RATIO ANALYSIS

1. Ratios from shareholders point of view.

Earnings Per Share (EPS) = Net Profit

No. of Shares

Market / Book Ratio = Market Price per share of common stock

Book value per share of common stock

Diluted EPS = N.P Less Pref Div

Equity Shares+Pref Shares+Deb Conversion option

Price Earning Ratio = Market Price / Share

Earning Per Share

Payout Ratio = Div Per Equity Share

Earning Per Share

Dividend Yield = Div Per Equity Share

Market Price / Share

Dividend Cover = Max Div that could be paid

Actual Div

Earnings Yield = Earning Per Share x 100

Market Price / Share

2. Profitability Ratio:

a. Sales Ratios:

i) Sales to fixed assets or FA turnover ratio = Fixed Assets x 100

Sales

ii) Sales to owned capital or total net worth = Total net Worth x 100
Sales

iii) Sales to working capital = Working capital x 100

Sales

b. Expenses Ratios:

i) FOH to sales = FOH x 100

Sales

ii) Admin expenses to sales = Admin Exp x 100

Sales

iii) Selling expenses to sales = Selling Exp x 100

Sales

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c. Profit Ratios:

i) Gross Profit Margin = Gross Profit x 100

Sales

ii) Operating Profit Ratio = Operating Profit x 100

Sales

iii) Net Profit Margin = Net Profit x 100

Sales

iv) Earning Per Share = Net Profit

No. of Shares

v) Return on Total Assets = Earning available for common stockholders

Total Assets

vi) Return on Common Equity = Earning available for common stockholders

Common Stock Equity

vii) ROCE = Net Profit

Fixed assets + Working capital

viii) Common size financial statements

3. Liquidity Ratios:

i) Current Ratio = Current Assets

Current Liabilities

ii) Acid Test Ratio = Current Assets - Inventory

Current Liabilities

iii) Current Liabilities to Tangible Net Worth = Current Liabilities

Net Worth
4. Activity Ratios:

Inventory Turnover = Cost of goods sold

Inventory

Inventory No. of days = Inventory

COGS / 365

Average Collection Period = Accounts Receivables

Annual Sales / 365

Average Payment Period = Accounts Payable

Average purchases per day

= Accounts Payable
Annual purchases
365

Total Assets Turnover = Sales_____

Total Assets

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5. DEBT Ratios:

Debt Equity Ratio = Debt_

Equity

Net income to Debt Service Ratio = N.P before tax & interest
Interest on loans

Times Interest Earned Ratio = EBIT

Interest

Fixed Payment Coverage Ratio = EBIT + Lease Payments

Interest + Lease Payments + (Principal Amount
+ Preference div) x (1/(1-T))

6. Market Ratio:

1. Price Earnings Ratio = Market Price Per share

Earnings per share

2. Market/ Book Ratio = Market Price per share

Book value per share*

* Common stock equity

No. of shares

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