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Current ratio is defined as an indicator of short-term debt paying ability of a company. It is

determined by dividing current assets by current liabilities. The higher the ratio, it is believed
that, the more liquid the company. From this ratio we can determine the assets available with the
company to meets its liability. The preferred industry ratio is 2:1.

Liquidity ratio:

Liquidity Ratio also measures a firm¶s ability to meet its short-term financial obligations on time.
This is calculated by taking the ratio of the 
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This measure is one part of the cash conversion cycle, whichÊ

represents the process of turning raw materials into cash. The company possesses raw
materials/finished goods as inventories that it can sell off to turn into cash. It is important to
maintain inventories for a company but it is more important that the company maintains the level
of it so that there is no liquidity crunch on the balance sheet.


 
  Ôigher the current assets of a company and lower the current liabilities, greater
is the working capital. A larger chunk of working capital can be used to fund the long term
liabilities of the company and therefore, the larger the working capital, the better it is for the
company. Working Capital Days: Working capital days is defined as the ratio of the working
capital to the current liabilities of the company in any year.





 Ê
 The debt-to-equity ratio offers one of the best pictures of a company's
leverage. The higher the figure, the higher is the leverage the company enjoys. Mathematically, it
is defined as the ratio of the total debt to the total equity of the company under consideration at
any point of time.

  Ê  Ê
 The interest coverage ratio is a measurement of the number of times a
company could make its interest payments with its earnings before interest and taxes. Lower the
ratio, higher is the company¶s debt burden. This is measured as the ratio between the profit
before interest and taxes to the interest amount paid that year.

ÊÊÊ The ratio here is self explanatory and measures the share ofÊ
the debt to the total capital employed (funds) in the company. Capital employed for this purpose,
we define as, the amount of long term liabilities of the company, which comprises of loans and
owner¶s fund (which includes capital and reserves.)


  ÊÊÊ The ratio between the reserves maintained by the company to the
capital employed by it measures the level of self created wealth that is used to fund the
company¶s operations

ÊÊ Ê (

 ÊThe ratio of net income after taxes to total endÊ
of the year net-worth of the company is called the RONW for that company. This ratio indicates
the return on stockholder's total equity that is invested in the business.

ÊÊÊ  Ê!

 The return on capital employed isÊ
another measure of the returns that the business generates. This is expressed as theratio between
the profit before interest and taxes (PBIT) to the Capital Employed(Loans and Owner¶s Fund) in
the business.
Ê Ê Ê!"# Earnings per share, as it is called, are a company'sÊ
profit after tax (PAT) divided by its number of outstanding (equity) shares. It is therefore
measured as the portion of a company's profit allocated to each outstanding share of common
stock. EPS serves as an indicator of a company's profitability.
 Ê Ê Dividend is defined as the amount of profit that isÊ
distributed among the shareholders of the company. Declaration of this is dependent solely on
the decision of the management, whether they want to retain it for reinvestment or distribute to
the shareholders, the actual owners of the company. The total interim dividend divided by the
number of equity shares of the company measures the dividend per share in our case.