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Accounting Ratios: To Test Name of Ratio Formula Parties Interested Industry Norm

This document provides definitions and formulas for various accounting ratios used to analyze a company's liquidity, solvency, profitability, capitalization, and management efficiency. The ratios are grouped into the following categories: liquidity and solvency ratios, profitability and efficiency ratios, capitalization ratios, management efficiency ratios, and coverage ratios. Short descriptions of each ratio are given along with the typical range of ratios in an industry and who would find the ratios useful.

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59 views

Accounting Ratios: To Test Name of Ratio Formula Parties Interested Industry Norm

This document provides definitions and formulas for various accounting ratios used to analyze a company's liquidity, solvency, profitability, capitalization, and management efficiency. The ratios are grouped into the following categories: liquidity and solvency ratios, profitability and efficiency ratios, capitalization ratios, management efficiency ratios, and coverage ratios. Short descriptions of each ratio are given along with the typical range of ratios in an industry and who would find the ratios useful.

Uploaded by

adhia_saurabh
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOC, PDF, TXT or read online on Scribd
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ACCOUNTING RATIOS

To test Liquidity and Solvency Name of Ratio i) Current Ratio Formula Current Assets Current Liabilities Parties interested Short-term creditors, investors, money lenders & like parties -doIndustry norm 2 !

ii) Liquid"#uick" Acid $est Ratio

Current assets - Stock - %repaid &'penses Current Liabilities (ank )verdra*t %rereceived +ncome Cash , -arketable securities #uick Liabilities %roprietor.s /und $otal Assets 0%roprietor.s *unds 1 &quity Capital , %re*erence Capital , Reserves and Surplus , Accumulated *unds 2ebit balances o* % & L A"c and -iscellaneous &'penses3 2ebt &quity 02ebt 1 Lon9"Shortterm loans, debentures, bills, etc, &quity 1 %roprietor.s *unds3 /i'ed cost *unds /unds not carryin9 *i'ed cost 0/i'ed cost *unds 1 %re*erence share capital, 2ebentures, Loans *rom banks, *inancial institutions, other unsecured loans3; 0/unds not carryin9 *i'ed cost 1 &quity share capital , undistributed pro*it - %

! !

iii) Absolute Liquid Ratio iv) %roprietary Ratio

-do-

! !

-do-

456 to 786

Capitalisation

i) 2ebt &quity Ratio

-do-

2 !

ii) Capital :earin9 Ratio

-do-

2 !

& L A"c <2r; (al;) -isc; e'penses3; %ro*itability and i) :ross %ro*it mana9ement Ratio e**iciency ii)=et %ro*it Ratio :ross %ro*it ' !55 =et sales =et %ro*it ' !55 =et sales 0=et pro*it may be either )peratin9 =et pro*it, %ro*it be*ore ta' or %ro*it a*ter ta'3; =et pro*it ' !55 Capital employed 0Capital employed 1 /i'ed Assets , Current Assets - Current Liabilities3; %ro*it a*ter ta' %roprietor.s *unds %ro*it a*ter ta' less pre*; 2ividend ' !55 &quity Share Capital %ro*it a*ter ta' less pre*; 2ividend $otal =o; o* &quity Shares $otal 2ividend paid to ordinary shareholders =umber o* ordinary shares Cost o* 9oods sold Avera9e Stock 2ebtors , (ills receivable ' >48 =et Credit sales Credit sales Av9; 2ebtors , (ills receivable Creditors , (ills payable ' >48 Credit purchases Credit purchases Shareholders, Lon9term Creditors, :overnment -do256 to >56 86 to !56

iii) Return on Capital &mployed <R)C&)

-do-

iv) Return on %roprietors *und v) Return on Capital vi) &arnin9s per share 0&%S3

-do-

-do-

-do-

vii) 2ividend per share 02%S3

Shareholders, +nvestors

-ana9ement e**iciency

i) Stock $urnover ii) 2ebtors $urnover Ratio iii) 2ebtor.s $urnover Rate iv) Creditor.s $urnover Ratio v) Creditor.s

-ana9ement -ana9ement

8 to 4 times @8 to 45 days 45 to A5 days

-ana9ement

-do-

$urnover Rate vi) )peratin9 Ratio

Avera9e Creditors )peratin9 Costs ' !55 =et sales 0)peratin9 Cost 1 Cost o* 9oods sold , )peratin9 e'penses <viB; Administrative, sellin9 & *inance e'penses)3 =et pro*it <a*ter %re*erence +nterest & $a' but shareholders be*ore equity dividend) %re*erence 2ividend

=umber o* times pre*erence dividends covered by net pro*it =umber o* times equity dividends covered by net pro*it =umber o* times *i'ed interest covered by net pro*it Relationship betCeen net pro*it and total *i'ed char9es $he idle capacity in the )r9anisation

%re*erence shareholders. covera9e ratio

&quity shareholder.s covera9e ratio

=et pro*it <a*ter interest, ta' & %re*; 2ividend) &quity 2ividend

&quity shareholders

+nterest covera9e ratio

=et pro*it <be*ore 2ebentureholders, +nterest & $a') <%(+$) Loan creditors /i'ed interests & char9es =et pro*it <be*ore Shareholders, +nterest & $a') <%(+$) investors, creditors, $otal *i'ed char9es lenders /i'ed e'penses $otal cost -aterial consumption Sales Da9es Sales -ana9ement shareholders -ana9ement

$otal covera9e ratio

/i'ed e'penses to total cost ratio

-aterial -aterial consumption to consumption to sales sales ratio Da9es to sales $he *uture market price o* a share Da9es to sales ratio %rice earnin9 ratio

-ana9ement

-arket price o* a share +nvestors, <-%S) speculators &arnin9s per share <&%S)

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