Type ofImportance

Ratio Ratio Formula

Return on Capital NPBIT/Capital

P *****
Employed employed
R
O
F
I
T
A Net Profit
(Opearting Profit/
B ***** Margin(Operatin
Sales)*100
I Profit)
L
I
T
Y
(Gross Profit/
R *** Gross Profit Margin
Sales)*100
A
T
I
O
Sales/Capital
***** Asset Turnover
Employed(times)

L
Current Assets/
I ***** Current Ratio
Current Liabilities
Q
U
I
D
I
T (Current Assets-
Y *** Quick/ Acid Test Ratio Inventory)/ Current
Liabilities
R
A Accounts Receivable (Trade Receivables/
T *****
Collection Period Credit Sales)*365
I
O
(Trade
Accounts Payable
***** Payable/Credit
payment period
Purchases)*365
E
R Total debts/Total
M ***** Debt Ratio
Asset
S
S
O
L ***** Gearing Debt/ Equity * 100
V
E Cash Flow from
N Operationg
***** Cash Flow Ratio
C Activities/ Total
Y debts
 Details
NPBIT means Net Profit before
Interest and Tax, Capital
employed= Equity + Non Current
Liabilities OR Total Assets -
Current Liabilities
Measures how well the assets of
a business are being utilized to
generate sales
ratio of 1.5:1 is considered ideal
usually less than 1
Increasing days are a bad
Gives you an average of how
sign, indicating poor credit
long does the company take to
control that may lead to
recover its receivables
Gives you an average of how
Increasing days is a sign of
long does the company take to
lack of long tem finance or
pay its liabilities. When credit
purchases is not given, you can
use cost of sales instead.
more than 50% than the
50% is a helpful benchmark
Comparison
ROCE comparison should
be done with:prvs year's
ROCE, Target ROCE, Cost
of Borrowings, Other
companies of same
industry.
Used for intercompany
comparison , shows how
much % of sales is profit,
(remember differences in
accounting policies like
depn. Etc that might affect
judgement)
Used for intercompany
comparison , shows how
much % of sales is profit,
(remember differences in
accounting policies like
depn. Etc that might affect
judgement)
High means the assets are
more utilised or over
utilised, low means assets
are less utilised
Measures the adequacy of
the CA to meet CL. A high
Current Ratio is
supposedly safe, but
should be regarded with
suspicion, as it could be a
sign of 'overtrading' ( high
lvls of inventory,
Receivables and Cash).
Trend is more important
than just the figure.
irrecoverable debts .
poor management of
current assets.
If this ratio is growing
debt needs to be
examined
 No absolute benchmark
but higher gearing means
higher risk
Indicates whether the company
has sufficient cash from
Operations to fund its future
commitments