RATIO ANALYSIS

FORMULAE
A) Liquidity Ratios:
1. =

2. Quick / Liquid or Acid Test Ratio

−( !" + $ % & '%
− () * + & ,

3. Absolute Liquid Ratio

ℎ&/ "+ ℎ − 0 !
−/ " + & ,

B) Efficiency or Activity Ratios:

89 8: ;88<9 =8><
4. 1 2 3 45 32 6) 73 =
?@ AB C @ 8 D

Where, Cost of goods sold = Opening Stock + purchases + Direct Wages – Closing Stock.

OR
H% E !" + E !"
+ E F + G=
2

In the Absence of Costs and Opening Stock

J
F + G + =
E !"

365
F + G + $ &=
F + GN + % &

5. DEBTORS OR RECEIVABLE TURNOVER RATIO:

J &
O + =
+ E N & O

Trade Debtors = Sundry Debtors + Bills Receivables +Accounts Receivables

PQ R B S A< T U 8 9V >89R B A< < U 8 9

+ E N & O =
W

Uday N
Assit.Prof Dept of BBA
In the absence of Credit Sales and Opening & Closing Debtors
N
O + ! G=
O

365
+ E ! $ & =
O N +
6. CREDITORS OR PAYABLES TURNOVER RATIOS:

J & $ !ℎ
& + =
+ E N & ! &

Trade Creditors = Sundry Creditors + Bills Payables

In the absence of credit purchases and opening & closing creditors

N $ !ℎ
! & + ! G=
&
365
+ E $ GX $ & =
& +
7. WORKING CAPITAL TURNOVER RATIO:

, /
Y " E! % N + =
+ E Y " E %

In the absence of cost of sales and opening working capital

Y " E! % =
! E[ " E! %

ANALYSIS OF LONG-TERM FINANCIAL POSITION OR TEST OF SOLVENCY:

8. DEBT EQUITY RATIO:

E X& G
O \ G =
ℎ ℎ & ] & ($ % , & , _\ G, J [ ℎ

Uday N
Assit.Prof Dept of BBA
Where, outsiders Funds= all debts / Liabilities to outsiders, whether long term or short term
or whether in form of debentures bonds, mortgages or bills.

Shareholders Funds = Equity Share capital, preferences share capital, capital reserves,
revenue reserves and reserves presenting accumulated profits & surpluses.

9. FUNDED DEBT TO TOTAL CAPITALISATION RATIO:

] & &O
] & &O ! % ! = `100
N %

10. PROPRIETARY RATIO OR EQUITY RATIO:

ℎ c & ] &
_\ G =
N
11. SOLVENCY RATIO:
N &
+ !G =
N

12. FIXED ASSETS TO NET WORTH OR FIXED ASSETS TO PROPRIETORS

FUNDS:
,' & ( , & % ! )
]' & =
ℎ ℎ & , &

13. FIXED ASSETS RATIO OR FIXED TO TOTAL LONG TERM FUNDS:

]' & ( , & % ! )

]' & =
N E X

14. RATIO OF CURRENT ASSETS TO PROPRIETORS FUNDS

, =
`100
, & ℎ ℎ &
15. INTEREST COVERAGE RATIO OR DEBT – SERVICE RATIO:

J % , ( , & ' )
F ! + E =
]' & !ℎ E
Uday N
Assit.Prof Dept of BBA
 16. GROSS PROFIT RATIO:
e % ,
e % , = `100
J
Where , Gross profit= sales – cost of goods sold

17. OPERATING RATIO:

% E!
H% E = `100

Where, Operating Cost= Cost of goods sold + Operating Expenses

18. OPERATING PROFIT RATIO:

% E% ,
H% E$ , = `100

Where, Operating Profit= Net Profit + Non-Operating Expenses – Non-Operating

Incomes

19. EXPENSES RATIO:

$ ! _'%
$ ! _'% = `100
J

89 8: E & 98><
I. ,E & & = `100
9A> 9

?<fR R9 A R8 V8::Rg hQ 9 9
II. &X & ,, ! '% = `100
9A> 9

= >>R B &TR9 U R8 ihQ 9

III. E &O _'% = `100
=A> 9

j8 k8Q A R B hQ 9 9
IV. J − % E '% = `100
=A> 9

20. NET PROFIT RATIO:

J % , , '
J $ , = `100
J

Uday N
Assit.Prof Dept of BBA
21. RETURN ON SHAREHOLDERS INVESTMENT: (net worth ratio)

J % , ( , & ' )
J Y ℎ =
ℎ ℎ & ] &
22. RETURN ON EQUITY CAPITAL

J % , , '−% , ! O+& &

_\ G % =
_\ G ℎ % (% & − %)

23. EARNINGS PER SHARE:

J % , , '−% , ! &+& &
_ E % ℎ =
J X , \ G ℎ

24. RETURN ON CAPITAL EMPLOYED OR RETURN ON INVESTMEMT:

J $ ,
% _X% G &

Where, capital employed =Shareholders Funds + long term Liabilities

25. CAPITAL TURNOVER RATIO:

,E & &
% + =
% X% G &

26. FIXED ASSETS TURNOVER RATIO:

,E & &
]' & N + =
]' &

TO CONDUCT THE MARKET TEST OR VALUATION RATIOS:

27. DIVIDEND YIELD RATIO:

O + & &% ℎ
O+& &l & =
m " + % ℎ

Uday N
Assit.Prof Dept of BBA
28. DIVIDEND PAYOUT RATIO:
O+& &$ \ G ℎ
O+& &$ G− =
_ E % ℎ

29. PRICE EARNING RATIO OR EARNINGS YIELD RATIO:

m " $ ! % _\ G ℎ
$ ! _ E =
_ E % ℎ

30. CAPITAL GEARING RATIO:

_\ G ℎ ! % + + & %
% _ E =
$ , % + EN XO

Uday N
Assit.Prof Dept of BBA