ACCOUNTING RATIOS - FORMULA

TY B.COM

SEMESTER - 5

ACCOUNTING RATIOS - FORMULA

(A) PROFITABILITY RATIOS: 

(1) Gross Profit Margin Ratio

             = Gross profit / Sales × 100

(2) Net Profit Margin Ratio

             = Net Profit / Sales × 100

(3) Operating Expenses Ratio

             = Operating Expenses / Sales × 100

(4) Specific Expense Ratio

            = Specific Operating Expenses / Sales × 100

(5) Return On Total Assets

            = [PAT+Interest(1-T)] OR EBIT (1-T) / Average Total Assets × 100

(6) Return On Equity

           = PAT - PREF. Dividend / Average Net Worth × 100

(7) Earnings Per Share (EPS)

          = PAT - PREF. Dividend / W.A. NO. Of EQ. SH. Outstanding

(8) Pay - Out Ratio

         = Equity Dividend paid / PAT - PREF. Dividend × 100

(9) Price - Earnings Ration (P/E)

         =  Market Price Per Share / Earnings Per Share

(10) Dividend Yield

        = Dividend Per Share / Market Price Per Share × 100

(11) Yield ( i. e. Investor's Total Return)

        = Dividend + Price Change / Initial Price × 100

(B) LIQUIDITY RATIOS : 

(12) Current Ratio

        = Current Assets / Current liabilitys

(13) ACID - Test (Or Quick) Ratio

        = Current Assets - Inventories / Current Liabilities

(C) LEVERAGE RATIOS :

(14) Debt - Asset Ratio 

         = Total Debt / Total Assets

(15) Debt - Equity Ratio

         =  Long - Term Debt (Or Total Debt) / Net Worth + Preference SH. CAP.

(16) Interest Coverage Ratio

        = Earnings Before Interest & Tax / Interest

(D) TURNOVER RAIOS : 

(17) Inventory Turnover

          = Cost Of Goods Sold / Average Inventory

                                OR

            = Sales / Closing Stock

(18) Debtors Turnover (or Accounts Receivable )

           = Credit Sales / Average Debtors

                              OR

          = Sales / Closing Debtors

(19) Average Collection Period

           = Average Debtors / Average Daily CR.sales

                               OR

            = 360 / Debtors Turnover

(20) Fixed Assets Turnover

            =  Sales / Average Net Fixed Assets

                              OR

           = Sales / Net Fixed Assets

(21) Total Assets Turnover

           = Sales / Average Total Assets

                             OR

          = Sales / Total Assets

SOME EXTRA FORMULAS USEFUL FOR CALCULATION : 

Retained Profit Ratio

              = Retained Profit / Total Profit

Payout Ratio + Retention Ration = 100

Operating Profit Ratio

             = Operating Profit / Sales

Cost Of Goods Sold Ratio

           = Cost Of Goods Sold / Sales × 100

SOME CLARIFICATIONS : 

(1) SALES = Net sales & credit sales = net credit sales

(2) NET PROFIT = Profit after tax

(3) OPERATING EXPENSES

                  = Direct expenses + Indirect expenses - interest - taxes

                 = Cost of goods sold + other operating expenses.

(4) TOTAL ASSETS = All assets - fictitious assets (e.g. Misc. Expenditure to the extent not written off, debit balance of profit & loss account appearing on the asset side of balance sheet, goodwill, if fictitious)

(5) Current assets usually include cash, bank, marketable securities, debtors ( net of provision), Bills receivable, inventories, short term loans & advances, pre paid expenses and accrued incomes.

(6) Current liabilities usually include short term term loans / advances (taken), trade creditors, bills payables, pre - received incomes, accrued expenses and provisions

(7) Net worth = Paid up equity share capital + reserves & surplus (net)

            

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