FINANCIAL RATIOS WITH FORMULAS

General profitability:

  • Gross profit ratio = (Gross profit / Net sales) × 100
  • Operating ratio = (Operating cost / Net sales) × 100
  • Expense ratio = (Particular expense / Net sales) × 100
  • Operating profit ratio = (Operating profit / Net sales) × 100

Overall profitability:

  • Return on shareholders’ investment or net worth = Net profit after interest and tax / Shareholders’ funds
  • Return on equity capital = (Net profit after tax Preference dividend) / Paid up equity capital
  • Earnings per share (EPS) ratio = (Net profit after tax Preference dividend) / Number of equity shares
  • Return on gross capital employed = (Adjusted net profit / Gross capital employed) × 100
  • Return on net capital employed = (Adjusted net profit / Net capital employed) × 100
  • Dividend yield ratio = Dividend per share / Market value per share
  • Dividend payout ratio or pay-out ratio = Dividend per equity share / Earnings per share

Short Term Financial Position or Test of Solvency:

  • Current ratio = Current assets / Current liabilities
  • Quick or acid test of liquid ratio (for immediate solvency) = Liquid assets / Current liabilities
  • Absolute liquid ratio = Absolute liquid assets / Current liabilities

Current Assets Movement, Efficiency or Activity Ratios:

  • Inventory / Stock turnover ratio = Cost of goods sold / Average inventory at cost
  • Debtors of receivables turnover ratios = Net credit sales / Average trade debtors
  • Average collection period = (Trade debtors No. of working days) / Net credit sales
  • Creditors or payables turnover ratio = Net credit purchase / Average trade creditors
  • Average payment period = (Trade creditors No. of working days) / Net credit purchase
  • Working capital turnover ratio = Cost of sales / Net working capital

Analysis of Long Term Solvency:

  • Debt to equity ratio = Outsiders funds / Shareholders funds or External funds / Internal funds
  • Ratio of long term debt to shareholders funds (Debt equity) = Long term debt / Shareholders funds
  • Proprietary of equity ratio = Shareholders funds / Total assets
  • Fixed assets to net worth = Fixed assets after depreciation / Shareholders’ funds
  • Fixed assets ratio or fixed assets to long term funds = Fixed assets after depreciation / Total long term funds
  • Ratio of current assets proprietors’ funds = Current assets / Shareholders’ funds
  • Debt service or interest coverage ratio = Net profit before interest and tax / Fixed interest charges
  • Capital gearing ratio = Equity share capital / Fixed interest bearing funds