2. Accounting Ratios
Accounting Ratios are the relationship between
two amounts or two group of amounts given in
financial statements(Income statement/Profit &
Loss A/c & Position Statements/Balance Sheet) . It
is a process of simplify the complex amounts it is
helpful to understand the quantitative and
qualitative relations of items shown in financial
statements. It is a significant tool of managerial
and financial analysis and decision making .It is
also helpful in forecasting of growth of profits and
wealth .

3. In order to compute a meaningful ratios, there
must be a significant relation between the two
figures . A ratio focuses attention on a relation
which is significant, but a full interpretation of the
ratio usually requires further investigation of the
underlying data. Ratios are an aid to analysis and
interpretation, they are not a substitute for sound
thinking.

5. Liquidity Ratios
1.Current Ratio
2. Liquid Ratio/Quick Ratio/Acid Test Ratio
Profitability Ratio
1. Gross profit Ratio
2.Net Profit Ratio
3.Return on Equity
4.Return on Capital Employed/Total Investment
5.Return on Total Assets

6. Turnover Ratios
1.inventry/Stock turnover ratio
2.Fixed Asset turnover ratio
3.Current Asset Turnover Ratio
4.Working Assets Turnover Ratio
Stability Ratios/Capital Ratios
1.Debt Equity ratio
2.Fixed Asset to Capital ratio

7. On the basis of P/L A/C Or Income Statement
1. Gross Profit Ratio Gross Profit × 100
Net sales (credit sale+cash)
2. Net Profit Ratio Net profit ×100
Net sales
3. Operating ratio Cost of goods sold + Op. exp. × 100
Net sales
4. Expenses Ratio Particular expenses × 100
Net sales
5. Stock or Inventory turnover Net sales
Ratio Or
Cost of goods sold
Average Inventory
Average stock = Opening +closing
2

8. 6. Operating expenses ratio Operating expenses ×100
Net sales
7. Operating profit ratio Operating Profit×100
Net sales
Operating profit = Gross Profit –operating expenses
8. Interest coverage ratio PBIT (Profit before interest and terms)
Interest on long term debts

9. 1. Current Ratio Current Asset (2:1)
Current liability
2. Quick or Liquid Ratio Quick or Liquid Assets (1:1)
Quick Liabilities
Quick assets = Current – ( Closing Stock + Prepaid )
Quick liabilities = Current liabilities – Bank overdraft
3. Proprietary Ratio (Net worth to Equity or share holder fund
total asset ratio ) Total Assets or total equities
Share holders fund = Eq. share capital + Reserve fund +reserve for dividend
4. Fixed Asset Ratio ( Fixed Asset to Fixed Assets
net worth ) Net worth or long term loans

10. 5. Capital gearing Shareholders fund (Total
ratio debts capital = Debentures +
Total debts capital
preference share capital)
Share holder fund = Equity
share capital+ Reserve fund +
Reserve for dividend
6. Debt equity Long term debt or
ratio External equity
Share holder eq. or fund
Internal Equity
7. Solvency Ratio Total assets (1:1)
Total liability