LIQUIDITY RATIOS

1. Current ratio = Current assets Current liabilities

Current assets = Cash in hand, bank balance, debtors, bills receivable, stock, prepaid expense, accrued income, and short term investments (marketable securities). Or Current assets = working capital + current liabilities. Or Current assets = total assets fixed assets. Or Current assets = capital employed + current liabilities fixed assets. Current liabilities = Creditors, bills payable, outstanding expense, provision for taxation, net of advance tax, bank overdraft, income received in advance. Or Current liabilities = total debts. long term debts. Or Current liabilities = total assets capital employed.

2.

Quick ratio/ Acid-test ratio/ Liquidity ratio

Quick assets = Current liabilities

stock prepaid expenses.

Quick assets = Current assets

Solvency ratios
1. Debt. equity ratio= Long term debt. Share holder fund
Long term debt. = debentures + long term loans. Share holder fund = equity share capital + preference share capital +

reserves and surplus fictitious assets (miscellaneous expenditure).

Share holders fund = total assets

total debt.

2.

Debt ratio=

Long term debt. Capital employed (total assets)

Capital employed = long term debt. + share holder fund.

3.

Proprietary ratio=

Share holder fund Capital employed (net assets)

4.

Total assets to debt ratio=

Total assets Long term debt.

5.

Interest coverage ratio= Net profit before interest & tax Interest on long term debt.
cost of goods sold) operating expenses + non operating income non operating expense.
Interest on long term debt.:- interest on debentures + interest on long term Net profit before interest and tax:- gross profit (net sales

loans.

Activity / Turn over ratios

1. Stock (inventory) turn over ratio= Cost of goods sold Average stock
Cost of goods sold = sales

gross profit. closing

Cost of goods sold = Opening stock + purchases + direct expenses

stock.
Average stock = opening stock + closing stock

2.

Debtors(receivables) turn over ratio =

Net credit sales

Average accounts receivables

Average accounts receivables =(opening debtors+B/R)+(closing debtors+B/R)

3.

Creditors(payables) turn over ratio =

Net credit purchases

Average accounts payables

Average accounts payables =(opening creditors+B/P)+(closing creditors+B/P)

4.

Working capital turn over ratio=

Net sales Net working capital

Net working capital = current assets

current liabilities

5.

Fixed assets turn over ratio=

Net sales Net fixed assets

Net fixed assets = fixed assets

depreciation

Profitability ratios
1. Gross profit ratio= Gross profit x 100 Net sales
Gross profit = net sales Net sales = sales

cost of goods sold.

sales return.

(Cost of goods sold + 2. Operating ratio= Operating expenses) x 100 Net sales
Operating expense = factory expenses, office expenses, selling expenses, etc.

3. Operating profit ratio = Operating profit x 100 Sales or

{100
Operating profit = sales

Operating ratio}
cost of operation.

4. Net profit ratio= Net profit x 100 Net sales

Net profit = profit after tax.

5. Return on investment (or capital employed)=

assets non operating assets.

Profit before interest,tax &divi. Capital employed

fictitious

Capital employed = share capital + reserves + long term loans

6. Return on share holders fund= Profit after tax Share holders fund 7. Earning per share = profit available for equity share holder (net profit after tax dividend on preference shares) Number of equity shares 8. Book value per share= Equity shareholders funds No. of equity shares
Equity share holders funds = shareholders funds

preference share capital.

9. Dividend payout ratio=

Dividend per share Earnings per share

10. Price earning ratio= Market price of a share Earnings per share