Net Working Capital Ratio

The difference between current assets and current liabilities excluding short-term bank
borrowing is called net working capital (NWC) or net current assets (NCA). NWC is sometimes
used as a measure of a firm’s liquidity. It is considered that, between two firms, the one having
the larger NWC has the greater ability to meet its current obligations. This is not necessarily
so; the measure of liquidity is a relationship, rather than the difference between current assets
and current liabilities. NWC, however, measures the firm’s potential reservoir of funds. It can be
related to net assets (or capital employed):
NWC ratio =Net working capital (NWC)/Net assets (NA)

Capital employed to net worth ratio There is yet another alternative way of
expressing the basic relationship between debt and equity. One may want to know:
How much funds are being contributed together by lenders and owners for each
rupee of the owners’ contribution?
Calculating the ratio of capital employed or net assets to net worth can find this
out:
CE to NW ratio =Capital employed (CE)/Net worth (NW)
NA to NW ratio =Net assets (NA)/ Net worth (NW)

Fixed-charges coverage ratio-- The limitation of the interest coverage ratio is

that it does not consider repayment of loan. Therefore, a more inclusive ratio—the
fixed-charges coverage—is calculated. This ratio is calculated by dividing
EBITDA by interest plus principal repayment:
Fixed-charges coverage ratio =EBITDA
Interest +Loan repayment

Dividend Coverage Ratio Formula

The general formula for calculating DCR is as follows:

Dividend Coverage Ratio = Net income / Dividend declared 

Where:

 Net income is the earnings after all expenses, including taxes, are paid
 Dividend declared is the amount of dividend entitled to shareholders
The first variation is used to determine the number of times a company can
pay dividends to common shareholders when the company also has preferred
shares/ preference shares to take into consideration.

The formula is:

DCR = (Net income – Required preferred/preference dividend

payments) / Dividends declared to common shareholders

This variation can also be used to determine the number of times a company
can pay dividends to preferred shareholders:

The formula is:

DCR = Net income / Dividends declared to preferred shareholders

1 − Tax rate

Components of inventory The manufacturing firm’s inventory consists of two

more components: (i) raw materials and (ii) work-in-process. An analyst may also
be interested in examining the efficiency with which the firm converts raw
materials into work-in-process and work-in-process into finished goods. That is,
the analyst would like to know the levels of raw materials inventory and work in
process inventory held by the firm on an average. The raw material inventory
should be related to materials consumed, and work-in-process to the cost of
production. Thus:
Raw material inventory turnover = Material consumed
Average raw material inventory
Work-in-process inventory turnover = Cost of production
Average work-in-process inventory