1

Ratio Current Ratio

Formula Current Assets Current Liabilities

Numerator Inventories/Stocks (+)Debtors/B/R (+)Cash& Bank (+)Receivables/ Accruals (+)Short Term loans (+)Mktable Investment/ Short Term Securities Current Assets (-)Inventories (-)Prepaid Expenses Cash in Hand (+)Balance at Bank(Dr) (+)Mktable Investment/ Short Term Securities

2

3

Sundry Creditors Availability of cash to meet (+)O/S Exp short term commitments (+)short term loans .There is no Ideal Ratio as &advances such.However,a ratio>1 may (+)Bank OD/Cas indicate that the firm has Credit liquid resources, which are (+)Provi.for Tax low in profitability. (+)Proposed Dividend (+)Unclaimed Dividend 4 Basic Quick Assets Current Assets (Annual Cash Ability to meet regular Cash Defence Cash Expense Per Day (-)Inventories Expenses/365) expenses. Interval (-)Prepaid Expenses Cash Measure(i Expenses=Total Expn days) Depre &write -offs Notes: The first 3 ratios are expressed in times eg.1.33 times,2.85 times…or as ratio ie 1.33:1…The last ratio is expressed in Days NOTE: For the capital structure ratios, the following terms are used with respective meanings assigned(a) Debt=Long Term Borrowed Funds=Debenture Long Term Loans from Financial institutions (b) Equity =Owner’s Funds=Equity Capital+ Preference capital+ Reserves & surplus Less: Accumulated Losses. (c) Equity shareholder’s Funds=Equity Less Preference Share capital

Quick Ratio/Liqu id Ratio/Acid Test Ratio Absolute Cash Ratio

Quick Assets Quick Liabilities

Denominator Sundry Creditors (+)O/S Exp (+)hort term loans &advances (+)BankOD/ CashCredit (+)Provi.for Tax (+)Proposed Dividend (+)Unclaimed Dividend Current Liabilities (-)Bank OD (-)Cash Credit

Significance/Indicator Ability to repay short term commitments promptly.(ie, short term solvency).ideal ratio is 2:1 High Ratio indicates existence of idle Current assets

Ability to meet immediate liabilities. Ideal ratio is 1.33:1

(Cash Marketable Securities) Current Liabilities

= Equity share Capital + Reserves & surplus Less: Accumulated Losses (d) Total Debt= Debt+ Equity=(a)+(b) above……………………………………………. This is called Asset Route Computation .This is called Liability Route Computation = Fixed Assets +Net WC………………………………….

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