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Liquidity Ratio

The document outlines various financial ratios used to assess liquidity, solvency, activity, and profitability of a business. It includes formulas for calculating ratios such as Current Ratio, Quick Ratio, Debt to Equity Ratio, and Gross Profit Ratio among others. Each ratio is defined with its components, providing a comprehensive guide for financial analysis.

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2 views

Liquidity Ratio

The document outlines various financial ratios used to assess liquidity, solvency, activity, and profitability of a business. It includes formulas for calculating ratios such as Current Ratio, Quick Ratio, Debt to Equity Ratio, and Gross Profit Ratio among others. Each ratio is defined with its components, providing a comprehensive guide for financial analysis.

Uploaded by

snaplifemiss
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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Liquidity Ratio: Current Assets= Working capital + Current Liabilities

1. Current Ratio= Current Assets Current Assets= Current Investment +


Current Liabilities Cash and cash equivalents +
Other Current Assets
Current Liabilities= Short term Borrowings+
Trade Payables+
Other Current Liabilities +
Short term Provisions
2. Quick Ratio= Liquid Assets
Current Liabilities

Solvency Ratio: Debt= Long term Borrowings + Long term provisions


3. Debt to = Debt
Equity Ratio Equity

4. Total Assets to = Total Assets Shareholder’s funds= Non- current Assets +


Debt ratio Debt Working Capital
-Non Capital
Share holder’s funds= Share Capital +
Reserves and Surplus

Total Assets: Non- current Assets + Current Assets


5. Proprietary Ratio = Equity
Total Assets
6. Interest = Profit before interest and tax Profit before tax= Profit after tax + Interest
Coverage Ratio Interest on Longterm Debt Profit before tax = Revenue
- Cost of goods sold
- Depreciation expense
- Operating expense
- Interest expense

Activity Ratios Average Inventory= closing + opening inventory


2
7.Inventory = Cost of revenue from operations Average Trade receivables =
Turnover Ratio Average Inventory Opening debtors + opening bills
receivables
Closing debtors + closing Bills receivable
2

8.Trade Payables = Net Credit Purchases


Turnover Ratio Average trade payables
9.Trade Receivables = Credit revenue from operations
Turnover Ratio Average trade Receivables
10.Working Capital = Revenue from operations
Turnover Ratio Working Capital
Profitability Ratios
11. Gross Profit = Gross Profit X 100 Gros profit = Revenue from operations
Ratio: Revenue from operations – cost of revenue from operations
Gross profit = Opening inventory
+ Net inventory
+ direct expenses
- Closing inventory
Gross profit = Cost of materials consumed
+Purchases of stock – in – trade
+Changes in inventories of finished goods
+ Direct Expenses
12. Operating Ratio = Cost of revenue from operations =
Cost of the revenue from Operations X 100 Opening Inventory + Net purchases
Operating expenses + Direct expenses - Closing inventory
13. Net Profit Ratio= Revenue from operations= Sales – Sales Return
Net profit after tax X 100
Revenue From Operations
14. Operating Profit Ratio = Operating expenses= employees benefit expenses
Operating Profit X 100 + Depreciation and Amortisation
Revenue from operations + Other expenses

Operating profit = Net profit + Non- operating expense


-Nom- operating income

Operating Profit = Gross profit + operating income


- Operating expenses
15. Return on investment = Non operating income=
Profit before interest, tax and dividend X 100 Interest received on investments + profit on scale of fixed
Capital Employed assets

Net profit after tax= Gross profit + Other income


- Indirect tax

Capital employed
Liabilities side = Share capital + Reserves and surplus
+ Long term borrowings
+ long term provisions
Assets side = Non current assets
+ Working Capital

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