Professional Documents
Culture Documents
(Formulas)
A. LIQUIDITY RATIOS
Where,
Current Assets = Cash in Hand + Bank Balance + Bills Receivable + Stock (Inventory) +
Short Term Investment + Outstanding Income + Marketable Securities + Prepaid Expenses
Or Current Assets = Total Assets – Fixed Assets
Or Current Assets = Working Capital + Current Liabilities
Or Current Assets = Total Liabilities – Fixed Assets
Or Current Assets = Shareholders Fund + Long Term Liabilities + Current Liabilities –
Fixed Assets
Or Current Assets = Capital Employed + Current Liabilities – Fixed Assets
Where,
Liquid Assets = Current Assets – Stock – Prepaid Expenses – Non- realizable portion of
Bills Receivable & Marketable Securities
B. SOLVENCY RATIOS
1. Debt-Equity Ratio
Debt- Equity Ratio = Debt or Long term Debt/ Shareholders Fund or Equity
Where,
Debt = Debentures + Long Term loans from banks & financial institutions + Public Deposit
Equity/ Shareholders Fund = Equity Share Capital + Preference Share Capital + Reserves &
Surplus + Profit & Loss A/c (Cr) + Capital Reserve + Capital Redemption Reserve +
Sinking Fund + Securities Premium + General Reserve + other reserves – fictitious assets
1
2. Total Assets to Debt Ratio
3. Proprietory Ratio
C. ACTIVITY RATIOS
Where,
Cost of Goods Sold (COGS) = Opening Stock + Net Purchases + Direct Expenses – Closing
Stock
Or COGS = Net Sales – Gross Profit
Average Stock = (Opening Stock + Closing Stock) / 2
Note: Sales can be used in the numerator in case COGS cannot be determined
Debtors Turnover Ratio = Net Credit Sales / Average Debtors & B/R
Where,
Net Credit Sales = Credit Sales – Sales Return
Average Debtors & B/R = (Opening Debtors & B/R + Closing Debtors & B/R) / 2
Where,
Net Fixed Assets = Fixed Assets – Accumulated Depreciation
2
7. Creditors Turnover Ratio
D. PROFITABILITY RATTIOS
Where,
Gross Profit = Net Sales – COGS
Net Sales = Sales – Sales Return
COGS = Opening Stock + Net Purchases + Direct Expense – Closing Stock
Direct Expenses include Carriage, Cartage, Wages, Power, Custom Duty, Freight, Octroi,
Carriage Inward etc.
2. Operating Ratio
Where,
Operating Expenses include Office & Administration Expenses, Selling & Distribution
Expenses, Other Indirect Expenses such as Interest on short-term loan, Depreciation, Bad
Debts etc.
Net Profit Ratio = (Net Profit before tax or Net Profit after tax / Net Sales) * 100
Net Profit = Gross Profit – Operating Expense – Non- operating expenses + Non-operating
income – financial expenses
Return on Capital Employed = (Profit before interest & tax / Capital Employed) *100
Where,
Capital Employed = Net Fixed Assets + Investments + Working Capital (CA-CL)
Or Capital Employed = Share Capital (Equity & Preference) + Reserves & Surplus +
Accumulated profits + Debentures + Long term loans – Fictitious Assets
3
5. Earnings per share (EPS)
Earnings per share = Net Profit after interest & tax / No. of equity shares
Dividend per share = Profit distributed as Equity Dividend / No. of Equity Shares
Where,
Operating Profit = Gross Profit – Operating Expenses + Operating Income
Or Operating Profit = Net Profit + Non- operating expenses- Non-operating income
2. Return on Equity
Where,
Profit after interest & tax = Profit before interest & tax – interest on long term liabilities- tax
Equity = Equity Share Capital + Preference Share Capital + Reserves & Surplus + Accumulated
profits – Fictitious Assets
Interest Coverage Ratio = Profit before interest & tax/ Annual interest on debentures & long term
loans