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A. LIQUIDITY RATIOS 1. Current Ratio/ Working Capital Ratio Current Ratio = Current Assets / Current Liabilities Where, Current Assets = Cash in Hand + Bank Balance + Bills Receivable + Stock (Inventory) + Short Term Investment + Outstanding Income + Marketable Securities + Prepaid Expenses Or Current Assets = Total Assets – Fixed Assets Or Current Assets = Working Capital + Current Liabilities Or Current Assets = Total Liabilities – Fixed Assets Or Current Assets = Shareholders Fund + Long Term Liabilities + Current Liabilities – Fixed Assets Or Current Assets = Capital Employed + Current Liabilities – Fixed Assets Current Liabilities = Creditors + Bills Payable + Bank Overdraft + Tax Payable + Outstanding Expense + Income in advance + Provision for tax + Short term loan + Proposed Dividend + Unclaimed Dividend Or Current Liabilities = Total Assets – Capital Employed Or Current Liabilities = Total Debts – Long term debts Or Current Liabilities = Total liabilities – Shareholders funds – long term debt Or Current Liabilities = Current liabilities – working capital 2. Liquid Ratio/ Acid Test Ratio/ Quick Ratio Liquid Ratio = Liquid Assets / Current Liabilities Where, Liquid Assets = Current Assets – Stock – Prepaid Expenses – Non- realizable portion of Bills Receivable & Marketable Securities B. SOLVENCY RATIOS 1. Debt-Equity Ratio Debt- Equity Ratio = Debt or Long term Debt/ Shareholders Fund or Equity Where, Debt = Debentures + Long Term loans from banks & financial institutions + Public Deposit Equity/ Shareholders Fund = Equity Share Capital + Preference Share Capital + Reserves & Surplus + Profit & Loss A/c (Cr) + Capital Reserve + Capital Redemption Reserve + Sinking Fund + Securities Premium + General Reserve + other reserves – fictitious assets Fictitious Assets = Preliminary Expense + Discount on issue of shares or debentures + share issue expenses + Profit & Loss (Dr)

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2. Total Assets to Debt Ratio Total Assets to Debt Ratio = Total Assets / Long term Debt Note: Total Assets exclude fictitious assets 3. Proprietory Ratio Proprietory Ratio = Shareholders fund or Proprietors fund/ Total Assets C. ACTIVITY RATIOS 1. Stock Turnover Ratio/ Inventory Turnover Ratio Stock Turnover Ratio = Cost of goods sold / Average Stock Where, Cost of Goods Sold (COGS) = Opening Stock + Net Purchases + Direct Expenses – Closing Stock Or COGS = Net Sales – Gross Profit Average Stock = (Opening Stock + Closing Stock) / 2 Note: Sales can be used in the numerator in case COGS cannot be determined 2. Average Age of Inventory Average Age of Inventory = 365 days or 12 months or 52 weeks / STR 3. Debtors Turnover Ratio Debtors Turnover Ratio = Net Credit Sales / Average Debtors & B/R Where, Net Credit Sales = Credit Sales – Sales Return Average Debtors & B/R = (Opening Debtors & B/R + Closing Debtors & B/R) / 2 4. Average Collection Period Average Collection Period = 365 days or 12 months or 52 weeks / DTR 5. Fixed Assets Turnover Ratio Fixed Assets Turnover Ratio = Net sales / Net Fixed Assets Where, Net Fixed Assets = Fixed Assets – Accumulated Depreciation 6. Working Capital Turnover Ratio Working Capital Turnover Ratio = Net Sales / Net Working Capital

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Creditors Turnover Ratio

Creditors Turnover Ratio = Net credit purchases/ Average accounts payable 8. Average Payment Period Average Payment Period = 365 days or 12 months or 52 weeks / CTR 9. Current Assets Turnover Ratio Current Assets Turnover Ratio = Net sales/ Current Assets D. PROFITABILITY RATTIOS 1. Gross Profit Ratio Gross Profit Ratio = (Gross Profit / Net Sales) * 100 Where, Gross Profit = Net Sales – COGS Net Sales = Sales – Sales Return COGS = Opening Stock + Net Purchases + Direct Expense – Closing Stock Direct Expenses include Carriage, Cartage, Wages, Power, Custom Duty, Freight, Octroi, Carriage Inward etc. 2. Operating Ratio Operating Ratio = {(COGS + Operating Expenses) / Net Sales} * 100 Where, Operating Expenses include Office & Administration Expenses, Selling & Distribution Expenses, Other Indirect Expenses such as Interest on short-term loan, Depreciation, Bad Debts etc. 3. Net Profit Ratio Net Profit Ratio = (Net Profit before tax or Net Profit after tax / Net Sales) * 100 Net Profit = Gross Profit – Operating Expense – Non- operating expenses + Non-operating income – financial expenses 4. Return on Capital Employed/ Return On Investment Return on Capital Employed = (Profit before interest & tax / Capital Employed) *100 Where, Capital Employed = Net Fixed Assets + Investments + Working Capital (CA-CL) Or Capital Employed = Share Capital (Equity & Preference) + Reserves & Surplus + Accumulated profits + Debentures + Long term loans – Fictitious Assets

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5. Earnings per share (EPS) Earnings per share = Net Profit after interest & tax / No. of equity shares 6. Dividend per share (DPS) Dividend per share = Profit distributed as Equity Dividend / No. of Equity Shares 7. Price Earning Ratio ( P/E Ratio) Price Earning Ratio = Market Price per Share / EPS

**Formulas of the Ratios covered under Project Work ONLY
**

1. Operating Profit Ratio Operating Profit Ratio = (Operating Profit / Net Sales) * 100 Where, Operating Profit = Gross Profit – Operating Expenses + Operating Income Or Operating Profit = Net Profit + Non- operating expenses- Non-operating income 2. Return on Equity Return on Equity = (Profit after interest & tax / Equity) * 100 Where, Profit after interest & tax = Profit before interest & tax – interest on long term liabilities- tax Equity = Equity Share Capital + Preference Share Capital + Reserves & Surplus + Accumulated profits – Fictitious Assets 3. Capital Turnover Ratio Capital Turnover Ratio = Net sales / Capital Employed 4. Interest Coverage Ratio Interest Coverage Ratio = Profit before interest & tax/ Annual interest on debentures & long term loans 5. Total Assets Turnover Ratio Total Assets Turnover Ratio = Net sales/ Total Assets

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