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.