ACCOUNTING RATIOS

To test Liquidity and Solvency Name of Ratio i) Current Ratio Formula Current Assets Current Liabilities Parties interested Short-term creditors, investors, money lenders & like parties -doIndustry norm 2 !

ii) Liquid"#uick" Acid $est Ratio

Current assets - Stock - %repaid &'penses Current Liabilities (ank )verdra*t %rereceived +ncome Cash , -arketable securities #uick Liabilities %roprietor.s /und $otal Assets 0%roprietor.s *unds 1 &quity Capital , %re*erence Capital , Reserves and Surplus , Accumulated *unds 2ebit balances o* % & L A"c and -iscellaneous &'penses3 2ebt &quity 02ebt 1 Lon9"Shortterm loans, debentures, bills, etc, &quity 1 %roprietor.s *unds3 /i'ed cost *unds /unds not carryin9 *i'ed cost 0/i'ed cost *unds 1 %re*erence share capital, 2ebentures, Loans *rom banks, *inancial institutions, other unsecured loans3; 0/unds not carryin9 *i'ed cost 1 &quity share capital , undistributed pro*it - %

! !

iii) Absolute Liquid Ratio iv) %roprietary Ratio

-do-

! !

-do-

456 to 786

Capitalisation

i) 2ebt &quity Ratio

-do-

2 !

ii) Capital :earin9 Ratio

-do-

2 !

& L A"c <2r; (al;) -isc; e'penses3; %ro*itability and i) :ross %ro*it mana9ement Ratio e**iciency ii)=et %ro*it Ratio :ross %ro*it ' !55 =et sales =et %ro*it ' !55 =et sales 0=et pro*it may be either )peratin9 =et pro*it, %ro*it be*ore ta' or %ro*it a*ter ta'3; =et pro*it ' !55 Capital employed 0Capital employed 1 /i'ed Assets , Current Assets - Current Liabilities3; %ro*it a*ter ta' %roprietor.s *unds %ro*it a*ter ta' less pre*; 2ividend ' !55 &quity Share Capital %ro*it a*ter ta' less pre*; 2ividend $otal =o; o* &quity Shares $otal 2ividend paid to ordinary shareholders =umber o* ordinary shares Cost o* 9oods sold Avera9e Stock 2ebtors , (ills receivable ' >48 =et Credit sales Credit sales Av9; 2ebtors , (ills receivable Creditors , (ills payable ' >48 Credit purchases Credit purchases Shareholders, Lon9term Creditors, :overnment -do256 to >56 86 to !56

iii) Return on Capital &mployed <R)C&)

-do-

iv) Return on %roprietors *und v) Return on Capital vi) &arnin9s per share 0&%S3

-do-

-do-

-do-

vii) 2ividend per share 02%S3

Shareholders, +nvestors

-ana9ement e**iciency

i) Stock $urnover ii) 2ebtors $urnover Ratio iii) 2ebtor.s $urnover Rate iv) Creditor.s $urnover Ratio v) Creditor.s

-ana9ement -ana9ement

8 to 4 times @8 to 45 days 45 to A5 days

-ana9ement

-do-

$urnover Rate vi) )peratin9 Ratio

Avera9e Creditors )peratin9 Costs ' !55 =et sales 0)peratin9 Cost 1 Cost o* 9oods sold , )peratin9 e'penses <viB; Administrative, sellin9 & *inance e'penses)3 =et pro*it <a*ter %re*erence +nterest & $a' but shareholders be*ore equity dividend) %re*erence 2ividend

=umber o* times pre*erence dividends covered by net pro*it =umber o* times equity dividends covered by net pro*it =umber o* times *i'ed interest covered by net pro*it Relationship betCeen net pro*it and total *i'ed char9es $he idle capacity in the )r9anisation

%re*erence shareholders. covera9e ratio

&quity shareholder.s covera9e ratio

=et pro*it <a*ter interest, ta' & %re*; 2ividend) &quity 2ividend

&quity shareholders

+nterest covera9e ratio

=et pro*it <be*ore 2ebentureholders, +nterest & $a') <%(+$) Loan creditors /i'ed interests & char9es =et pro*it <be*ore Shareholders, +nterest & $a') <%(+$) investors, creditors, $otal *i'ed char9es lenders /i'ed e'penses $otal cost -aterial consumption Sales Da9es Sales -ana9ement shareholders -ana9ement

$otal covera9e ratio

/i'ed e'penses to total cost ratio

-aterial -aterial consumption to consumption to sales sales ratio Da9es to sales $he *uture market price o* a share Da9es to sales ratio %rice earnin9 ratio

-ana9ement

-arket price o* a share +nvestors, <-%S) speculators &arnin9s per share <&%S)