ACCOUNTING RATIOS
I. PROFITABILITY
RATIOS:
1. OVERALL
PROFITABILITY RATIO:
It is also called return on investment or return on capital
employed. It indicates the percentage of
return on capital employed in the business
OPERATING
PROFIT (EBIT) X 100
CAPITAL EMPLOYED
Net Operating Profit = net
profit + provision for tax – income from investment + interest on debentures
Capital Employed= fixed
assets + current assets – current liabilities
RETURN ON SHAREHOLDER’S FUNDS:
Net
Profit After Interest and Tax X 100
Shareholders funds
RETURN ON EQUITY SHARE HOLDERS’ FUNDS:
Net
Profit after Interest , Tax and Preference dividend X 100
Equity
shareholders’ funds
RETURN ON INVESTMENT:
Net
Profit after Tax X 100
Total Assets
RETURN ON INVESTMENT:
Net
Profit before Interest and Tax X 100
Average Capital Employed
2. EARNINGS
PER SHARE:
Net Profit after tax and Preference Dividend X 100
Number
of Equity Shares
3. PRICE
EARNING RATIO
This indicates the number of times the earning per share is
covered by its market price.
Market
Price Per Equity Share X 100
Earnings per
Share
4. GROSS
PROFIT RATIO:
Gross Profit X 100
Net Sales
5. NET
PROFIT RATIO:
Net operating Profit
X 100
Net Sales
6. OPERATING
RATIO:
Operating Cost
X 100
Net Sales
In
Case Net Profit Ratio Is 20%, Then The Operation Ratio Is 80%
a. Direct Material Cost to sales:
Direct Material Cost X
100
Net Sales
b. Direct Labour Cost to Sales:
Direct Labour Cost X
100
Net Sales
c. Factory Overheads to Sales:
Factory Overheads X
100
Net Sales
7. FIXED
CHARGES COVER RATIO: (Interest Charges Cover Ratio)
Income before Interest and Tax
Interest
Charges
Fixed
Dividend Cover Ratio:
Net
Profit after Tax and Interest
Preference Dividend
8. DEBT
SERVICE COVERAGE RATIO:
Net Profit Before
Interest and Tax .
Interest + Principle Payment Installment
1 – Tax Rate
9. PAYOUT
RATIO:
Dividend Per Equity Share
Earnings Per Equity
Share
Retained
Earnings Ratio:
Retained
Earnings Per Equity Share
Earnings Per Equity Share
Retained
Earnings
Total Earnings
10. DIVIDEND
YIELD RATIO:
Dividend Per Share
X 100
Market Price Per Share
II. TURNOVER RATIOS
1. FIXED
ASSETS TURNOVER RATIO:
Net Sales X
100
Fixed Assets
2. WORKING
CAPITAL TURNOVER RATIO:
Net Sales
.
Working Capital
a.
Debtors Turnover Ratio Credit Sales .
Average
Accounts Receivable
Accounts Receivables = Trade Debtors +
Bills Receivables
b. Debt
Collection Period: Months
in a year
Debtors’
turnover
Average
Accounts Receivables x Days in a year
Credit Sales for the year
Accounts Receivables .
Average
monthly (or) daily credit sales
c. Creditors Turnover Ratio: Credit Purchases .
Average
Accounts Payable
d. Debt Payment Period: Months
(or days) in a Year
Creditors Turnover
Average
Accounts Payable X 360
Credit
Purchases in a year
Average Accounts Payable .
Average
Monthly Credit Purchases
3. STOCK
TURNOVER RATIO:
Cost of Goods Sold during the year
Average Inventory
III. FINANCIAL
RATIOS:
1. FIXED
ASSETS RATIO:
Fixed Assets . (Required
is .67 less than 1)
Long-term funds
2. CURRENT
RATIO
Current Assets . (ideal
is 2)
Current Liabilities
3. LIQUIDITY
RATIO:
Liquid Assets . (Ideal
is 1)
Current Liabilities
4. DEBT-EQUITY
RATIO:
External
Equities (ideal is 2)
Internal Equities
a.
Total long-term debt (ideal is
5)
Total Long-term funds
b. Shareholders funds (ideal is 5)
Total
long-term funds
c. Total Long-term debt (ideal is 1)
Shareholders
funds
5. PROPRIETORY
RATIO:
Shareholders funds (ideal is 50% (. 5))
Total tangible assets
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