RATIO ANALYSIS
Important Formulae
(1) Gross
Profit Ratio
= Gross Profit X 100
Net Sales
Gross
Profit = Net Sales – Cost of Goods
Sold
Net
Sales
= Total Sales – Sales
Return
Total
Sales
= Cash Sales + Credit
Sales
Cost of Goods
Sold = Opening Stock
+ Purchases + Direct
Expenses
– Purchase
Return – Closing Stock
(2) Net Profit
Ratio = Net Profit X 100
Net Sales
Net
Profit =
Gross Profit – Operating Expenses + Non Operating
Incomes –
Non Operating Expenses
Operating
Expenses
= (SODA) Selling Expenses
+ Office Expenses
+ Distribution Expenses + Administrative Expenses
(3) Operating
Profit Ratio = Operating
Profit X 100
Net Sales
Operating
Profit
= Gross Profit –
Operating Expenses
OR
Operating
Profit
= Net Profit + Non
Operating Expenses – Non Operating Income
(4) Operating
Ratio
= Operating Cost X 100
Net Sales
Operating
Cost
= Cost of Goods Sold +
Operating Expenses
(5) Operating Ratio + Operating Profit
Ratio = 1
(6) Return on
Investment (ROI) =
Profit before Interest, Tax & Dividend X 100
Capital
Employed
Where, Profit
before interest, Tax & Dividend = Profit After Tax + Interest + Tax
= Profit after Interest +
Interest
Capital
Employed
= Share Capital (Equity +
Preference)
+ Reserves + Surplus/Profit & Loss A/c (Cr.)/Accumulated Profits
+ Debentures + Long term loans – [Preliminary Expenses
– Discount/Commission or Issue of Share / Debenture – Profit &
Loss A/c
(Dr. Balance)]
ALTERNATIVELY
Capital
Employed = Net Fixed Assets + Long
Term Investments + Working
Capital
Net Fixed
Assets
= Total Fixed Assets –
Depreciation
Working
Capital
= Current Assets –
Current Liabilities
(7) (a)
Return on
Shareholder's Funds
= Profit after Interest & Tax but
before Dividend X 100
Equity or Shareholder's Funds
Equity or
Shareholders' Fund
= Share Capital (Equity +
Preference) + Reserve
+ Surplus / Profit & Loss A/c (Cr. Balance) or accumulated profits
– Preliminary Expenses – Discount/Commission on Issue of Share
Debentures –
Profit & Loss A/c (Dr. Balance) or Accumulated
Losses
Profit after Interest, Tax but before Preference Dividend
= Profit after Tax – Preference Dividend
= Profit after Interest – Tax – Preference Dividend
= Profit before Interest – Interest – Tax – Preference Dividend
(7) (b) Return
on Equity (ROE)
= Profit after interest, Tax &
Pref. Dividend X 100
Equity
Shareholder's Funds
Equity
shareholder's Fund
= Equity Share Capital +
Reserve + Surplus / Profit & Loss A/c (Cr.
Balance) or accumulated profits – Preliminary Expenses – Discount /
commission on issue of Share Debentures – Profit & Loss A/c (Dr.
Balance) or Accumulated Losses
(8) Interest
coverage (Debt Service) Ratio
= Profit before Interest, Tax &
Dividend
Interest on Debentures & Loans
(9) Current
Ratio
= Current Assets
Current Liabilities
Current Assets = Cash in Hand + Cash at
Bank + Bills Receivable
+ Sundry Debtors + Marketable Securities or Short term
investments + Loans & Advances + Stock / Inventories +
Prepaid Expenses + Accrued Incomes
Current
Liabilities
= Sundry Creditors +
Bills Payable + Provision for Bad
Debts + Provision for Taxation + Bank Overdraft +
Outstanding Expenses + Income received in Advance +
Short term Loans
(10) Liquid
Ratio / Quick Ratio / Acid Test Ratio
= Liquid Assets or Quick Assets
Current Liabilities
Liquid Assets = Current Assets – Closing Stock – Prepaid Expenses
(11) Stock
Turnover Ratio
(STR)
= Cost of Goods Sold
Average
Stock
Average Stock = ½ (Opening Stock + Closing Stock)
(12) Debtors
Turnover Ratio (DTR)
=
Net Credit Sales in a year
Average Accounts Receivable
Average A/c Receivable = ½ (Opening A/c Receivable + Closing A/c Receivable)
Accounts Receivable = Debtors + B/R
OR
Account Receivable = Opening Debtor + Opening B/R + Closing Debtors +
Closing B/R
2
(13) Average
Debt Collection
Period
= Days or Months in a year
Debtors
Turnover Ratio
Alternatively,
Average Debt Collection Period
= Days or Months in a year X Accounts
Receivable in a year
Net
Credit Sales in a year
(14) Creditors
Turnover Ratio (CTR)
= Net Credit Purchases
Average
Accounts Payable
Average A/c Payable = ½ (Opening A/c Payable + closing A/c Payable)
Accounts Payable = Creditors + B/P
(15) Average
Payment Period
= Days or Months in a year
Creditors
Turnover Ratio
Alternatively,
Average Payment Period = Days or Months in a year X Accounts
Payable in a year
Net Credit Purchases in a year
(16) Capital
Turnover
Ratio
= Net Sales
Capital Employed
(17) Fixed
Assets Turnover Ratio
=
Net Sales
Net Fixed Assets
Net Fixed Assets = Gross Fixed Assets - Depreciation
(18) Working
Capital Turnover Ratio
= Net Sales
Working Capital
Working Capital = current Assets – Current Liabilities
(19) Assets
Turnover
Ratio
=
Net Sales
Total Assets
Total Assets = Fixed Assets + Long Term Investment Current Assets
(20)
Debt-Equity
Ratio
= Long term Debt or Loans
Equity or
Shareholders' Funds
Long term Debts
= Debentures + Loans or
Mortgage
OR Long Term
Debts
= Total Debts – Current
Liabilities
(21) Debt Total
Fund
Ratio
= Long Term Debts
Total Long Term Funds
Total Funds Term Fund = shareholder's Funds + Long Term Debts
(22)
Proprietary
Ratio
= Shareholder's Funds or Proprietor's
Fund
Total Assets
Shareholder's
Funds
= Share Capital (Equity +
Preference)
+ Reserves + Surplus/Accumulated Profit or P/L A/c(Cr)
- Preliminary Expenses
– Discount on issue of Shares/Debentures
– P/L A/c (Dr.)
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