Current Assets: cash, bank, A/R, short term capital Current Liabilities: A/P, bank overdraft,

Ratio Analysis

1. Liquidity ratio
2. Profitability ratio
3. Debt Ratio / Leverage ratio
4. Activity / Efficiency ratio

1. Liquidity ratio:
i). Current ratio = Current Assets / Current Liabilities

ii) Quick ratio = Quick Assets / Current Liabilities

Quick assets = current assets – Inventory +prepaid exp. / current liabilities

iii) Cash ratio: Cash + marketable securities / current liabilities

iv)Super Quick ratio: current assets – (A/R + Inventory + prepaid exp.)

2. Profitability Ratio:
i) Gross profit Ratio = Gross profit / Net Sale *100 net sale (sale – sale return)

Gross profit (net sale – cost of goods sold) (Raw material, labor cost, other direct exp.)

ii) Operating ratio = cost of goods sold + operating exp. / net sale * 100

Operating exp. (admin exp. selling exp. Distribution exp. Salary cost)

iii) Net profit ratio = net profit after tax / net sale *100

iv) Return on capital employed = profit before interest and tax / capital employed * 100

v) Earning per share = profit available to equity shareholder / weighted average outstanding shares

3. Debt ratio / Leverage ratio:

i) Debt to equity ratio = total debt / total equity

ii) Debt ratio = total liabilities / total assets

iii) Proprietary ratio = shareholder funds / total assets

iv) Interest coverage ratio = earnings before interest and tax / interest exp.

4. Activity / Efficiency ratio:

i) Working capital turnover ratio = net sale / net working capital

ii) Inventory turnover ratio = cost of goods sold / average inventory

iii) Assets turnover ratio = net revenue / assets

iv) Debtors turnover ratio = credit sale / average debtors