Documente Academic
Documente Profesional
Documente Cultură
Accounting ratios
communication.
This ratio is used to find the cash position of a company the higher this ratio is the better the liquidity of the company. However, a very high ratio indicates a poor funds management.
Liquidity Ratio
Current Ratio =
Current assets are funds, inventory & receivables. Current Liabilities are all payables. A company should reduce the current assets to the maximum extent possible to utilize the resources Fully. Ideally this ratio should be 2:1 i.e., Current assets twice as much as current liabilities.
Liquidity Ratio
Liquid Ratio =
Indicates the ability of the company to meet its immediate liabilities out of its quickly realisable current assets. Ideally this ratio should be 2:1 i.e., Realisable current assets should be enough to meet current liabilities.
Turnover Ratio
Debtors turnover = Net credit sales Average debtors Creditors turnover =Net credit purchases Average creditors Inventory turnover = Cost of goods sold Average goods inventory These ratios determine how quickly assets are converted into cash
* This ratio indicates what the owners stake is in the business. * This ratio indicates the extent of funds being financed by borrowing.
Debt Equity
These ratios are mainly of interest to the creditors, bankers, shareholders and generally any one who lends or invests in the company
4. Coverage Ratios
available to the creditors. A high ratio indicates a comfortable position to repay the borrowings taken by the company.
This along with other factors determine the credit rating of the company.
5. Profitability Ratios
ROI =
Capital Employed = Share Capital + reserves & Surplus + Long Term Loans This ratio indicates the basic viability of the company's operations. For a profit driven company ROI is the basic reason for the companys existence. This also called as the return on capital Employed the ROCE.
5. Profitability Ratios
DUPONT CHART
As on Current Assets Inventories Debtors Cash and Bank Other advances Total Current Liabilities
Creditors
Cust. Advances Provisions Others Total Net Working Cap.
883
653 260 49 1845 1436
704
774 208 21 1707 1294
540
622 159 18 1339 667