Table Shoq'ing Summar:-.

y of Accounting Ratios

1. Cu(enl Falio^Vorking

Capilal

This ralio shows shontemi inanclal

Crlsl
en

A$eis nean rhose assets

C,-erl Lrbilts

soundnessollhebusiness Highernlio
frsans bter capadly lo meel its curcnt obligal on. Ihe riteal cnenr Erio is 2 : 1. ln cas il is very high it shows lhe

iom ol cash or be Fnvened inro within a EEnpbe-Cash, Bank ba am6, Slock, Blls recelvables, Prepaid 'ar
which aE either in dre

6h

Cunent Liabilties arc thaso

liabililies which we arc requircd lo pay

siihin a year. Errrples-Sundry @dlD& B lls pa}?lle, Bank owdfl,

UquidiB, Balio/Acid Test Ralio/ Quick Assols or Lquid Assels

Ths quick

stdngent on lhose curenl assers wh ch are highly liquid. ouick Blio oi 1 : 1 is mnsldeled as ideal. Higher Ih quick alio boner he shodrem fi nancial posilion.

nio

s a iaidy

Ouick Assels = Cure'n Assels

- Sto*

medurcoi quidty h s b$ed

1.

Debl'Equily Falio

Debi(onqtem)
Equily (shareho de6' Funds)

Tliis mto judgas dia long'lenn inancial posiion and soundners oi he longrern fnancial polcies oi tE fim. ln geneml loqer $e debt equ V .aio higher t'e de
Eee ol pmleclion enhyed bylhe lendeN

lonOFlem Debls consist ol lonqlem liabililis, ie, debenturcs, morqage, SharchddeE' Funds = Paid up Equily Sharo capih + RseN6 d Su'p uFIict'tious as6els,

sl6e capita + PEi.

2.

Tora A$et ro Debt Rat o

This mlo

L-gr"-

neasrs

lhe salely maryin

D"bL

availab e lo

he supplie6 ol long-tem

dcbrs lt neastrGs rhe

cne h whi.h
sseis

e.9.,2:1

debt is bemg covercd by

Prop eiary Funds

This lio shows lhe ened b wh ch lhe loh assels have been I nan.ed by lhe pmprietor. Higher lhe r6lio qreaterlhe salislaclion lor lenders and cdild6

lll. Aclivily tuliae/Tunover

Slock (hvenlory)

Tumds
A"e'Se Stock

Itris Elio

me6ua

how last lhe sLck is

nwinq drouo the rm dd gmeElng figher lhe 6do, he mo efiident

sls
m
'nis

op8fing + Closing Slock 2

h lhis ralio meaning ol debloB is considered account receivab e, i.e.,
debtoF p us b lls receivab e.

agemenrolimrenroiesandviceveGa,

2. Debtors

or

Roceivable
AveBge Acmunls F*eivables' 'AveGqe Accounls flecelvab e (Openiig Debio$ + B/R) + (Crosiig Deblors + 8/R) 2

raro indicars economy and ell. cienry n lhe colleclion ol ariounl due

lrom debrors. Higher lhe Grio, beter ir is

snca

il

ndicalos lhal debls arc beng

ll indicales lhe number ol times lhe crcdiloN are tumed over n rclaton to
tunder Elio orshoner paynenl peiod shws lhe availabllily ol less crcd I or yea'ly paymenls.
purchases. A h gh (Opening CB. + B/P) +

(cl6ing c6.
2 ln

+ B/P)

4.

WoCiing Capilal Tumover

This lalio shows lhe nunber oi I mes the

woddng @pilal has been empoyed in lhe pocess ol carrying on oi bus nes. Higher the alio, beter lhe efficienry n lhe ulillsal on ol working p lal.

$ls
Wo*

cse

bolh Cost ol qoods sold and aG given, Cosl ol goods sold

no Capilal = Curent

lssels

Cuiienl Uabl ues

Fixed

l6seh Tumover Ralo

Net F"ed Asseb

A high Elo ndicales efiicionl uli salion oi l&ed assels and eie v66a.

Nel Fred Assels = Fxed Assels

Thls Ello indcates the relationship benveen gross prolit and nel sa os.
Hiqher Er o, low cost ol qoods sold.

Grcss

Prclit

Nel Sales

Cosl ol
goods so d.

+operalina E penses

This 6tio is cacuared ro judge lhe

ftstolg@Gso

N"t.arl""

- ,^^

operaliona efficiencyoilhebusiness.A decline in Ihe opealing ado, s belter because il MU d leave a high maEin,

=Saas-GrcssPrcll

0r
Cost of goods sold = openinq Stock +

Purchases

+ Dnect
-

Expenses

Nel Saes = Sales

Sales Felum.

operating expenses can be iaclory

expenses o'i ce expenses and selling

1l indicals overal ellciency

businss, Higher the nel

ol lhe polil ratio,

Capihl Emdoyed = Sharc Capira +

4.

Felum on hveshnt or Fetum

I judges lhe @erall pdomanco ol lhe

enieqs. lt measurcs, how etlicisn y

Fese as + Lonqlem Loans

Ficlilious Assels

E eurcs entuslsd to tl hEiness

Non-Operaljng

5.

EarnlnqPerSharo

Ths mtio halps in ovalualing lhe

pvalll.g ma el pics ol share in lhe
liqhl ol Dolil eamho capacilyDlvldsnd Paid lo Equily The objsclive ol mmpuling t'is Elio is lo fiaasum lhe d vidend disrdbured p6.

(DPS)

Euily sha. Higls t'e

OPS

bets

it

ll

Tne objeclve ol corlpullng lhis Glio is Io ind oLil expectalion ol lne snaG.

holders. A high p ce eaming lalio

indicales nvesloc lailh in shbilily and ap precial on ol mfi pany eamlnqs,