8/6/2019 26 Ratios

1/12

8/6/2019 26 Ratios

2/12

Creditors Turnover Rate

Operating Ratio

Total coverage ratio

Wages to sales Wages to sales ratio

Price earning ratio

v)

vi)

Number oftimespreference

Preference shareholderscoverage ratio

Number oftimes equitydividends

Equity shareholders coverageratio

Number oftimes fixedinterest covered

Interest coverage ratio

Relationshipbetween netprofit and totalThe idlecapacity in theOrganisation

Fixed expenses to total costratio

Materialconsumption to

sales

Material consumption to salesratio

The futuremarket price ofa share

8/6/2019 26 Ratios

3/12

Formula Parties interested

Current Assets

Current Liabilities

Current assets - Stock - Prepaid Expenses -do-

Current Liabilities - Bank Overdraft - Prereceived IncomeCash + Marketable securities -do-

Quick Liabilities

Proprietors Fund -do-

Total Assets

Debt -do-

Equity

Fixed cost funds -do-Funds not carrying fixed cost

Gross Profit x 100

Net sales

Net Profit x 100 -do-

Net sales

Net profit x 100 -do-Capital employed

[Capital employed = Fixed Assets + Current Assets - Current Liabilities].

Profit after tax -do-

Proprietors funds

-do-

Equity Share Capital

Profit after tax less pref. Dividend -do-

Total Dividend paid to ordinary shareholders Shareholders, Investors

Number of ordinary shares

Cost of goods sold ManagementAverage Stock

Management

Net Credit sales

Credit sales Management

Avg. Debtors + Bills receivable

Creditors + Bills payable x 365 -do-

Credit purchases

Short-term creditors, investors,money lenders & like parties

[Proprietors funds = Equity Capital + Preference Capital + Reserves andSurplus + Accumulated funds - Debit balances of P & L A/c andMiscellaneous Expenses]

[Debt = Long/Short-term loans, debentures, bills, etc, Equity =Proprietors funds]

[Fixed cost funds = Preference share capital, Debentures, Loans frombanks, financial institutions, other unsecured loans].

[Funds not carrying fixed cost = Equity share capital + undistributed profit- P & L A/c (Dr. Bal.) - Misc. expenses].

Shareholders, Long-termCreditors, Government

[Net profit may be either Operating Net profit, Profit before tax or Profitafter tax].

Profit after tax less pref. Dividend x 100

Total No. of Equity Shares

Debtors + Bills receivable x 365

8/6/2019 26 Ratios

4/12

Credit purchases

Average Creditors

Operating Costs x 100

Net sales

Net profit (after Interest & Tax but before equity dividend) Preference shareholdersPreference Dividend

Net profit (after interest, tax & Pref. Dividend) Equity shareholders

Equity Dividend

Net profit (before Interest & Tax) (PBIT)

Fixed interests & charges

Net profit (before Interest & Tax) (PBIT)

Total fixed charges

Fixed expenses

Total cost

Material consumption Management

Sales

Wages ManagementSales

Market price of a share (MPS) Investors, speculators

Earnings per share (EPS)

[Operating Cost = Cost of goods sold + Operating expenses (viz.Administrative, selling & finance expenses)]

Debentureholders, Loancreditors

Shareholders, investors,creditors, lenders

Management shareholders

8/6/2019 26 Ratios

5/12

2:01

1:01

1:01

2:01

2:01

Industrynorm

60% to75%

20% to30%

5% to10%

5 to 6times

45 to 60days

60 to 90days

8/6/2019 26 Ratios

6/12

8/6/2019 26 Ratios

7/12

To test CALCULATE Name of Ratio

YES i) Current Ratio

YES Liquid/Quick/

Acid Test RatioYES Absolute Liquid Ratio

YES Proprietary Ratio

Capitalisation YES

YES Capital Gearing Ratio

Gross Profit Ratio

ii) Net Profit Ratio

Return on CapitalEmployed (ROCE)

Return on Proprietors fund

Return on Capital

Earnings per share [EPS]

Dividend per share [DPS]

Stock Turnover

Debtors Turnover Ratio

Debtors Turnover Rate

Creditors Turnover Ratio

Liquidity andSolvency

ii)

iii)

iv)

i) Debt Equity Ratio

ii)

Profitability andmanagementefficiency

i)

iii)

iv)

v)

vi)

vii)

Managementefficiency

i)

ii)

iii)

iv)

8/6/2019 26 Ratios

8/12

Creditors Turnover Rate

Operating Ratio

Total coverage ratio

Wages to sales Wages to sales ratio

Price earning ratio

v)

vi)

Number oftimespreference

Preference shareholderscoverage ratio

Number oftimes equitydividends

Equity shareholders coverageratio

Number oftimes fixedinterest covered

Interest coverage ratio

Relationshipbetween netprofit and totalThe idlecapacity in theOrganisation

Fixed expenses to total costratio

Materialconsumption to

sales

Material consumption to salesratio

The futuremarket price ofa share

8/6/2019 26 Ratios

9/12

Formula Parties interested

Current Assets

Current Liabilities

Current assets - Stock - Prepaid Expenses -do-

Current Liabilities - Bank Overdraft - Prereceived IncomeCash + Marketable securities -do-

Quick Liabilities

Proprietors Fund -do-

Total Assets

Debt -do-

Equity

Fixed cost funds -do-Funds not carrying fixed cost

Gross Profit x 100

Net sales

Net Profit x 100 -do-

Net sales

Net profit x 100 -do-Capital employed

[Capital employed = Fixed Assets + Current Assets - Current Liabilities].

Profit after tax -do-

Proprietors funds

-do-

Equity Share Capital

Profit after tax less pref. Dividend -do-

Total Dividend paid to ordinary shareholders Shareholders, Investors

Number of ordinary shares

Cost of goods sold ManagementAverage Stock

Management

Net Credit sales

Credit sales Management

Avg. Debtors + Bills receivable

Creditors + Bills payable x 365 -do-

Credit purchases

Short-term creditors, investors,money lenders & like parties

[Proprietors funds = Equity Capital + Preference Capital + Reserves andSurplus + Accumulated funds - Debit balances of P & L A/c andMiscellaneous Expenses]

[Debt = Long/Short-term loans, debentures, bills, etc, Equity =Proprietors funds]

[Fixed cost funds = Preference share capital, Debentures, Loans frombanks, financial institutions, other unsecured loans].

[Funds not carrying fixed cost = Equity share capital + undistributed profit- P & L A/c (Dr. Bal.) - Misc. expenses].

Shareholders, Long-termCreditors, Government

[Net profit may be either Operating Net profit, Profit before tax or Profitafter tax].

Profit after tax less pref. Dividend x 100

Total No. of Equity Shares

Debtors + Bills receivable x 365

8/6/2019 26 Ratios

10/12

Credit purchases

Average Creditors

Operating Costs x 100

Net sales

Net profit (after Interest & Tax but before equity dividend) Preference shareholdersPreference Dividend

Net profit (after interest, tax & Pref. Dividend) Equity shareholders

Equity Dividend

Net profit (before Interest & Tax) (PBIT)

Fixed interests & charges

Net profit (before Interest & Tax) (PBIT)

Total fixed charges

Fixed expenses

Total cost

Material consumption Management

Sales

Wages ManagementSales

Market price of a share (MPS) Investors, speculators

Earnings per share (EPS)

[Operating Cost = Cost of goods sold + Operating expenses (viz.Administrative, selling & finance expenses)]

Debentureholders, Loancreditors

Shareholders, investors,creditors, lenders

Management shareholders

8/6/2019 26 Ratios

11/12

2:01

1:01

1:01

2:01

2:01

Industrynorm

60% to75%

20% to30%

5% to10%

5 to 6times

45 to 60days

60 to 90days

8/6/2019 26 Ratios

12/12