LIQUIDITY RATIOS 1. Current ratio = Current Assets /Current Liabilities 2:1 is highly solvent position 1.

33:1 is minimum acceptable level for providing working capital finance 2. Liquid ratio = (Current A. – (stocks & prepaid Exp.) / (Current Liabilities- Bank O/d & Cash Credit) 1:1 is satisfactory Ratio less than 1 payment problems

Ratio more than 1 excess cash lying idle

3. Cash Ratio = (Cash +Marketable Securities ) / Current Liabilities 1:1 is satisfactory 1:2 is considered ideal, which indicates that more than 50% of the current assets of the company are highly liquid SOLVENCY RATIOS/LEVERAGE RATIOS/CAPITAL STRUCTURE RATIO 1. Debt Equity Ratio: Long Term Debt OR external Liability / Shareholder’s Funds OR Net worth OR Equity 2:1 is considered satisfactory 3:1 is permitted for highly capital intensive industries 2. Total Assets to debt ratio: Total Assets / Long term Debt 2:1 is considered satisfactory 3. Proprietary Ratio / SHF Ratio : ( Shareholder’s funds/proprietor’s funds / Total Tangible Assets )* 100 1:4 is considered satisfactory High Prop. Ratio - larger safety of margin for creditors & Low prop. Ratio - greater risk to creditors 4. Capital Gearing Ratio : Fixed income bearing Funds / Equity shareholders funds 3:1 is considered satisfactory If >1– Highly geared if <1 -- low geared 5. Interest Coverage Ratio: EBIT or EBDIT / Interest on long term Debt Indicates interest paying capacity of business 6. Debt Service Coverage Ratio : (PAT +Int. + Dep.) / (Interest on long term Debt + Principal periodic payment) Measures ability of the firm to service interest and principal portion of installment

TURNOVER RATIOS/ACTIVITY RATIO 1. Capital turnover Ratio: Net sales / Capital Employed (Times) Higher the ratio the more efficient the management and utilization of capital employed 2. Fixed Asset turnover Ratio: Net sales / Net Fixed Assets (Times) Higher the ratio the more efficient the management and utilization of fixed assets and vice versa 3. Current Asset Turnover Ratio : Net sales / Current Assets (Times) Higher the ratio the more efficient the management and utilization of Current assets and vice versa 4. Working capital Turnover Ratio : Net sales / Working Capital (Times) Higher the ratio the more efficient the management and utilization of fixed assets and vice versa 5. Stock Turnover Ratio : Cost of goods sold / Average Inventory (Times) Too High- low inventory levels may lead to Stock outs Too Low- excessive inventory levels- high carrying costs 6. Stock Velocity: Average Stock / Average COGS per day (Days) OR 12mnths OR 52 weeks OR 365 days / Stock turnover Ratio (M/W/D) 7. Average cost = COGS of goods sold per day/ No. of working days in the year

8. Debtors turnover Ratio: Credit Sales / Average Debtors Too High: Restrictive credit and collection policy Too low : liberal and inefficient policy


9. Avg. Debt Collection Period: (Average debtors/ Credit Sales) * 365 (days) OR 12mnths OR 52 weeks OR 365 days/ Debtors turnover ratio 10. Creditors Turnover Ratio: Credit purchases/ Average Creditors High: availability of less credit or earlier payments low :availability of more credit or delayed payments (Times)


11. Avg. Debt Payment Period: Average Creditors / Credit purchases) * 365 OR 12mnths OR 52 weeks OR 365 days/ Creditors turnover ratio

(days) (M/W/D)

PROFITABILITY RATIOS Sales Related: 1. 2. 3. 4. Gross Profit Margin= Gross Profit/ Sales * 100 Operating Profit Margin= Op. Profit/ Sales * 100 Net Profit Margin = Net Profit/ Sales * 100 Operating Ratio = Operating Cost/ Sales *100

Investment Related 1. 2. 3. 4. Return on Total Asset= PBIT / Total Assets * 100 Return on Capital Employed= PBIT / Capital Employed * 100 Return on Equity = PAIT & Pref. Dividend / Eq. Shareholders funds * 100 Return on Shareholder’s funds= PAIT / Shareholders’ Funds *100

Share Holders’ Funds Related 1. 2. 3. 4. 5. Earning per share = PAIT & Pref. Dividend / Number of Equity Shares Dividend per share = Profit Distributed as equity dividend / Number of Equity Shares Price earning Ratio = Market price per share / Earning per share Dividend Payout Ratio = Dividend per share / Earnings per share * 100 Dividend Yield = Dividend per share / Market price per share * 100

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