RATIOS:

(A) MEASUREMENT OF INVESTMENT:

No. Ratio Formula Measured in

Terms of
1 Return on Equity PAT/Shareholders Fund %
2 Earning Per Share (EPS) PAT/No of Shares Rs.
3 Dividend Cover EPS/Dividend per share Times
4 Book Value of Equity Share Shareholders Fund/No.of Rs.
Share
5

(B) MEASUREMENT OF PERFORMANCE:

No. Ratio Formula Measured in

Terms of
1 Profitability PBT/Sales %
PAT/Sales
2 Capital Turnover Sales/Total Fund Times
3 Stock Turnover Sales/Stock Times
4 Working Capital Turnover Sales/Net Current Asset Times
5

(C) MEASUREMENT OF FINANCIAL STATUS:

No. Ratio Formula Measured in

Terms of
1 Debt Equity Ratio Loan Fund/Shareholder Fund Times
2 Current Ratio Current Assets/Current Liab. Times
3 Fixed Assets to Shareholders Net Fixed Assets/Shareholders Times
Fund Fund
4
(D) PROFITABILITY RATIOS:

No. Ratio Formula Measured in

Terms of
1 Return on Capital Employed Profit Before Times
(RoCE) Interest,Dep.,Taxes/
Eqity+Reserve+Debts
i.e.Shareholders Fund
2 Return on Equity (ROE) Net Profit/Equity+Reserve Times
3

Comments:
RoEC: Should exceed the interest rate it pays on its borrowed fund. Higher the RoEC,
the more Profitability it is.

ROE: Company that generate higher return on shareholders equity have the ability to pay
their shareholder handsome return and create increase in assets in each rupee invested. It
indicates financial strength of the company.

(D) OPERATIONAL RATIO:

No. Ratio Formula Measured in

Terms of
1 Inventory Turnover Ratio Sales/Average Inventory Times or
days
2 Inventory Turnover Period No.of Days in a year/Inventory Days
Turnover Ratio
3 Payout Ratio Div.per share/EPS Rs.
4 Debt Service Coverage Ratio PAT+Dep.+Int.on Term Times
(D S C R) Loan/Inst.of Term
Loan+Int.on Term Loan

ITR: It indicates what proportion of sales are held as inventory

ITP: It states company sold its inventory NO.OF TIMES in a year and in an average it
took NO OF DAYS to sale that stock. Lower inventory period means faster liquidation of
inventory-Lower working capital requirement.
DSCR: This ratio explains the capability of the unit to service long term loans.