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Accounting Ratio

The document outlines various accounting ratios used to assess a company's financial health, including the current ratio, liquid ratio, working capital, debt equity ratio, and others. Each ratio is defined with its formula and ideal value, providing a comprehensive guide for financial analysis. Key ratios such as earnings per share, profit ratios, and turnover ratios are also included to evaluate performance and efficiency.

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Anusree Pakhira
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3 views

Accounting Ratio

The document outlines various accounting ratios used to assess a company's financial health, including the current ratio, liquid ratio, working capital, debt equity ratio, and others. Each ratio is defined with its formula and ideal value, providing a comprehensive guide for financial analysis. Key ratios such as earnings per share, profit ratios, and turnover ratios are also included to evaluate performance and efficiency.

Uploaded by

Anusree Pakhira
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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Accounting Ratio

1. CURRENT RATIO BANKERS RATIO = Current assets/Current liabilities


Current assets = Closing stock + debtors or trade receivable +bills receivable +bank +cash +
prepaid exp. + accrued income etc.
Current liabilities = Creditors + bills payable + outstanding exp. + bank overdraft + provision and
advance income
Ideal ratio = 2:1

2. LIQUID RATIO OR QUICK RATIO OR ACID TEST RATIO = (Current assets - stock - prepaid
exp.) / (Current liabilities - bank overdraft)
OR, Liquid assets/Liquid liabilities
Ideal ratio = 1:1

3. WORKING CAPITAL = (Current assets - Current liabilities)

4. DEBT EQUITY RATIO = Long term debt/ Equity shareholders fund


Long term debt = Debentures, Mortgage loan, Public deposit, Bank loan etc.
Equity shareholders fund = (Equity shareholders capital + Reserve and surplus - Misc. Exp.)
Ideal ratio = 2:1

5. PROPRIETARY RATIO = Proprietor's fund or shareholders fund/ Total assets

6. INTEREST COVERAGE RATIO = Profit before interest and tax /Interest

7. TOTAL ASSET TO DEBT RATIO = Total asset/ Debt

8. INVENTORY/STOCK TURNOVER RATIO = Cost of good sold(COGS)/Average stock


Cost of good sold = Op. Stock + purchase + direct exp. (wages,carriage inward,freight etc) OR.
Sales - Gross Profit
Average stock =( Op. Stock + Cl. Stock)/2

9. DEBTOR TURNOVER RATIO = Net credit sale/ Average debtor


Net credit sale = Credit sale - sales return
Average debtor = (Op. Stock + Op. bills receivable+ Cl. Stock + Cl. bills receivable)/ 2
10. CREDITOR TURNOVER RATIO = Net credit purchase / Average creditor
Net credit purchase = Credit purchase - purchase return
Average Creditor = (Op. Creditor + Op. bills payable + Cl. Creditor + Cl. bills payable) / 2

11. FIXED ASSET TURNOVER RATIO = Net sale/ Total asset

12. WORKING CAPITAL TURNOVER RATIO = Net sales/ Working capital

13. EARNING PER SHARE = Earning available to Equity shareholders / No. of equity share

14. GROSS PROFIT RATIO = (Gross profit/Net Sale)×100

15. NET PROFIT RATIO = (Net profit/Net sale)×100

16. OPERATING RATIO OR OPERATING COST RATIO =( Operating cost/Net sale)×100

17. OPERATING PROFIT RATIO =(Operating profit/Net sale)×100

18. RETURN ON CAPITAL EMPLOYED = (Earning before interest and tax / capital employed ) ×100

19. PRICE EARNING RATIO = (Price per share/Earning)

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