PAT + Depreciation + Interest On Term Commitments

Guidelines / Definition for different ratios
Page numbers of Industrial Advances Manual 2002 are indicated within bracket wherever
applicable.
1. Sales Growth:
Net Sales (i.e., Sales - Excise Duty) is to be compared with accepted projections. Where
accepted projections are not available the same may be compared with previous year's
actual.
2. Current Ratio (5.11):
Current Ratio = Current Assets / Current Liabilities (excluding Annual maturing Term
Liabilities).
Current Assets = As detailed in Page No. A.37 - A.38 of Industrial Advances Manual -- 2002.
Current Liabilities = As detailed in Page No. A.35 - A.36 of Industrial Advances Manual --
2002 - excluding item No: I. a & b (i.e., annually maturing term
liabilities)
3. Interest Coverage Ratio:
Interest Coverage Ratio = PBDIT / Interest
PBDIT = Profit before Depreciation, Interest and Tax

Interest = Interest + Finance Charges.
4. Debt Service Coverage Ratio (DSCR) -- (5.15):
DSCR = (PAT + Depreciation + Interest on Term Commitments) / (Installments on Term

Commitments + Interest on Term Commitments)
PAT = Profit After Tax
Term Commitments = All term borrowings including deferred credit.
5. Debt Equity Ratio (5.13)
Debt Equity Ratio = Long term Debts / Tangible net worth

Long term debts include all term borrowing including deferred credit as well as the annual
maturing term liabilities.
6. Total Outside Liabilities (TOL) / Tangible Net Worth (TNW) -- (5.14):
TOL includes all forms of debts such as current and term liabilities, off balance sheet
liabilities, subordinated debts, optionally convertible debentures, redeemable preference
shares having residual maturity of less than 12 years, deferred payment credits, bills
discounted etc.
TNW = Net Worth - Intangible Assets.

Net Worth = Paid up equity capital, free reserves (excluding revaluation reserve), preference
share capital due for redemption after 12 years, Deferred Tax Liability,
instruments such as compulsorily convertible preference shares, share
application money and fully convertible debentures, Central / State Subsidy,
Long term unsecured loan from (a) Government, (b) Government Agencies
redeemable beyond 7 years and (c) from promoters usually subordinated to
institutional loans.
Intangible Assets = Items such as goodwill, miscellaneous expenditure, deferred payment
expenditure, Preliminary / Pre operative Expenses, Deferred Tax
Asset, Accumulated Losses etc
7. Net Profit / Sales (5.18):
Net Profit = Profit After Tax

Sales = Sales - Excise Duty (i.e., Net Sales)
This analysis is to be made as a ratio or percentage and not on absolute terms. This is to be
compared with accepted projections. Where accepted projections are not available the
same may be compared with previous year's actual.
8. Cash Profit / Sales:
Cash Profit = Net Profit + Depreciation

Sales = Sales - Excise Duty (i.e., Net Sales)
9. Return on Capital Employed (ROCE):
ROCE = PBIT / (Total Debt + Tangible Net Worth)
PBIT = Profit before interest and taxes

Total Debt = Total Outside Liabilities as explained under Point No. 6 above.
TNW -- As explained under Point No. 6 above.
10. Current Assets holding level:
Current Assets Holding Level = Current Assets / Sales.
Current Assets = As explained under Point No. 2 above. (Sales = Gross Sales)
11. Debtors Holding Period:
Debtors Holding Period = (Average Debtors / Sales) * 365
Average Debtors = (Opening Debtors + Closing Debtors) / 2

Sales = Sales - Excise Duty
12. Inventory Holding Period:
Inventory Holding Period = (Average Inventory / Cost of Sales) * 365
Cost of Sales = As detailed in Page No.A.42 of Industrial Advances Manual

2002.
Average Inventory = (Opening Inventory + closing Inventory) / 2
13. Creditors Holding Period:
Creditors Holding Period = (Average Creditors / Purchases) * 365

Average Creditors = (Opening Creditors + Closing Creditors) / 2
Creditors = Sundry Creditors + Bills Payable + Drawee Bill Outstanding
14. Fixed Assets Coverage ratio= Fixed assets/Term loans

PAT + Depreciation + Interest On Term Commitments

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Guidelines / Definition for different ratios

2. Current Ratio (5.11):

3. Interest Coverage Ratio:

Interest Coverage Ratio = PBDIT / Interest

PBDIT = Profit before Depreciation, Interest and Tax

4. Debt Service Coverage Ratio (DSCR) -- (5.15):

DSCR = (PAT + Depreciation + Interest on Term Commitments) / (Installments on Term

5. Debt Equity Ratio (5.13)

Debt Equity Ratio = Long term Debts / Tangible net worth

6. Total Outside Liabilities (TOL) / Tangible Net Worth (TNW) -- (5.14):

TNW = Net Worth - Intangible Assets.

7. Net Profit / Sales (5.18):

Net Profit = Profit After Tax

8. Cash Profit / Sales:

Cash Profit = Net Profit + Depreciation

9. Return on Capital Employed (ROCE):

ROCE = PBIT / (Total Debt + Tangible Net Worth)

PBIT = Profit before interest and taxes

10. Current Assets holding level:

Current Assets Holding Level = Current Assets / Sales.

11. Debtors Holding Period:

Debtors Holding Period = (Average Debtors / Sales) * 365

Average Debtors = (Opening Debtors + Closing Debtors) / 2

12. Inventory Holding Period:

Inventory Holding Period = (Average Inventory / Cost of Sales) * 365

Cost of Sales = As detailed in Page No.A.42 of Industrial Advances Manual

Creditors Holding Period = (Average Creditors / Purchases) * 365

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