Mind Map for Ratio Analysis Formulas

RATIO ANALYSIS

Important Formulas:

(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 Profit + 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 Exp. – Dis./Comm. on Issue 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 Exp. –  Discount on issue of Shares/Debentures– P/L A/c (Dr.)