(1) Gross Profit Ratio

= Gross Profit X 100 Net Sales = Net Sales Cost of Goods Sold = Total Sales Sales Return = Cash Sales + Credit Sales = Opening Stock + Purchases + Direct Purchase Return Closing Stock = Net Profit X 100 Net Sales Gross Profit Operating Expenses + Non Incomes Non Operating Expenses

Gross Profit Net Sales Total Sales Cost of Goods Expenses

Sold

(2) Net Profit Ratio

Net Profit Operating Operating Expenses

= (SODA) Selling Expenses + Office Expenses + Distribution Expenses + Administrative Expenses = Operating Profit X 100 Net Sales Gross Profit Operating Expenses Net Profit + Non Operating Expenses Non

(3) Operating Profit Ratio

Operating Profit OR Operating Profit Operating Income

= =

(4) Operating Ratio

Operating Cost X 100 Net Sales

Operating Cost

Cost of Goods Sold + Operating Expenses

(5)

Operating Ratio + Operating Profit Ratio = 1

(6) Return on Investment (ROI) 100

Where, Profit before interest, Tax & Dividend = Profit After Tax + Interest + Tax = Profit after Interest + Interest Capital Employed = Share Capital (Equity + Preference)

+ (Cr.)/Accumulated Profits

Reserves

Surplus/Profit

&

Loss

A/c

+ Debentures + Long term loans [Preliminary Expenses Profit & Discount/Commission or Issue of Share / Debenture Loss A/c (Dr. Balance)]

ALTERNATIVELY
Capital Employed Working Net Fixed Assets Working Capital = = = Net Fixed Assets + Long Term Investments + Capital Total Fixed Assets Depreciation Current Assets Current Liabilities

(7) (a) Return on Shareholder's Funds Dividend X 100

Profit after Interest & Tax but before

Equity or Shareholder's Funds Equity or Shareholders' Fund accumulated profits Issue of Share Balance) or Accumulated Preliminary Expenses Discount/Commission on Debentures Profit & Loss A/c (Dr. Losses = Share Capital (Equity + Preference) + Reserve + Surplus / Profit & Loss A/c (Cr. Balance) or

Profit after Interest, Tax but before Preference Dividend

(7) (b) Return on Equity (ROE) = Profit after interest, Tax & Pref. Dividend X 100 Equity Shareholder's Funds Equity shareholder's Fund = Equity Share Capital + Reserve + Surplus / Profit & Loss A/c (Cr. Balance) or accumulated profits Preliminary Expenses Discount / commission on issue of Share Debentures Profit & Loss A/c (Dr. Balance) or Accumulated Losses

(8) Interest coverage (Debt Service) Ratio = Profit before Interest, Tax & Dividend Interest on Debentures & Loans

(9) Current Ratio

= Current Assets Current Liabilities = Cash in Hand + Cash at Bank + Bills Receivable + Sundry Debtors + Marketable Securities or investments + Loans & Advances + Prepaid Expenses + Accrued

Current Assets Short term Stock / Inventories + Incomes

Current Liabilities Provision for Bad Bank Overdraft + received in Advance +

Sundry Creditors + Bills Payable + Debts + Provision for Taxation + Outstanding Expenses + Income Short term Loans

(10) Liquid Ratio / Quick Ratio / Acid Test Ratio = Liquid Assets or Quick Assets Current Liabilities Liquid Assets = Current Assets Closing Stock Prepaid Expenses (11) Stock Turnover Ratio (STR) = Cost of Goods Sold Average Stock

Average Stock = (Opening Stock + Closing Stock) (12) Debtors Turnover Ratio (DTR) = Net Credit Sales in a year Average Accounts Receivable

Average A/c Receivable = (Opening A/c Receivable + Closing A/c Receivable) Accounts Receivable = Debtors + B/R OR Account Receivable = Opening Debtor + Opening B/R + Closing Debtors + Closing B/R 2 (13) Average Debt Collection Period = Days or Months in a year Debtors Turnover Ratio

Alternatively, Average Debt Collection Period = Days or Months in a year X Accounts Receivable in a year Net Credit Sales in a year (14) Creditors Turnover Ratio (CTR) = Net Credit Purchases

Average Accounts Payable Average A/c Payable = (Opening A/c Payable + closing A/c Payable) Accounts Payable = Creditors + B/P (15) Average Payment Period = Days or Months in a year Creditors Turnover Ratio

Alternatively, Average Payment Period = Days or Months in a year X Accounts Payable in a year Net Credit Purchases in a year (16) Capital Turnover Ratio = Net Sales Capital Employed = Net Fixed Assets Net Sales

(17) Fixed Assets Turnover Ratio

Net Fixed Assets = Gross Fixed Assets - Depreciation (18) Working Capital Turnover Ratio = Working Capital Net Sales

Working Capital = current Assets Current Liabilities (19) Assets Turnover Ratio = Net Sales Total Assets Total Assets = Fixed Assets + Long Term Investment Current Assets (20) Debt-Equity Ratio = Long term Debt or Loans Equity or Shareholders' Funds = = Debentures + Loans or Mortgage Total Debts Current Liabilities

Long term Debts OR Long Term Debts (21) Debt Total Fund Ratio

= Long Term Debts Total Long Term Funds

Total Funds Term Fund = shareholder's Funds + Long Term Debts (22) Proprietary Ratio Fund = Shareholder's Funds or Proprietor's Total Assets Shareholder's Funds = Share Capital (Equity + Preference)

P/L A/c(Cr)

+ Reserves + Surplus/Accumulated Profit or - Preliminary Expenses Discount on issue of Shares/Debentures P/L A/c (Dr.)

Ratio Analysis Formula These Financial Ratios should be calculated using the data from the most recent balance sheet available. (In general, you would not use averages.)
Ratio Desired Value >2 Formula Current Assets -----------------------Current Liabilities Cash + Accts Receivable -----------------------Current Liabilities Long-Term Debt -----------------------Equity Long-Term Debt -----------------------Long-Term Debt + Equity Total Assets -----------------------Equity Value

Current Ratio

Quick Ratio

>1

Debt:Equity Ratio

<50%

Debt:Capital Ratio

<33%

Leverage

1.5 - 2.0

For these Turnover Ratios, use the most recent income statment data, and the average balance sheet item over the time period represented by that income statement. For example, use the average of two balance sheets, one year apart, and the income statement that corresponds to that year of operations. Alternatively, you could use two balance sheets, one quarter apart, and a quarterly income statement.
Ratio Inventory Turnover Formula Cost of Goods Sold Value

-----------------------Avg. Inventory Asset Turnover Sales or Revenues -----------------------Avg. Total Assets Sales or Revenues -----------------------Avg. Plant, Prop. & Equip. Avg. Accts. Receivable X 365 -----------------------Sales or Revenues

Plant Turnover

Collection Period

The key to interpreting these ratios is to watch the trend over time for the same company, as well as to compare them to the most succesful competitors in the