Scribd
Upload
62 views

Financial Ratios

This document outlines various ratios used to analyze profitability and financial position. It discusses ratios for general profitability, overall profitability, short term financial position, current assets movement/efficiency, and long term solvency. Ratios presented include gross profit ratio, operating ratio, expense ratio, operating profit ratio, return on equity, earnings per share, current ratio, quick ratio, inventory turnover, debtors turnover, creditors turnover, debt to equity, and fixed assets to net worth.

Uploaded by

sah.ravindra1
Copyright
© Attribution Non-Commercial (BY-NC)
Available Formats
Download as DOC, PDF, TXT or read online on Scribd
62 views

Financial Ratios

This document outlines various ratios used to analyze profitability and financial position. It discusses ratios for general profitability, overall profitability, short term financial position, current assets movement/efficiency, and long term solvency. Ratios presented include gross profit ratio, operating ratio, expense ratio, operating profit ratio, return on equity, earnings per share, current ratio, quick ratio, inventory turnover, debtors turnover, creditors turnover, debt to equity, and fixed assets to net worth.

Uploaded by

sah.ravindra1
Copyright
© Attribution Non-Commercial (BY-NC)
Available Formats
Download as DOC, PDF, TXT or read online on Scribd
You are on page 1/ 2

Analysis of Profitability:

General profitability:

• Gross profit ratio = (Gross profit / Net sales) × 100


• Operating ratio = (Operating cost / Net sales) × 100
• Expense ratio = (Particular expense / Net sales) × 100
• Operating profit ratio = (Operating profit / Net sales) × 100

Overall profitability:

• Return on shareholders' investment or net worth = Net profit after interest and tax /
Shareholders' funds
• Return on equity capital = (Net profit after tax – Preference dividend) / Paid up
equity capital
• Earnings per share (EPS) ratio = (Net profit after tax – Preference dividend) /
Number of equity shares
• Return on gross capital employed = (Adjusted net profit / Gross capital employed) ×
100
• Return on net capital employed = (Adjusted net profit / Net capital employed) × 100
• Dividend yield ratio = Dividend per share / Market value per share
• Dividend payout ratio or pay-out ratio = Dividend per equity share / Earnings per
share

Short Term Financial Position or Test of Solvency:


• Current ratio = Current assets / Current liabilities
• Quick or acid test of liquid ratio (for immediate solvency) = Liquid assets / Current
liabilities
• Absolute liquid ratio = Absolute liquid assets / Current liabilities

Current Assets Movement, Efficiency or Activity Ratios:


• Inventory / Stock turnover ratio = Cost of goods sold / Average inventory at cost
• Debtors of receivables turnover ratios = Net credit sales / Average trade debtors
• Average collection period = (Trade debtors No. of working days) / Net credit sales
• Creditors or payables turnover ratio = Net credit purchase / Average trade creditors
• Average payment period = (Trade creditors No. of working days) / Net credit
purchase
• Working capital turnover ratio = Cost of sales / Net working capital

Analysis of Long Term Solvency:


• Debt to equity ratio = Outsiders funds / Shareholders funds or External funds /
Internal funds
• Ratio of long term debt to shareholders funds (Debt equity) = Long term debt /
Shareholders funds
• Proprietary of equity ratio = Shareholders funds / Total assets
• Fixed assets to net worth = Fixed assets after depreciation / Shareholders' funds
• Fixed assets ratio or fixed assets to long term funds = Fixed assets after depreciation
/ Total long term funds
• Ratio of current assets proprietors' funds = Current assets / Shareholders' funds
• Debt service or interest coverage ratio = Net profit before interest and tax / Fixed
interest charges
• Capital gearing ratio = Equity share capital / Fixed interest bearing funds

You might also like