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Kultur Dokumente
Interpretation
Table Showing Financial
Ratios
Sl. No. Category
1.
Liquidity
ratios
Types of Ratio
Interpretation
Current Assets
Current ratio =
CurrentLiabilitie s
Quick
Acid test or Quick ratio =
assets
CurrentLiabilitie s
2.
Turnover
ratios
Capital
Structu
re
Ratios
Debt-Equity ratio =
Long term debt
Shareholder's Equity
It indicates what
proportion of the
permanent capital of a firm
consists of long-term debt.
A ratio 1:2 is
considered safe.
It measures the share of
the total assets financed by
outside funds.
A low ratio is desirable
for creditors.
It shows what portion of
the total assets is financed
by the owners capital.
A firm should neither have
a
high ratio nor a low ratio.
4.
Coverag
e
ratios
Interest Coverage =
Earning before Interests and
Tax interest
Dividend Coverage
=
Profitabili
ty
ratio
s
Earning after
tax
Preference Dividend
5.
6.
Expense
s
ratios
Operating ratio =
Cost of Goods sold + other
expenses
Sales
7.
Return
on
Investmen
ts
It measures the
profitability of the total
funds per investment of a
firm.
Or
(Net Profit after Taxes +
Interest)100
Total
Assets
Or
(Net profit after Taxes +
Interest)100
Tangible
Assets
Return on Capital Employed (ROCE) =
(Net Profit after Taxes)100
Total capital employed
Or
(Net Profit after Taxes + Interest)100
Total capital employed
It measures profitability
of the firm with respect to
the total capital
employed.
The higher the ratio, the
more efficient use of
capital employed.
Or
(Net Profit after Taxes +
Interest)100
Total Capital Employed - Intangible
assets
Return on Total Shareholders Equity = It reveals how profitably
the owners fund has been
Net Profit after Taxes 100
utilized by the firm.
Total shareholders' equity
Return on Ordinary shareholders equity It determines whether the
=
firm has earned
Net profit after taxes and Pref. dividend satisfactory return for its
equity holders or not.
100
Ordinary Shareholder's
8.
Shareholde
rs
ratios
Activity
Ratios
Inventory turnover =
Cost of goods sold
Average Inventory
Raw Material turnover =
Cost of Raw Material used
Average Raw Material Inventory
It measures how
quickly inventory is
sold.
A firm should neither have
a
It shows the velocity
at which raw material
converted into goods
ready for sale. If this
ratio
is high then the
company is efficiently
converting raw materials
into finished goods.
Assets
Turnov
er
Ratios