’s Fund = Long term debts like debentures, bonds,
bank loans, or borrowings.
Share Holder’s Fund = Equity Share Holder, Preference Share
Holder, Reserves & Surplus, Undistributed profits.
ii) Proprietary or Equity Ratio = × 100
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5. iii) Fixed Assets to Net worth’s Ratio =
iv) Fixed Assets to Long Term Funds =
v) Debt Service Ratio or Interest Coverage Ratio =
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