RATIO ANALYSIS

1. Balance sheet ratio : 1.Current ratio

2.Quick ratio

3.Proprietary ratio

4. Debt equity ratio

2. Income Statement ratio : 1. Gross profit ratio

2. Operating cost ratio

3. Operating profit ratio

4. Net profit ratio

3. Inter – statement ratio : 1. Return on investment

2. Trade receivables turnover ratio

3.Trade payables turnover ratio

4.Fixed asset turnover ratio

 RATIO ANALYSIS
1. Liquidity ratio : Quotient
Current Assets
i. Current ratio : Balance Sheet ( A & L )
Current Liabilities
Current Assets : Cash or cash equivalents in a short time, that is within a year or with
in a period. ( Ex. Current investments, Stock Trade receivables, sundry debtors, cash, bank, short term
advance given, prepaid exp. accrued income. etc )

Current Liabilities : Liabilities which are repayable in short time, that is within a year or
within the period. ( Short term borrowings, trade payables, Bills payable and sundry creditors, Income
received in advance, Expenses payable and short term provision )

Quicl Assets
ii. Quick ratio : Balance Sheet ( A & L )
Current Liabilities
Quick Assets : Current assets – Investments – Prepaid expenses

2. Long term Solvency ratio : Quotient

Long term debt
i. Debt equity ratio : Balance Sheet ( Liabilities only )
Shareholders funds
Long term debt : Long term debt includes debentures, bonds, long term loans and other long
term borrowings.

Shareholders funds : Equity share capital + Preference share capital + reserves and surplus

Shareholders funds
ii. Proprietary ratio : Balance Sheet ( A & L )
Total Assets

Iii. Capital gearing ratio :

Funds bearing ¿ interest∧¿ dividend ¿
Equity shareholders funds
Balance Sheet ( Liabilities only )

Fund bearing fixed interest or fixed dividend : Preference share capital, Debentures, Bonds,
and Long term borrowings carrying fixed interest.

3. Turnover ratios : Times

¿
i . Inventory turnover ratio : Cost of revenue ¿ a tions Average inventory ( Trading
A/c only )
Cost of revenue from operation : purchases of stock in trade + Changes in inventories of
finished goods + Direct expenses. ( or ) Revenue from operation – Gross profit.

Opening inventory +Closing inventory

Average inventory :
2

Number of days ( ¿ ) Month∈a year

Inventory conversion period :
Inventory turnover ratio
 ii . Trade receivables turnover ratio :
Credit revenue ¿ operations ¿
Average trade receivables ( Assets only)

Trade receivables : Trade Debtors + Bills receivable ( Trade receivables arise only from credit
sales )
Opening trade receivables+Closing trade receivables
Average trade receivables : 2

Number of days ( ¿ ) Month∈a year

Debt collection period :
Trade receivables turnover ratio

Net credit purchases

iii. Trade payables turnover ratio : ( Liabilities Only )
Average trade payables
Net credit purchases : Total credit purchases – Purchases returns

Opening trade payab les+Closing trade pay ables

Average trade payables :
2

Total payables : Trade creditors + Bills payable

Number of days ( ¿ ) Month∈a year

Credit payment period :
Trade pay ables turnover ratio

¿
iv. Fixed assets turnover ratio : Revenue ¿ operations Average ¿ assets ¿

¿
Average fixed assets : Opening ¿ assets +Closing ¿ assets 2

4. Profitability ratios : Percentage

Gross profit
i. Gross profit ratio : X 100
Revenue form opertions

Gross profit: Revenue from operation – Cost of revenue form operation

Operating cost
ii. Operating cost ratio : X 100
Revenue form opertions

Operating cost : Cost of revenue from operation + Operating expenses

Operating expenses : Employee benefit expenses + Depreciation + Other expenses related to

office and administration, selling and distribution
Operating profit
iii. Operating profit ratio : X 100
Revenue form opertions

Operating profit : Revenue from operations – Opening cost (or )

Operating profit ratio : 100 – Operating cost ratio

Net profit
iv. Net profit ratio : X 100
Revenue form opertions

Net profit after tax : Gross profit + Indirect income – Indirect expenses – Tax (or )

Net profit after tax : Revenue from operation – Cost of revenue from operation – Operating
expenses – Non operating expenses + Non operating income - Tax .

Net profit before interest ∧tax

v. Return on Investment ( ROI ) : X 100
Capital exployed
Capital employed : Shareholders founds + Non current liabilities