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Financial Ratios Analysis | Accounting Ratios Formulas


ACCOUNTING RATIOS

GENERAL PROFITABILITY

1.      Gross Profit Ratio =      
    Gross Profit    × 100 
                                                      Net Sales  
2. Net Profit Ratio
Net Profit    × 100 
                                                Net Sales        
3. Expenses Ratio =    
 Particular Expense    × 100 
                                                       Net Sales
4. Operating profit Ratio =         
 Net Operating profit    × 100 
                                                                        Net Sales        
[Operating Profit = Net Profit + Income tax + other exp. – other income]   

5. Operating Ratios =           
                                                            Operating Cost    × 100 
                                                                 Net Sales   
[Operating Cost = Cost of Goods Sold + Operating Exp.]



OVER ALL PROFITABILITY RATIOS

1. Return on Shareholders’ Investment/ Net worth/ Fund =
  Net Profit after Interest & Tax      × 100
       Share holders’ Fund


2.      Return on Equity Capital =

Net Profit after Tax – Preference Dividend × 100
Equity Share Capital
[Equity Capital/ Shareholders’ Fund= Equity Capital + P.L.S (Cr) + Capital Reserve etc. – Capital Losses]
3.      Earning Per Share (E.P.S.) =

           Net Profit after Tax & Interest – Preference Dividend × 100
 Total Number of Equity Shares

4.      Return on Gross Capital Employed =

                                     Adjusted Net Profit × 100
     Gross Capital Employed
[Gross Capital Employed = Fixed Assets + Investment + Current Assets]

5.       Return on Capital Employed =
 Adjusted Net Profit × 100
Net Capital Employed
[Net Capital Employed = Fixed Assets + Investment + Current Assets – Current Liabilities]

6.      Dividend Yield Ratio =     
                                                       Dividend per Share    × 100 
                                                  Market Value per Share

7.      Dividend Pay-out Ratio =  
Dividend Per Equity Share × 100                                                   Earning Per Share

8.      Price Earning Ratio ( P/E) =
 Market Price per Equity Share × 100 
           Earning Per Share

9.      Return on Total Resources =
                                           Net Profit after tax and Interest × 100 
                                                 Total Assets or Total Liabilities

SHORT TERM FINANCIAL POSITION / TEST OF LIQUIDITY

  1. Current Ratio / Working Capital Ratio =
                                                      Current Assets × 100 
                                                      Current Liabilities
[Current Assets = Cash in Hand +Cash at Bank + B/R +A/R + Sundry Debtors(net) + Closing Inventory +Prepaid Expenses + Releasable Investment + Investment in Govt. Securities + Stock in Trade + Other assets like Accrued Income etc. ]
[Current Liabilities = B/P + A/P + Notes Payable + bank overdraft+ sundry Creditors + tax payable + accrued expenses + short term bank loan + other current liabilities]
Standard or Best Ratio: 2:1

  1. Liquid Ratio/ Acid Test Ratio/ Quick Ratio/ BANKER RATIO:

                                           Quick Assets × 100 
                                           Current Liabilities
[Quick Assets = All current Assets minus Closing Stock, prepaid Expenses]
 OR
[Cash, Bank, Sundry Debtors, Bills Receivable, Marketable Securities, Temporary Investments]

Standard or Best Ratio: 1:1

3. Absolute Liquidity Ratio =
Absolute Liquid Assets × 100 
                                                                              Current Liabilities
[Absolute Liquid Assets = Cash + Bank + Marketable Securities]
Standard or Best Ratio: 0.5:1

MOVEMENT/ EFFICIENCY/ ACTIVITY RATIOS

  1. INVENTORY/ STOCK TURNOVER RATIO =
                                                                  Cost of Goods Sold   (Time)
                                                                     Average Inventory
OR              NET SALES
                Average Inventory/ INVENTORY

 [Average Inventory = Opening Stock + Closing Stock ] 
                                                        2
  1. Debtor Velocity or Turnover Ratio =
Net Credit Sale
                                                                                                       Average Trade Debtors
[Average Trade Debtors = Opening B/R or Debtor + Closing B/R, Debtor ] 
                                                                                   2
  1. Average Collection Period =

                                          Trade Debtors X No. of Working Days (360)
                                                                   Net Credit Sales       
OR                         No. of Working Days
Debtors Turnover
  1. Creditors Velocity or Turnover Ratio =
                                                                                                       Net Credit Purchase
                                                                                                      Average Trade Creditors
[Average Trade Creditors = Opening B/P or Creditors + Closing B/P, Creditors ] 
                                                                                   2
  1. Average Payment Period =

                                            Trade Creditors X No. of Working Days (360)
                                                                           Net Purchases       


OR                         No. of Working Days
Creditors Velocity

  1. Working Capital Ratio =
                                                                    Cost of Goods Sold × 100 
                                                                  Net Working Capital
[Net Working Capital = Current Assets – current Liabilities & Provisions]

  1. Inventory to Working Capital Ratio =
                                                                          Average Inventory
                                                                                                       Working Capital


  1. Total Assets Turnover Ratio =
                                                                               Cost of Goods Sold
                                                                               Total Assets

 9. Capital Turnover Ratio =
 Cost of Goods Sold
Total Liabilities

  1. Net Capital Turnover Ratio =

 Cost of Goods Sold / Sales
Net Capital Employed

[Net Capital Employed = Shareholders Fund + Reserves & Surplus + Long Term Debt – Capital Loan]

TEST OF SOLVENCY OR LONG -TERM FINANCIAL POSITION


  1. RETURN ON TOTAL RESOURCES =
                                                                   Net Profit
                                                                 Total Assets    
  1. DEBT EQUITY RATIO =
                                                   Outsiders’ fund / Equity or Total Liability
                                                     Insiders’/ Shareholders’ Fund / Equity

[Shareholders’ Fund = Share Capital  + Reserves & Surplus + Share Premium + Profit & Loss Account Credit Balance – Preliminary Exp. – Profit & Loss Account Debit Balance – Discount on  issue of Shares and Debentures]

[Total Liability = All Current Liabilities like B/P, A/P,  Sundry Creditors, Outstanding Expenses, Bank Overdraft + All long Term liabilities like Debentures, Bonds Payable, PTC + Other Long Term Liabilities]

  1. PROPRIETRY RATIO / EQUITY RATIO =
                                                                                          Shareholders Fund
                                                                                           Total Assets

  1. CAPITAL GEARING RATIO / CAPITAL STRUCTURE =

                                                       Equity Share Capital
                                                         Fixed Interest Bearing Funds
[Equity Share Capital = Equity Share Capital + Reserves + Surplus + All funds and surplus items belong to Shareholders]

[Fixed Interest Bearing Funds = Preferred Capital + Debentures + PTC + Bonds Payable +Other long term Loans]

  1. RETURN ON CAPITAL EMPLOYED =

                        Adjusted Net Profit /Operating Profit × 100 
                                       Capital Employed
[Capital Employed = Current Assets – Current Liabilities + Fixed Assets]

  1. CAPITAL EMPLOYED TURNOVER RATIO =
                                                           Sales × 100 
                                            Net Capital Employed

[Net Capital Employed = Equity Share Capital + Reserves & Surplus +Long Term Liabilities – Other Assets like Investment in Govt. Securities etc.]

[Average Capital Employed = Net Capital Employed – ½ Net profit after interest & Tax]

  1. CAPITAL EMPLOYED TRUNOVER RATIO =
                       Sales × 100 
                      Net Capital Employed

  1. RETURN ON SHAREHOLDERS FUNDS =
                                      Net Profit
                                 Share holders’ Funds

  1. FIXED ASSETS TO NETWORTH / ASSETS TO PROPRIETORSHIP RATIO =
Net Fixed Assets
Shareholders’ Funds

  1. FIXED ASSETS RATIO / FIXED ASSETS TO LONG-TERM FUND RATIO =
Net Fixed Assets
Total Long Term Funds

  1. RATIO OF CURRENT ASSETS TO PROPRIETOR FUND =
Current Assets
Share holders’ Fund

COMPUTATIONS OF ITEMS

1.      SUNDRY DEBTOR =

Sales × Debtors Velocity (in months)
            12 months

[Debtors = Sundry Debtors – Bills Receivable]




2.      SUNDRY CREDITORS =
     Purchases × Creditors Velocity (in months)
                        12 months
[Creditors = Sundry Creditors – Bills Payable]
[Purchases = Cost of Goods Sold + Closing Stock – Opening Stock]

3.      CLOSING STOCK =
                     
 Opening Stock + Above than Opening Stock

Opening Stock= Average Stock × 2 - Above than Opening Stock
               2
OR
Average Stock × 2 – Closing Stock

Average Stock = Cost of Goods Sold × Stock velocity (months)
                                                             12 months
OR                  Opening Stock + Closing Stock
                                                 2
OR                   Cost of Goods Sold
                         Stock Velocity (Time)

4.      FIXED ASSETS =
                                       Cost of goods Sold
                                        Fixed Assets Turnover Ratio
5.      Capital =
                               Cost of Goods Sold
                                Capital Turnover Ratio

6.      COST OF GOODS SOLD =
                             Merchandise Turnover × Average stock of merchandise
OR    Sales – Gross Profit



7.      NET INCOME BEFORE TAX =

                              Net Income After Tax
                      Percentage of Net Income after Tax*

[* If   Income = 100 %
Tax       = 25 %
Then after Tax = 75 %]

1 comment:

  1. Sir Plz tell me the Format and RUles of making Bank Reconciliation Statement...

    ReplyDelete

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