RATIO ANALYSIS

I. Liquidity Rates :

1. Current Ratio =

2. Liquid or Quick Ratio =

Liquid Assets = Current Assets – (Stock + Prepaid Expenses)

3. Super Quick Ratio =

Absolute liquid Assets = cash + bank + marketable securities

II. Activity or Efficiency Ratios:

1. Stock or Inventory Turnover Ratio =
or =

2. Debtors Turnover Ratio =
(! "# )

Average collection period = × No. of months or Days in a years

&
3. Creditors Turnover Ratio =
' ( ( "# ' ( )

' (
Average payable period = ' &
× No. of months or Days in a year.

4. Total assets Turnover ratio =

)
5. Fixed Assets Turnover Ratio =* + ( ! ' )

)
6. Current Assets Turnover Ratio =

)
7. Working capital Turnover ratio =
, '

)
8. Capital Turnover ratio = ' -.' (

)
9. Net worth Turnover Ratio=
, &
III. Profitability Ratios:
a. Based on sales
'
1. Gross profit margin Ratio = × 100 or = × 100

/'
2. Operating Ratio =
× 100

/' '
3. Operating profit ratio =

× 100

Operating cost = cost of goods sold + operating expenses.

'
4. Net profit Ratio = × 100

Manwar Sir’s Ajinkya Commerce Academy, Washim - 8007143527 1

 +'
5. Expenses Ratio =

× 100

b. Based on capital
'
1. Return on capital Employed = × 100 = Assets turnover × profit margin
' -.' (

' +
2. Return on shareholders’ Investment = × 100
)& & * , &

' + ' .!
3. Return on equity shareholder fund =
- ( & &
× 100

' + '
4. Return on equity capital = ( & ' (' ')
× 100

' + 1
5. Return on total Assets = ×100

IV. Leverage or capital structure Ratio:

. !
1. Debt – Equity ratio =)& , & = )& &

'
2. Proprietary Ratio =

!
3. Solvency or debt to total Assets Ratio =

. ' -.' (
4. Fixed Assets Ratio = *+ ( ' )

2 '
5. Capital gearing Ratio =
*+ '

' +
6. Debt – service or Interest coverage Ratio =
* + 1 &

& * , +
7. Cash to Debt – service Ratio = 1 " '' ' ÷
4 +

V. Investment Analysis Ratios:

' + '
1. Earnings per share – EPS =
. - ( &

. ' ' & 5 )

2.price Earinges ratio – P/E ratio = - ' &
or - )

! ' & ! )
3.Dividend yield Ratio = 5 × 100 or 5
' ' & )

! ' ( & &

4.Dividend per share - Ratio =
. ( &

! ' & ! )
5. Dividend payout Ratio =- ' &
× 100 or - )
× 100

6. Reserves to capital Ratio = -

( & ' .

Relation Between Assets, Liabilities and owner’s capacity

Liabilities
1. Share capital Equity & preference
2. Reserve & surplus

Manwar Sir’s Ajinkya Commerce Academy, Washim - 8007143527 2

3. Secured loans
4. Unsecured loans
5. Current liabilities & provision
Assets.
1. Fixed Assets: Tangible Assets, Intangible Assets
2. Investment
Long term Investment – Fixed Assets
Short term Investment – current Assets
3. Current Assets, loan & Provision
4. Miscellaneous Expenditure
5. Profit & loss Dr. Balance.
Intangible Assets:
1. Goodwill 2. Patent 3. Trade mark 4. Copywrite 5. License
Fictions Assets:
1. Profit & loss A/c (Dr. Balance)
2. Preliminary Expenses
3. Development Expenses
4. Other Differed Expenses
5. Miss. Expenses
6. Underwriting commission
7. Discount on issue of share / debenture
8. Share issue expenses.
* Total Debts = long tern debts + short term debts.
∴ Short term Debts (Current liabilities) = Total Debts – Long term debts.
* Net worth = share capital + Reserve & surplus – Fictitious Assets.
* Net capital Employed = share capital + reserve & surplus + secured loan + unsecured loan –
Fictitious Assets.
* Total Equity = Total Assets
∴ Current liabilities = Total Assets – Net capital Employed
*Working capital = current Assets – current liabilities.
* Current Assets = liquid Assets + stock + prepaid Expenses.
Current liabilities:
1. Bank overdraft 2. Creditors 3. Bill payable 4. Outstanding Expenses 5. Unearned Income 6. Short
term loan 7. Cash credit 8. Provision for taxation 9. Proposed dividend 10. Unclaimed dividend
11.Tax payable 12. Interest payable 13. Deposit payable within one year 14. Installment payable on
long term
Current Assets:
1.cash in hand 2. Cash at Bank 3. Debtors 4. Bill receivable 5. Stock / Inventory / stores: Raw
material work in progress , finished goods 6. Prepaid Expenses 7. Advance payment 8. Short term
Investment: marketable securities Temporary Investment 9. Advance payment 10. Other amounts
receive within a year.

Manwar Sir’s Ajinkya Commerce Academy, Washim - 8007143527 3