Ratio Analysis

-Relationship between items or groups of items in the financial statement.

-What is financial statement?
Income statement
Balance sheet
-expressed in terms of another figure
-mathematical yardstick- measures the relation ship between two figures
I

Balance Sheet Ratios:

1. Current Ratio
= Current Assets / Current Liabilities Std 2:1
2. Liquid Ratio
= Quick Assets / Quick Liabilities Std 1:1
3. Proprietary Ratio = Proprietors Fund* / Total Assets Std Neither be
too high or too low
*Equity + R.S + Pref+ Surplus - Miscellaneous
4.Stock working capital Ratio:= stock / Working capital
Std 1:1
Higher ratio indicates weak working capital
5. Capital Gearing Ratio = Fixed income bearing securities /Non fixed income
bearing securities
High geared = fixed interest bearing securities are greater than equity
shareholders fund
Low geared = just opposite to the above Std 1:4
6. Debt Equity Ratio = Long term debts / Shareholders Funds Std 2:1

7. Fixed Assets Ratio = Fixed Assets / Long term funds

II. Revenue Statement Ratios:
8.Gross Profit Ratio = Gross Profit / Net Sales 100
9.Operating Ratio = Operating Cost / Net Sales 100
Manufacturing Concern high
Other firms -low
10.Expenses Ratio = Concerned Expense / Net Sales 100
11.Net Profit Ratio = Net profit / Net Sales 100
12.Net Operating Profit Ratio = Operating Profit / Net Sales 100
Operating profit = GP- all expenses including finance
13.Stock Turnover Ratio = Cost of Goods Sold/ Average Stock
Std.: Seasonable based on nature of production

III Combined/ Composite Ratios:

14. Return on Capital Employed = NPBIT / Capital Employed 100
-indicate the management efficiency
- productivity of capital utilized
- overall efficiency.
15. Return on Proprietors Funds = NPAT / Proprietors Funds 100
16.Return on Equity Share capital = NPAT-Pref.Dividend / Equity share capital
17.Earnings per share = NPAT- Pref. Dividend / No of Equity Shares
18.Dividend / Payout Ratio = Divi. Per Equity share / EPS
19.Divi. Yield Ratio = Divi. Per share / Mkt price per share
20.Price Earning Ratio = Mkt. Price Per Share / EPS
21.Debt Service Ratio = NPBIT / Interest
( Interest coverage Ratio)
22.Creditors Turnover Ratio = Credit Purchase /Average Accounts Payable
C.P.Period = days/ months in a year / CTR
23.Debtors Turnover Ratio = Credit Sales / Average Accounts Receivable
D.C.Period = days/ months in a year / DTR
24.Fixed Assets Turnover Ratio = Sales / Fixed Assets
25.Total Assets Turnover Ratio = Sales / Total Assets
26.Working Capital Turnover Ratio = Sales / Working Capital
27.Capital Turnover Ratio = Sales/ Capital employed.