Ratios

1) Liquidity ratios/Short term solvency ratios – Company’s ability to meet its short term
obligations
a) Current ratio (WC ratio) – CA/CL
b) Quick ratio (Liquid ratio) ( Acid test ratio) – Quick assests/ CL = (CA-inventory-prepaid
expenses) / CL
c) Cash ratio / Absolute liquidity ratio – (Cash and Cash equivalents+ Marketable
securities)/CL or (Cash and Cash equivalents+ Current investments)/CL

2) Leverage/Long term solvency ratios – Company’s ability to meet its long term obligations
a) Equity ratio = Shareholder’s equity/Total assests ( proportion of equity used to finance
assests)
b) Debt ratio = Total debt/Total assests ( proportion of debt used to finance assests)
c) Debt to Equity ratio = (Long debt+Short debt+Fixed payment obligations)/ Shareholder’s
equity
d) Equity Multiplier = Total assests / Equity = 1+ Debt to equity ratio ( proporation of
assests used to finance equity)
e) Capital gearing ratio =( Pref share capital + Debentures + other borrowed funds)/(Eq
share capital + Reserves and Surpluses – Losses) ( ratio of all capital with a fixed return
to all capital with a variable return)
f) Proprietary ratio = Propreitary funds/ Total assests = Eq share cap + Pref Share cap + Res
and surplus / Total assests

Coverage ratios – firms ability to service fixed liabilities

a) Interest Coverage ratio ( Times Interest Earned) – EBIT / Interest payments
b) Fixed charges coverage ratio/ Cash coverage ratio – (EBIT + Depriciation)/Interest
payments

3) Turnover ratios/Efficiency ratios/Performance ratios/Activity ratios – efficiency with which a

firm manages or utilizes its assests
a) ITR = COGS or Sales / Avg inventory
DSO/Day sales in inventory = 365/ITR

b) Debtor turnover ratio/Receivable turnover ratio = Credit sales / Accounts

receivable(average)
Average collection period = 365/ DTR

c) PTR/Creditor turnover ratio = Credit purchases/ Average accounts payable

Average payment period = 365/PTR

d) Asset turnover ratio = Sales or COGS / Average total assests

e) Working capital turnover ratio = Sales or COGS / WC (a,b,c are a part of this)
 4) Profitibility ratios – measures the operational efficiency of the firm
a) Gross Profit margin = Gross profit/ Sales
b) Net profit margin = Net profit / Sales
c) Pre tax profit margin = Earnings before taxes / Sales
d) Operating profit margin = Operating profit / Sales = EBIT/ Sales
e) COGS ratio = COGS / Sales
f) Operating expenses ratio = Admin ex + SDOH / Sales
g) Operating ratio = CCOGS + Operating expenses /Sales
h) Financial expenses ratio = Financial expenses/ Sales
i) ROA = Net income / Assests
j) ROE = Net income/Equity
k) ROI = ( return or profit or earnings)/ Investment
l) ROCE = EBIT / Capital employed

5) Market value measures – Measures based on information not necessarily contained in the
financial statements
a) EPS = Net profit available to equity shareholders / No of outstanding equity shares
b) PE ratio = Price per share / EPS ( How much investors are willing to pay per rupee of current
earnings)
c) Dividend per share(DPS) = Total dividend paid to equity shareholders / No of outstanding
equity shares
d) Dividend payout ratio = Total dividend / net income = DPS / EPS
e) Book value per share = Book value of equity / No of outstanding shares
f) Market to book ratio = MP per share/ BV per share

Enterprise Value = M.Cap + Market value of debt – Cash and cash equivalents

PEG ratio = PE ratio / EPS growth

Cash flow statement indirect method :

CF from operating

Netincome/NP before interest and tax ( EBIT)

Add : Non Cash and Non operating expenses

Depriciation

Loss on sale of assests

Share discount written off

Proviion for taxation

Less : Non Cash and Non-Operating incomes

Profit on sale of assests

NP + Non cash/Non op exp – Non cash/Non operating income = CF before changes in WC

Add : Increase in current liabilities

Add : Decrease in current assests

Less : Increase in current assests

Less : Decrease in current liabilities

CF from operations

Less tax paid

Net cash used in operating activities

CF from investing

Purchase of asset ( -)

Purchase of investment ( - )

Sale of assests ( +)

Sale of investment (+)

Interest and dividend received ( + )

CF from financing

Issue of share capital (+)

Reppayment of bonds/debentures ( - )

Redemption/Repayment of preference share capital ( - )

Proceeds from loan ( +)

Repayment of loan (-)

Interest and div paid (-)

Net increase/decrease in cash and cash equivalents = CF from operating + CF from investing + CF fro
financing
Strength – flexibility(online MBA) , concentation

Weakenss –Taking too much responsibility, self criticism