ModuleAccounting & Finance

Topic

Ratio Analysis

Formulae for

Ratio Analysis

Liquidity

Shareholders

Profitability

Efficiency

Liquidity Ratios

Current Ratio Quick Ratio

Current Ratio =

Current Assets

Current Liabilities

Liquidity

Quick Ratio =Current Assets- Stock

Current Liabilities

Note: Quick ratio is also called Acid test ratio

Liquidity

Profitability Ratios

Net Profit Margin Gross Profit Margin ROCE

Net Profit Margin =

Net profit

Net SalesX 100

Profitability

Gross Profit Margin =

Gross profit

Net SalesX 100

Profitability

ROCE =Net Profit before Interest & Tax

Capital Employed

ROCE =Return on Capital Employed

X 100

Profitability

Shareholders Ratios

ROE =Profit after preference dividend

Equity Funds

Shareholders

EPS =Number of Equity Shares

Profit after preference dividend

EPS = Earnings per Share

Shareholders

DPS =Dividends paid to Equity

Shareholders

Number of Equity Shares

DPS = Dividends per Share

Shareholders

Dividend Yield =

Dividends per shareMarket price per share

X 100

Shareholders

Efficiency Ratios

Stock turnover =

Cost of sales

Average Stock

Efficiency

Debtors days =Debtors

Credit sales

X 365

Efficiency

Creditors payment period =

Creditors

Credit PurchasesX

365

Efficiency

Gearing Ratio =

Loan capital + Preference capital

Capital Employed

Loan capital = Long term loan + Debentures

X 100

END

Liquidity

Shareholders

Profitability

Efficiency