S.T.G.

-Commerce Classes By:-Deepak Gupta (9818621717)

Accounting Ratios
1. LIQUIDITY RATIOS
𝑪𝒖𝒓𝒓𝒆𝒏𝒕 𝑨𝒔𝒔𝒆𝒕𝒔
(a) Current Ratio =
𝑪𝒖𝒓𝒓𝒆𝒏𝒕 𝑳𝒊𝒂𝒃𝒊𝒍𝒊𝒕𝒊𝒆𝒔

Current Assets = Current Investments + Inventories + Trade Receivables + Cash and Cash Equivalents +
Short Term Loans and Advances + Other Current Assets (prepaid expenses + accrued incomes+ advance
tax)

Current Liabilities = Short-Term Borrowings + Trade Payables + Other Current Liabilities + Short-term
Provisions

𝑳𝒊𝒒𝒖𝒊𝒅 𝑨𝒔𝒔𝒆𝒕𝒔
b) Liquid Ratio =
𝑪𝒖𝒓𝒓𝒆𝒏𝒕 𝑳𝒊𝒂𝒃𝒊𝒍𝒊𝒕𝒊𝒆𝒔

Liquid Assets = Current Assets – Inventories – Other current assets

Current Liabilities = Short-Term Borrowings + Trade Payables + Other Current Liabilities + Short-term
Provisions
S.T.G.-Commerce Classes By:-Deepak Gupta (9818621717)
II) SOLVENCY RATIOS
𝑫𝒆𝒃𝒕
a) Debt Equity Ratio =
𝑬𝒒𝒖𝒊𝒕𝒚 𝒐𝒓 𝑺𝒉𝒂𝒓𝒆 𝒉𝒐𝒍𝒅𝒆𝒓′ 𝒔 𝑭𝒖𝒏𝒅𝒔

Debt =Long Term Borrowings + Long Term Provisions

Equity / Shareholders’ Funds = Share Capital + Reserves and Surplus

( Share capital = Equity Share Capital + Preference Share capital)

Or
Equity / Shareholders’ Funds = Non Current Assets + Working Capital - Non Current Liabilities

(Non-Current Assets = Tangible Assets + Intangible Assets + Non-Current Investments + Long-Term

Loans & Advances)

(Working Capital = Current Assets – Current Liabilities)

(Non-Current Liabilities = Long-Term Borrowings + Long-Term Provisions)

𝑻𝒐𝒕𝒂𝒍 𝑨𝒔𝒔𝒆𝒕𝒔
b) Total Assets to Debt Ratio=
𝑫𝒆𝒃𝒕

Total Assets = Non-Current Assets (Tangible Assets + Intangible Assets + Non-Current Investments +
Long-Term Loans & Advances) + Current Assets (Current Investments + Inventories + Trade
Receivables + Cash & Cash Equivalents + Short-Term Loans & Advances + Other Current Assets.)

Debt =Long Term Borrowings + Long Term Provisions

𝑷𝒓𝒐𝒑𝒓𝒊𝒆𝒕𝒐𝒓′ 𝒔 𝑭𝒖𝒏𝒅
c) Proprietary Ratio =
𝑻𝒐𝒕𝒂𝒍 𝑨𝒔𝒔𝒆𝒕𝒔

Proprietors Funds = Share Capital (Equity + Preference Share capital) + Reserves and Surplus
or
Proprietors Funds = Non Current Assets + Working Capital - Non Current Liabilities

(Non-Current Assets = Tangible Assets + Intangible Assets + Non-Current Investments + Long-Term

Loans & Advances)

(Working Capital = Current Assets – Current Liabilities)

(Non-Current Liabilities = Long-Term Borrowings + Long-Term Provisions )

Total Assets = Non-Current Assets (Tangible Assets + Intangible Assets + Non Current Investments +
Long-Term Loans & Advances) + Current Assets (Current Investments + Inventories + Trade
Receivables + Cash & Cash Equivalent + Short-Term Loans & Advances + Other Current Assets).

𝑷𝒓𝒐𝒇𝒊𝒕 𝒃𝒆𝒇𝒐𝒓𝒆 𝒊𝒏𝒕𝒆𝒓𝒆𝒔𝒕 𝒂𝒏𝒅 𝒕𝒂𝒙

d) Interest Coverage Ratio =
𝑰𝒏𝒕𝒆𝒓𝒆𝒔𝒕 𝒐𝒏 𝒍𝒐𝒏𝒈 𝒕𝒆𝒓𝒎 𝒃𝒐𝒓𝒓𝒐𝒘𝒊𝒏𝒈
Profit before interest and tax = Profit after interest and tax + Interest on long term debt + tax
S.T.G.-Commerce Classes By:-Deepak Gupta (9818621717)
(iii) ACTIVITY / TURNOVER RATIOS
𝑪𝒐𝒔𝒕 𝒇𝒓𝒐𝒎 𝑹𝒆𝒗𝒆𝒏𝒖𝒆 𝑶𝒑𝒆𝒓𝒂𝒕𝒊𝒐𝒏 (𝑪𝑶𝑮𝑺)
a) Inventory Turnover Ratio = = … times
𝑨𝒗𝒆𝒓𝒂𝒈𝒆 𝑰𝒏𝒗𝒆𝒏𝒕𝒐𝒓𝒚

Cost of Revenue from Operation = Cost of materials consumed + purchase of stock-in-trade + change in
Inventory (Finished Goods; Work in Progress & Stock-in-trade) + Direct Expenses
Or
Opening Inventory + Net Purchases + Direct Expenses – Closing Inventories
Or
Revenue from Operations – Gross Profit

𝑶𝒑𝒆𝒏𝒊𝒏𝒈 𝑺𝒕𝒐𝒄𝒌+𝑪𝒍𝒐𝒔𝒊𝒏𝒈 𝑺𝒕𝒐𝒄𝒌

Average Inventory = 𝟐

b) Trade Receivables Turnover Ratio/ Debtors turnover ratio

𝑪𝒓𝒆𝒅𝒊𝒕 𝑹𝒆𝒗𝒆𝒏𝒖𝒆 𝑭𝒓𝒐𝒎 𝑶𝒑𝒆𝒓𝒂𝒕𝒊𝒐𝒏
=
𝑨𝒗𝒆𝒓𝒂𝒈𝒆 𝑹𝒆𝒄𝒆𝒊𝒗𝒂𝒃𝒍𝒆

Credit Revenue from Operations = Revenue from Operations – Cash Revenue from Operations

𝑶𝒑𝒆𝒏𝒊𝒏𝒈 𝑫𝒆𝒃𝒕𝒐𝒓𝒔 𝒂𝒏𝒅 𝑩.𝑹.+𝑪𝒍𝒐𝒔𝒊𝒏𝒈 𝑫𝒆𝒃𝒕𝒐𝒓𝒔 𝒂𝒏𝒅 𝑩.𝑹.

Average Trade Receivable = 𝟐

c) Trade Payables Turnover Ratio/ Creditors turnover ratio

𝑪𝒓𝒆𝒅𝒊𝒕 𝑷𝒖𝒓𝒄𝒉𝒂𝒔𝒆𝒅
=
𝑨𝒗𝒆𝒓𝒂𝒈𝒆 𝑷𝒂𝒚𝒂𝒃𝒍𝒆

𝑶𝒑𝒆𝒏𝒊𝒏𝒈 𝑪𝒓𝒆𝒅𝒊𝒕𝒐𝒓𝒔 𝒂𝒏𝒅 𝑩.𝑷.+𝑪𝒍𝒐𝒔𝒊𝒏𝒈 𝑪𝒓𝒆𝒅𝒊𝒕𝒐𝒓𝒔 𝒂𝒏𝒅 𝑩.𝑷.

Average Trade Payables = 𝟐

𝑹𝒆𝒗𝒆𝒏𝒖𝒆 𝑭𝒓𝒐𝒎 𝑶𝒑𝒆𝒓𝒂𝒕𝒊𝒐𝒏

d) Working Capital Turnover Ratio =
𝑵𝒆𝒕 𝑾𝒐𝒓𝒌𝒊𝒏𝒈 𝑪𝒂𝒑𝒊𝒕𝒂𝒍

Working Capital = Current Assets – Current Liabilities

S.T.G.-Commerce Classes By:-Deepak Gupta (9818621717)
(IV) PROFITABILITY RATIOS
𝑮𝒓𝒐𝒔𝒔 𝑷𝒓𝒐𝒇𝒊𝒕
(a) Gross Profit Ratio = x100
𝑹𝒆𝒗𝒆𝒏𝒖𝒆 𝑭𝒓𝒐𝒎 𝑶𝒑𝒆𝒓𝒂𝒕𝒊𝒐𝒏

Gross Profit = Revenue from Operations – Cost of Revenue from Operations

Cost of Revenue from Operations = Cost of materials consumed + purchase of stock-in-trade + change
in Inventory (Finished Goods; Work in Progress & Stock-in-trade) + Direct Expenses
Or
Opening Inventories + Net Purchases + Direct Expenses – Closing Inventories
Or
Revenue from Operations – Gross Profit

𝑪𝒐𝒔𝒕 𝒐𝒇 𝑹𝒆𝒗𝒆𝒏𝒖𝒆 𝑭𝒓𝒐𝒎 𝑶𝒑𝒆𝒓𝒂𝒕𝒊𝒐𝒏+𝑶𝒑𝒆𝒓𝒂𝒕𝒊𝒏𝒈 𝑬𝒙𝒑𝒆𝒏𝒔𝒆𝒔

(b) Operating Ratio= x10 0
𝑹𝒆𝒗𝒆𝒏𝒖𝒆 𝑭𝒓𝒐𝒎 𝑶𝒑𝒆𝒓𝒂𝒕𝒊𝒐𝒏

Operating Expenses = Employees Benefit expenses + Depreciation + Other expenses

+ Office, Administrative, Selling and Distribution Expenses etc.

𝑶𝒑𝒆𝒓𝒂𝒕𝒊𝒏𝒈 𝑷𝒓𝒐𝒇𝒊𝒕
(c) Operating Profit Ratio = x100
𝑹𝒆𝒗𝒆𝒏𝒖𝒆 𝑭𝒓𝒐𝒎 𝑶𝒑𝒆𝒓𝒂𝒕𝒊𝒐𝒏

Operating Profit = Net Profit (After Tax) + Non Operating Expenses / Losses – Non Operating Incomes
or
Gross Profit + Other Operating Incomes – Other Operating Expenses
(Non Operating Expenses = Finance cost or Interest on Long Term Borrowings + Other Non Operating
Expenses like Loss on sale of Non Current Assets etc)

Non Operating Incomes = Other Incomes like Interest received on investments, Profit of sale of Non-
Current Assets etc.

𝑵𝒆𝒕 𝑷𝒓𝒐𝒇𝒊𝒕
(d) Net Profit Ratio = x 100
𝑹𝒆𝒗𝒆𝒏𝒖𝒆 𝑭𝒓𝒐𝒎 𝑶𝒑𝒆𝒓𝒂𝒕𝒊𝒐𝒏

(e) Return on Investment or

𝑵𝒆𝒕 𝑷𝒓𝒐𝒇𝒊𝒕 𝒃𝒆𝒇𝒐𝒓𝒆 𝒊𝒏𝒕𝒆𝒓𝒆𝒔𝒕 𝒂𝒏𝒅 𝒕𝒂𝒙
Return on Capital Employed = x100
𝑪𝒂𝒑𝒊𝒕𝒂𝒍 𝑬𝒎𝒑𝒍𝒐𝒚𝒆𝒅
Capital Employed may be calculated by any of the following two Methods.
(1) Liabilities Side Approach
Capital Employed = Shareholders’ Funds ( Share Capital + Reserves & surplus) + Non-Current liabilities
( Long term borrowings + Long term Provisions)
(2) Assets Side Approach
Capital Employed = Non-Current Assets + Working Capital
Non-Current Assets =Tangible Assets + Intangible Assets + Non-Current investments + Long-term
Loans & Advances
Working Capital = Current Assets - Current Liabilities
S.T.G.-Commerce Classes By:-Deepak Gupta (9818621717)