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Ratio Analysis Formula

This document defines and provides the formulas for calculating several common financial ratios used to analyze companies. These include current ratio, quick ratio, debt to equity ratio, proprietary ratio, debt to total assets ratio, interest coverage ratio, trade receivable turnover ratio, trade payable turnover ratio, working capital turnover ratio, inventory turnover ratio, gross profit ratio, net profit ratio, operating ratio, operating profit ratio, earnings per share, price earnings ratio, and return on investments. Formulas use data from a company's balance sheet and income statement to evaluate liquidity, leverage, turnover, profitability and market valuation.

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Arnav
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56 views

Ratio Analysis Formula

This document defines and provides the formulas for calculating several common financial ratios used to analyze companies. These include current ratio, quick ratio, debt to equity ratio, proprietary ratio, debt to total assets ratio, interest coverage ratio, trade receivable turnover ratio, trade payable turnover ratio, working capital turnover ratio, inventory turnover ratio, gross profit ratio, net profit ratio, operating ratio, operating profit ratio, earnings per share, price earnings ratio, and return on investments. Formulas use data from a company's balance sheet and income statement to evaluate liquidity, leverage, turnover, profitability and market valuation.

Uploaded by

Arnav
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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 Current Ratio: Current Assets

Current Liability
Current Assets = Current Investments + Inventories (excluding Loose
Tools and Spare Parts) + Trade Receivables + Cash and Bank Balance +
Short Term Loans and Advances + Other Current Assets
Current Liabilities = Short term borrowings + Trade Payables + Short
Term Provisions + Other Current Liabilities
 Quick Ratio: Quick Assets
Current Liability
Quick Assets= Current Assets – Inventories – Prepaid Expenses
 Debt to equity Ratio: Long-term Debts
Shareholder’s Fund
Long term Debt = Long Term Borrowings + Long Term Provisions
Shareholders’ Fund = Share Capital + Reserves and Surplus
Shareholders’ Fund = Non-Current Assets + Working Capital (Current
Assets – Current Liabilities) – Non-Current Liabilities
Shareholders’ Fund = Non-Current Assets + Working Capital – Non-
Current Liabilities
 Proprietary Ratio: Shareholder’s Funds
Total assets
 Debt to total assets Ratio: Long-term debts
Total assets
 Interest Coverage ratio:
Net profit before interest and taxes
Fixed Interest Charges
Note: Interest includes interest on only long-term borrowings
 Trade Receivable Turnover Ratio:
Net Credit Revenue from Operations
Average Trade Receivables
Net Credit RFO = Total RFO – Cash RFO
 Trade Payable Turnover ratio:
Net Credit Purchase Average trade payable
 Working Capital Turnover Ratio:
Net Revenue From Operation
Working Capital
 Inventory Turnover Ratio:
Cost of Revenue from Operation
Average Inventory
Cost of RFO (or COGS) = RFO – Gross Profit
Cost of RFO = Opening Inventory + Net Purchases + Direct Expenses –
Closing Inventory
 Gross Profit Ratio: Gross Profit X 100
Revenue from Operations
Gross Profit = RFO – Cost of Goods Sold
 Net Profit Ratio: Net Profit X 100
Revenue from operations
 Operating Ratio:
𝐶𝑜𝑠𝑡 𝑂𝑓 𝐺𝑜𝑜𝑑𝑠 𝑆𝑜𝑙𝑑+𝑂𝑝𝑒𝑟𝑎𝑡𝑖𝑛𝑔 𝐸𝑥𝑝𝑒𝑛𝑠𝑒𝑠− 𝑂𝑝𝑒𝑟𝑎𝑡𝑖𝑛𝑔 𝐼𝑛𝑐𝑜𝑚𝑒
𝑋 100
𝑅𝑒𝑣𝑒𝑛𝑢𝑒 𝐹𝑟𝑜𝑚 𝑂𝑝𝑒𝑟𝑎𝑡𝑖𝑜𝑛

Operating Expenses = Employee Benefit Expenses + Depreciation of


Tangible Assets + Selling and Distribution Expenses + Office and
Administrative Expenses
Operating Income = Commission Received + Cash Discount Received
 Operating Profit Ratio:
Net Operating Profit X 100
Revenue from Operation
Net Operating Profit = Net Profit after Tax + Provision for Tax + Non-
Operating Expenses – Non-Operating Income
 Earnings Per Share:
Net Profit after tax- Preference Dividend
Number Of Equity Share
 Price Earnings Ratio:
Market value of an equity share
Earnings per share
 Return on investments:
Net profit before interest and tax X 100
Capital employed

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