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V P A 6619041/9823109752 By: CA Vipul Vora

VIDARBHA PROFESSIONAL ACADEMY(Vision.. Planning Accomplishment.

CA @ VPA1.Liquidity Ratio

(a) Current Ratio(b) Quick Asset Ratio

(a) Current Ratio:Current Ratio = Current Assets: Current Liabilities or Current Assets

Current Liabilities

Current assets include cash in hand bank balance debtors bill recei!able stockprepaid e"penses accrued inco#e and short$ter# in!est#ents (#arketablesecurities).Current liabilities include creditors bills payable %utstandin& e"pensespro!ision 'or ta"ation net o' ad!ance ta" bank o!erdra't short$ter# loansinco#e recei!ed in ad!ance etc.

(b)Quick Ratio:Quick Ratio = Quick Assets: Current Liabilities or Quick Assets

Current Liabilities

he uick assets are de'ined as those assets *hich are uickly con!ertible intocash. +hile calculatin& uick assets *e e"clude the closin& stock and prepaide"penses 'ro# the current assets. Because o' e"clusion o' non$liuid currentassets it is considered better than current ratio as a #easure o' liuidity positiono' the business. ,t is calculated to ser!e as a supple#entary check on liuidityposition o' the business and is there'ore- also kno* as Acid /est Ratio0

2. Solvency Ratios

he persons *ho ha!e ad!anced #oney to the business on lon&$ter# basis areinterested in sa'ety o' their pay#ent o' interest periodically as *ell as the repay#ent o'principal o' a#ount at the end o' the period. ol!ency ratios are calculated to deter#inethe ability o' the business to ser!ice its debt in the lon& run. he 'ollo*in& ratios arenor#ally co#puted 'or e!aluatin& sol!ency o' the business:

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V P A 6619041/9823109752 By: CA Vipul Vora

,). 2ebt euity ratio-,,) 2ebt ratio-,,,) 3roprietary Ratio-,V) otal Assets to 2ebt Ratio-V). ,nterest Co!era&e Ratio-

I) Debt Equity Ratio2ebt$4uity ratio= Lon&$ter# 2ebt0s 5 or Lon&$ ter# 2ebt

hareholders 6und or hare holders 6und

+here hareholders 6unds = 4uity hare Capital 7 Reser!es and urplus(4uity) $6ictitious Assets 7 3re'erence hare Capital

Alternati!ely it can be calculated as8on 6ictitious otal Assets ($) otal 4"ternal Liabilities

Lon& er# 6unds =2ebentures 7 Lon& ter# loans

,,) Debt Ratio:Lon& ter# 2ebt5 Capital 4#ployed (or 8et Assets)

2ebt Ratio = otal 2ebt otal Assets

,,,) Prorietary Ratio:3roprietary Ratio= hareholder 6unds 5 Capital e#ployed (or net assets).

(,V)!otal "ssets to Debt Ratio:

otal Assets to 2ebit Ratio= otal assets 5 Lon& er# debt

(V) Interest Covera#e Ratio,nterest Co!era&e Ratio = 8et pro'it be'ore interest and a"

,nterest on lon& ter# debt

9. "ctivity $or !urnover) Ratios:he turno!er ratios basically e"hibit the acti!ity le!els characteried by the capacity o'the business to #ake #ore sales or turno!er. he acti!ity ratios e"press the nu#ber o'ti#es assets e#ployed or 'or that #atter any constituent o' assets is turned into salesdurin& an accountin& period. ;i&her turno!er ratios #eans better utiliation o' assets

and si&ni'y i#pro!ed e''iciency and pro'itability and as such are kno*n as e''iciencyratios. he i#portant acti!ity ratios calculated under this cate&ory are:

A) tock urn$o!er:B) 2ebtors (recei!able) urno!er-C) Creditors (3ayable) urno!er-2) ,n!est#ent (8et Assets) urno!er-4) 6i"ed Assets urno!er-6) +orkin& Capital urno!er-

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V P A 6619041/9823109752 By: CA Vipul Vora

A) Stock $or inventory) !urnover Ratio:tock urno!er Ratio= Cost o' . Pro+itability Ratios(a)

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V P A 6619041/9823109752 By: CA Vipul Vora

+here %peratin& pro'it = ales ($) Cost o' %peration

d) &et Pro+it Ratio:

8et 3ro'it Ratio= 8et 3ro'it 5ales1@@

e) Return on Caital E%loyed or Invest%ent $R-CE or R-I):Return on ,n!est#ent (or Capital 4#ployed) = 3ro'it be'ore interest and

a"5 Capital 4#ployed 1@@

') Return on Sareolders/ 'und:Return on hareholders0 6und = 3ro'it a'ter a"

hareholders 6und

&) Earnin#s Per Sare:43= 3ro'it a!ailable 'or euity shareholders 58o o' 4uity hares

) 0ook 1alue Per Sare:Book Value per hare= 4uity shareholders0 6unds58o. o' 4uity hare

i) Dividend Payout Ratio:2i!idend 3ayout Ratio= 2i!idend 3er hare

4arnin&s 3er hare

) Price Earnin# Ratio:354 Ratio =arket 3rice o' a share 54arnin&s per share.

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