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Ratio Analysis

The document outlines various financial ratios used in ratio analysis, categorized into profitability, market value, efficiency/activity, and solvency ratios. Each category includes specific formulas for calculating ratios such as net profit ratio, return on equity, price earnings ratio, and current ratio, among others. These ratios are essential for assessing a company's financial performance and stability.

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6 views5 pages

Ratio Analysis

The document outlines various financial ratios used in ratio analysis, categorized into profitability, market value, efficiency/activity, and solvency ratios. Each category includes specific formulas for calculating ratios such as net profit ratio, return on equity, price earnings ratio, and current ratio, among others. These ratios are essential for assessing a company's financial performance and stability.

Uploaded by

kashtivajawat
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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RATIO ANALYSIS

PROFITABILITY RATIOS

Net profit after tax


1. Net profit ratio = x 100
Net sales

Gross profit
2. Gross profit ratio = x 100
Net sales

a. Gross profit = Sales – Cost of goods sold


b. Cost of goods sold = Opening stock + Purchases – Closing
stock

COGS+Operating Expenses
3. Operating ratio = x 100
Net sales

a. Operating expenses = Admin. Exp. (Salaries etc.) + Selling


Exp. (Advertisement etc.) + Distribution Exp. (Transportation
etc.) + Depreciation etc.

Operating profit
4. Operating profit ratio = x 100
Net sales

a. Operating profit = Gross profit – Operating exp.


b. Operating profit = Net profit – Non op. exp. + Non op. inc.

Operating profit
5. Return on investment = Capital employed x 100
a. Capital employed = Total assets
b. Capital employed = Total fixed assets
c. Capital employed = Shareholder’s funds
d. Capital employed = Net working capital + Fixed assets
e. Net working capital = Current assets – Current liabilities
f. Shareholder’s funds = Share capital + Reserves and surplus +
Profit – Accumulated losses
Net PAT & Pref.div.
6. Return on equity SHF = x 100
Equity SHF
Net profit after tax
7. Return on SHF = x 100
SHF

Net profit after tax


8. Return on total assets = x 100
Total assets

Net PAT & Interest


9. Return on total assets = Total assets−Fict. x 100
assets

a. Fictitious assets = Preliminary exp. + Discount on issue of


shares + Profit and loss A/c (Dr.)

MARKET VALUE RATIOS

Mkt. price per eq. sh.


1. Price earnings ratio = x 100
Earnings per eq. sh.

Profit after tax & pref. div.


2. Earnings per share = x 100
No. of eq. sh.

Equity dividend
3. Payout ratio = Profit after tax and pref.div. x 100

Dividend per eq. sh.


4. Payout ratio = Earnings per eq. x 100
sh.

Retained earnings
5. Retained earnings ratio = x 100
PAT & pref. div..

Retained earn.per ES
6. Retained earnings ratio = X 100
Earnings per eq. sh.
NPBT & int.
7. Interest coverage / fixed = Fixed int.charges x 100

charges ratio
Dividend per share
8. Dividend yield ratio = Mkt. x 100
price per share

EFFICIENCY/ ACTIVITY RATIOS

COGS.
1. Inventory turnover ratio = Avg. x 100
Inv.

Days or mnths in a year


a. Inventory velocity =
ITR

Credit sales
2. Debtor turnover ratio = Avg. x 100
acc. rec.

Days or mnths in a year


a. Debtor velocity =
DTR

Opening (Drs. & Acc rec)+Closing (Drs.& Acc Rec)


b. Avg. accts. Rec. =
2

Credit purchases
3. Creditor turnover ratio = x 100
Avg. acc. payb.

Days or mnths in a year


a. Creditor velocity =
CTR

Opening (Crs. & Acc rec)+Closing (Crs.& Acc Rec)


b. Avg. accts. Payb. =
2

COGS
4. Working capital turnover ratio = Net WC x 100

a. Net working capital = Current assets – Current liabilities


COGS
5. Fixed assets turnover ratio = Net fixed assets x 100

a. Net fixed assets = Fixed assets - Depreciation

COGS
6. Capital turnover ratio = Capital employed x 100
a. Capital employed = SHF + Total long-term loans

COGS
7. Owned capital turnover ratio = x 100
SHF

SOLVENCY RATIOS

Current Assets
1. Current ratio = Current liabilities

Liquid Assets
2. Liquid/Quick ratio =
Current liabilities

a. Liquid assets = Current assets – Preliminary exp. – Inventory

Cash Bal. +Bank Bal. + Mkt. sec..


3. Absolute liquid ratio = Current liabilities

Net fixed assets


4. Fixed assets ratio = Long term funds

Total long term debt


5. Debt equity ratio = SHF

SHF
6. Proprietary ratio = Total tangible assets

LT loans + Debt +Pref.capital


7. Capital gearing ratio = Equity SHF

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