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Ratio Formula Sheet

The document outlines various accounting ratios, including their expressions, classifications, and supporting formulae. It categorizes ratios into liquidity, solvency, activity, and profitability ratios, providing specific formulas for calculating each type. Additionally, it includes detailed explanations of the components involved in these calculations, such as current assets, liabilities, and profit measures.

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padduramvasu69
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7 views

Ratio Formula Sheet

The document outlines various accounting ratios, including their expressions, classifications, and supporting formulae. It categorizes ratios into liquidity, solvency, activity, and profitability ratios, providing specific formulas for calculating each type. Additionally, it includes detailed explanations of the components involved in these calculations, such as current assets, liabilities, and profit measures.

Uploaded by

padduramvasu69
Copyright
© © All Rights Reserved
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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ACCOUNTING RATIOS

Expression of ratios: Ratios are expressed in following four ways:

Pure Ratio Like 2:1. All liquidity and solvency ratios are expressed
in pure form.
Percentage e.g. 15%. All profitability ratios are presented in percentage
form.
Times Like 4 times. All turnover ratios and Interest Coverage
Ratio are presented in this form.
Fraction like 3/4.

Classification or Types of Ratios:


1: Liquidity Ratios
a) Current Ratio
Current Ratio = Current Assets/ Current Liabilities
b) Liquid or Quick or Acid Test Ratio
Liquid ratio = Quick Assets/Current Liabilities
Supporting Formulae
1. Current Assets = Current Investments (also known as Marketable Securities or S.T.
Investment)
+ Inventories (except Loose Tools & Stores and Spares)
+ Trade Receivables (Debtors and B.R.) Net after provision for bad debts.
+ Cash and Cash Equivalents (Cash and Bank Balances)
+ Short Term Loans and Advances
+ Other Current Assets (Prepaid Expenses, Accrued Income & Advance Tax)
2. Current Liabilities =Short Term Borrowings (Bank Overdraft and Cash Credit) + Trade
Payables (Creditors and B.P.)
+ Other Current Liabilities (O/s Expenses, Income Received in Advance, Unpaid or Unclaimed
Dividend)
+ Short Term Provisions (Provision for Tax, Proposed Dividend)

3. Liquid Assets = Current Assets less Inventory (closing) less Other Current assets (Prepaid
Expenses, Accrued Income & Advance Tax)
4. Working Capital = Current Assets - Current Liabilities
5. Total Assets = Non-Current Assets + Current Assets
6. Total Liabilities = Non-Current Liabilities + Current Liabilities
7. Non-Current Assets = Fixed Assets (tangible and intangible)
+ Non-Current Investments
+ Long Term Loans & Advances (Capital Advances, Security Deposits)
8. Non-Current Liabilities = Long Term Loans (Debentures, Bank Loans, Bonds)
+ Long Term Provisions (Provision for employee benefit & Warranties)
9. Capital Employed = Shareholders Fund
+ Borrowed Fund (Non-Current Liabilities)
10. Capital Employed = Total Assets - Current Liability OR Non-Current Assets + Working
Capital
11. Shareholders Fund = Share Capital + Reserves and Surplus
Shareholders Fund = Total Assets - Non Current Liabilities - Current liabilities
(Note: Total Assets will include only Non-Current TRADE Investments for Capital Employed)
Non-Current: Investment will remain Non-Current TRADE Investments in Absence of any other
information.

Solvency Ratios
a) Debt - Equity Ratio
Debt - Equity Ratio = Debt (Non-Current Liabilities)/ Equity (Shareholders Fund)
b) Proprietary Ratio
Proprietary Ratio = Shareholders Fund/ Total Assets
c) Total Asset to Debt Ratio
Total Asset to Debt Ratio = Debt (Non-Current Liabilities)/ Total Assets
d) Interest Coverage Ratio
Interest Coverage Ratio = Net Profit BEFORE Interest, Ta x and Dividend/ Interest on Long Term
Loans

Activity or Turnover Ratios


a) Working Capital Turnover Ratio
Working Capital Turnover Ratio = Revenue from Operation/ Working Capital
b) Inventory Turnover Ratio
Inventory Turnover Ratio = Cost of Revenue from Operation/ Average Inventory
c) Trade Receivable Turnover Ratio
Trade Receivable Turnover Ratio = Net Credit Revenue from Operation/ Avg Debtors + Avg BR.
Average collection period = 12 months or 365 days or 52 weeks / trade receivable ratio
d) Trade Payable Turnover Ratio
Trade Payable Turnover Ratio = Net Credit Purchases/Average Creditors + Average B.P.
Average Payment Period = 12 months or 365 days or 52 weeks/ Payable Turnover Ratio

Supporting Formulae
a) Revenue from Operation (Net Sales) = Total Revenue from Operation Return of Revenue
from Operation
b) Total Revenue from Operation = Cash Revenue from Operation + Credit Revenue from
Operation
c) Net Credit Revenue from Operation = Credit Revenue from Operation - Return of Revenue
from Operation
d) Cost Of Revenue from Operation (COGS) = Opening Inventory + Net Purchases + Direct
Expenses - Closing Inventory
e) Cost Of Revenue from Operation (COGS) = Revenue from Operation - Gross Profit.
f) Cost Of Revenue From Operation (COGS) = Cost of Raw Material Consumed+ Purchases of
Stock in Trade + Change in Inventory of Finished Goods, WIP, Stock in Trade + Direct
Expenses
g) Average Inventory = (Opening Inventory + Closing Inventory)/2
h) Average Debtors = (Opening Debtors + Closing Debtors)/ 2
i) Average B.R. = (Opening B.R. + Closing B.R.) /2
j) Average Creditors = (Opening Creditors + Closing Creditors) / 2
k) Average B.P. = (Opening BP + Closing B. P.)/ 2
l) Average Receivable = Average Debtors + Average B.R.
m) Average Payable = Average Creditors + Average B.P.
Note : In absence of Information
• Debtors = Opening Debtors = Closing Debtors = Average = Debtors
• B.R. = Opening B.R. = Closing B.R. = Average B.R.
• Creditors = Opening Creditors = Closing Creditors = Average Creditors
• B.P. = Opening B.P. = Closing B.P. = Average B.P.

Profitability Ratio Gross Profit Ratio


a) Gross Profit
Gross Profit Ratio = (Gross profit/Revenue from Operation) × 100
b) Net Profit Ratio
Net Profit Ratio = (Net Profit After Tax /Revenue from Operation) × 100
c) Operating Ratio or Operating Cost Ratio
Operating Ratio = (Operating Cost /Revenue from Operation) × 100
d) Operating Profit Ratio
Operating Profit Ratio =(Operating Profit/ Revenue from Operation) × 100
e) Return on Investment or Return on Capital employed
ROI = (Profit before Interest, Tax and Dividend/ Capital Employed) × 100
Supporting Formulae
• Net Profit = Gross Profit + Indirect Incomes - Indirect Expenses
= Gros profit + Non-Operating Income – (Operating Expenses + Non- Operating Expenses)
= Gross profit + Non-Operating Incomes – Operating Expenses - Non-Operating Expenses
= Gross profit – Operating Expenses + Non-Operating Incomes - Non-Operating Expenses
= (Gross profit – Operating Expenses) + Non-Operating, Incomes, non- Operating Expenses
• Net Profit = Operating Profit + Non-Operating Incomes - Non-Operating Expenses
• Indirect Expenses = Operating Expenses + Non-Operating Expenses
• Non-Operating expenses Example Interest Paid on loans a finance cost
• Operating Expenses = Office and Administrative Expenses + Selling and Distribution
Expenses+ General Expenses + Depreciation
• Operating Expenses = Employee Benefit Expenses + Other Operating Expenses
• Indirect Incomes (also known Non-Operating Incomes) Example: Interest Received on
Investment
• Operating Cost = Cost of Revenue from Operation + Operating Expenses
• Operating Profit = Gross Profit - Operating Expenses
= Revenue from Operation - Cost of Revenue - Operating Expenses
= Revenue from Operation - (Cost of Revenue + Operating Expenses)
• Operating Profit = Revenue from Operation-Operating Cost
• Operating Profit = Net Profit - Non-Operating Incomes + Non-Operating Expenses

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