Smitesh Bhosale, smiteshbhosale123@gmail.

com 9833781237
1

Ratio
Current Ratio

Formula
Current Assets
Current Liabilities

Numerator
Inventories/Stocks
(+)Debtors/B/R
(+)Cash& Bank
(+)Receivables/
Accruals
(+)Short Term loans
(+)Mktable
Investment/ Short
Term Securities

Quick
Ratio/Liquid
Ratio/Acid Test
Ratio
Absolute Cash
Ratio

Quick Assets
Quick Liabilities

Current Assets
(-)Inventories
(-)Prepaid Expenses

(Cash Marketable
Securities) /
Current Liabilities

Cash in Hand
(+)Balance at
Bank(Dr)
(+)Mktable
Investment/ Short
Term Securities

Denominator
Sundry Creditors
(+)O/S Exp.
(+)Short term loans
&advances
(+)Bank OD/
Cash Credit
(+)Provi. for Tax
(+)Proposed
Dividend
(+)Unclaimed
Dividend
Current Liabilities
(-)Bank OD
(-)Cash Credit

Significance/Indicator
Ability to repay short term
commitments promptly.(i.e.,
short term solvency).ideal
ratio is 2:1
High Ratio indicates
existence of idle Current
assets

Ability to meet immediate

liabilities. Ideal ratio is 1.33:1

Sundry Creditors
Availability of cash to meet
(+)O/S Exp.
short term commitments
(+)short term loans
.There is no Ideal Ratio as
&advances
such. However,a ratio>1 may
(+)Bank OD/Cash
indicate that the firm has
Credit
liquid resources, which are
(+)Provi.for Tax
low in profitability.
(+)Proposed
Dividend
(+)Unclaimed
Dividend
4 Basic Defence
Quick Assets
Current Assets
(Annual Cash
Ability to meet regular Cash
Interval
Cash Expense Per
(-)Inventories
Expenses/365)
expenses.
Measure(in
Day
(-)Prepaid Expenses Cash
days)
Expenses=Total
Exp-Depre &write
-offs
Notes: The first 3 ratios are expressed in times eg.1.33 times,2.85 timesor as ratio i.e. 1.33:1The last ratio is
expressed in Days

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NOTE:For the capital structureratios,the following terms are used with respective meanings assigned(a) Debt=Long Term Borrowed Funds=Debenture+Long Term Loans from Financial institutions
(b) Equity =Owners Funds=Equity Capital+Preference capital+Reserves & surplus Less:Accumulated Losses.
(c) Equity shareholders Funds=Equity Less Preference Share capital
= Equity share Capital +Reserves & surplus less:Accumulated Losses
(d) Total Debt=Debt+Equity=(a)+(b) above.This is called Liability Route
Computation
= Fixed Assets +Net WC.This is called AssetRoute Computation
Ratio
Debt to
Total Funds
Ratio
Equity to
Total Funds
Ratio

Formula
Debt
Total Funds

Numerator
See (a) above

Denominator
See (d) above

Significance/Indicator
Indicator of use of external
funds,Ideal Ratio is 67%

Equity
Total Funds

See (b) above

See (d) above

Debt-Equity
Ratio

Debt
Equity

See (a) above

See (b) above

Capital
Gearing
ratio

Fixed Charge Bearing

Capital
Equity Shareholders
Fund

Preference Share
capital + Debt as per
(a) above

See (c) above

Proprietary
ratio

Proprietary Funds
Total Asset

See (b) above

Net Fixed
Assets+Total Current
Assets(only Tangible
assets will be
included)

Indicates Long Term

Solvency;mode of
Financing,extent of own
funds used in operations;
Ideal Ratio is 33%
Indicates the relationship
between Debt&Equity. Ideal
Ratio is 2:1
Shows proportion of fixed
charge(Dividend or interest)
bearing capital to Equity
Funds;the extent of
advantage or leverage
enjoyed by equity
shareholders.
Shows extent of
OwnersFunds,i.e.,Shareholde
rs funds utilized in financing
the assets of the business.

Fixed Asset

Fixed Asset

Net Fixed

See (d) above

Shows proportion of fixed

Smitesh Bhosale, smiteshbhosale123@gmail.com 9833781237

to Long
Term fund
ratio

Long term Funds

Assets,i.e.,Gross
Block (-)Depreciation

Assets(Long Term
Assets)financed by long-term
funds.Indicating the financing
approach followed by the
firm.ie.Conservative,Matching
or aggressive; Ideal Ratio is
less than one.

``

Ratio
Debt
service
Coverag
e Ratio

Formula

Interest
Coverag
e Ratio

EBIT
Interest

EBIT

Interest on Debt

EAT

EAT

Dividend on

Preferen
ce

Earnings for Debt

Services
(interest+instalment)

Numerator
N/P after Taxation
(+)Interest on Debt Funds
(+)Non-Cash Operating
Expenses
(e.g.:Depreciation &
amortizations)
(+)Non-Cash Operating
Adjustments
(e.g.: Loss on sale of Fixed
Assets)

Denominator
Interest on Debt
(+)Instalment of
Debt?
Loan(i.e.,Principal
amount repaid)

Significance/Indicator
Indicates extent of current
earnings available for
meeting commitments of
interest and
instalment;Ideal ratio must
between 2 to 3 times

Indicates ability to meet

interest obligations of the
current year.Should
generally be greater than
1.
Indicates ability to pay
Dividend on Preference

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Dividend
Coverag
e Ratio

Preference Dividend

Preference Capital

Capital

Ratio
Raw
Material
Turnover
Ratio

Formula
Cost of Material
consumed
Average stock of RM

Numerator
Opening stock of
RM
(+)Purchase
(-)Closing stock
of RM

Denominator
(opening stock+closing stock)
2

Significance/Indicator
Indicates how fast
/regularly RM are used
in Production

WIP
Turnover
Ratio

Factory Cost
Average stock of WIP

(Opening WIP+closing WIP)

2

Indicates the WIP

Movement /production
cycle

Finished
Goods
/Stock
Turnover
Ratio

Cost of goods sold

Average stock

(opening stock+closing stock)

2

Indicates how fast

inventory is used
/sold.High T/O ratio
indicates fast moving
material while low ratio
may mean dead or
excessive stock

Debtors
Turnover
Ratio

Credit Sales
Average Accounts
Receivable

Material
consumed
(+)Wages
(+)Production OH
For Manufactures
Opening stock
of FG
(+)(+)Purchase
(-)Closing stock
of FG
For Traders
(+)Purchase
(-)Closing stock
of FG
Credit Sales net
of returns

Creditors
Turnover
Ratio

Credit Purchases
Average Accounts
Payable

Working
Capital
Turnover

Turnover
Net Working Capital

Credit Purchases
net of returns ,if
any

Sales net of
returns

Or
(Max stock+Min.Stock)
2

AccountsReceivable=Debtors+B
/R
Average Accounts
Receivable=(op.bal + Cl.Bal)/2
Account Payable=Creditors+B/P
Average Accounts
Payable=(op.bal+Clg.Bal)/2

Current assets
Less:Current Liabilities

Indicates the speed of

collection of Credit
sales/debtors
Indicates
speed/velocity of
payment to creditors
Ability to generate
sales per rupee of
Working Capital

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Ratio
Fixed
Turnover
Assets
Net Fixed assets
Sales net of
Turnover
returns
Ratio
8 Capital
Turnover
Turnover
Capital Employed
Sales net of
Ratio
returns
Note:1 Assets Route:Fixed assets+Net Working Capital
7

Ability to generate
sales per rupee of
Fixed assets

Net Fixed assets

Capital Employed can be

computed using (a)Assets Route
or(b)Liability Route(note 1)

Ability to generate
sales per rupee of Long
Term Investment

Liability Route: Equity share capital+Pref.share capital+Reserves & surplus+Long term Debt Less:Accumulated
losses LessNon Trade investment
Note:2.T/O ratios can also be expressed in terms of days as 365 / T/O ratio.
E.g.:No.of days Average stock is held =365/stock turnover ratio
Ratio
1 Return on
Investment(RO
I)
Or
Return On
Capital
Employed(ROC
E)
2 Return On
Equity(ROE)
Or
Return on Net
Worth(RONW)
3 Return On
Assets(ROA)

4 Earnings Per

Formula
Total Earnings
Capital Employed

Numerator
Earnings After Tax
(+)Int.on Debt
Funds
(+)Non-operating
adjts(e.g.:other
income/Loss on sale
of Fixed assets etc.)

Net Fixed Assets

(+)Net WC
(-)External
Liabilities(Long Term)

Significance/Indicator

Overall profitability of the business on th

funds employed.
If ROCE>Interest Rate ,use of debt funds
justified

Equity Earnings
Shareholders Funds

Earnings
Taxation

N/P after Taxes

Average Total Assets

Earnings After
Taxation

Average Total Assets or

Tangible Assets or FA ,
ie,1/2 of Op.bal & Cl.Bal

Indicates Net Income per rupee of avera

Fixed Assets.

Residual earnings

No.of Equity Shares

Return or Income per Share,whether or n

(EAT-Pref.Dividend)

After

Denominator
Capital Employed can
be computed by using
(a) Assets Route
or(b)Liability Route(note
1 under Turnover Ratio)

Indicates profitability of Equity Funds/O

Funds invested in the business

Smitesh Bhosale, smiteshbhosale123@gmail.com 9833781237

Share(EPS)

Number of Equity
Shares

5 Dividend Per
Share(DPS)

Total Equity Dividend

Number of Equity
Shares
Market Price per
share
Earnings Per Share

6 Price Earnings
Ratio(PE ratio)

7 Dividend
yield(%)

8 Book Value per

Share
9 Market Value
to book Value

Dividend
Avg or Cl. Market
Price
Net Worth
Number of Equity
Shares
Market Price per
share
Book value per Share

i.e.,
EAT
(-)Preference
Dividend
Profits Distributed to
Equity Shareholders.
Average Mkt Price
(closing Mkt price)
as per Stock
Exchange
quotations.
Dividend

As calculated in
(2)above
Average or closing
Mkt price as per
Stock Exchange
quotations.

outstanding=Equity
Capital
Face value per
share

distributed as dividends.

As per (4)above

Amount of Profits distributed per share.

EPS as calculated
(4)above

in

Average or closing Mkt

price as per Stock
Exchange quotations.

Indicates the relationship between Mark

Price and EPS, and the shareholders
perception of the company.

True return on invest.based on Mkt Value

Shares

As per (4)above

Basis of Valuation of Shares based on bo

values.

Ratio as calculated in
(8)above

Higher ratio indicates better position for

Shareholders in terms of Return &capita
gains.