Ratio analysis

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Ratio analysis

  1. 1. RATIO ANALYSISI) Operating Efficiency Based on Profit: 1) Gross Profit Ratio: Gross Profit = Sales – Cost Of Goods Sold (COGS), Sales = G/p + COGS COGS = Sales – G/p COGS = Opening Stock + Purchases + Direct Expenses + Manufacturing Expenses – Closing Stock 2) Operating Ratio = Operating Expenses = Administrative Exp + Selling & Dist. Exp. 3) Operating Profit Ratio = 4) Net Profit Ratio = Sales XXX Less: (COGS) (XXX) G/P XXX Less: (Operating Expenses) (XXX) Operating Profit XXX Less: (Non Operating Expenses) (XXX) Add: Non Operating Incomes XXX N/P XXX Less: (Tax) (XXX) PAT/EAT XXXPraveenKumarKeskar 1
  2. 2. II) Operating Efficiency Based on Investment: 1) Return on Capital Employed (ROCE)= Capital Employed = Equity Share Capital + Preference Share Capital + Undistributed Profit + Reserves & Surplus + Long Term Liabilities – Fictitious Assets – Non Business Assets. 2) Return on Net Worth Share holder’s Fund = Share Holder’s Fund = Equity Share Capital + Preference Share Capital + Reserves & Surplus – Fictitious Assets 3) Return on Equity Share Holder’s Fund: Equity Share Holder’s Fund = Equity Share Capital + Capital Reserves + Revenue Reserves + Balance of Profit & Loss A/c – Fictitious Assets – Non Business Assets. 4) Return on Total Assets = 5) Earnings Per Share = 6) Price Earning (P/E)Ratio =PraveenKumarKeskar 2
  3. 3. 7) Net Cash Accrual = Cash Inflow – Cash Outflow + Depreciation 8) Payout Ratio = Dividend per Share = Dividend Paid in % × PAR value of a Company’s Share 9) Retained Earning Ratio = 10) Dividend Yield Ratio =III) Liquidity or Short Term Solvency Ratio: i) Current Ratio = ii) Liquidity or Acid Test Ratio = Liquid Assets = C.A. – Inventories – Prepaid Expenses Current Liabilities will be taken only if there is no “Bank Overdraft”. iii) Absolute Liquid or Super Quick Ratio or Cash Ratio =IV) Activity or Turn Over Ratio i) Inventory or Stock Turn Over Ratio (I T R)= Average Stock =PraveenKumarKeskar 3
  4. 4. Average/ Inventory Turn Over Ratio = ii) Debtor’s/Receivables Turnover Ratio (DTR) = Average Debtors = Trade Debtor’s = Sundry Debtors + Bills Receivables Avg. or Debtors Collection Period = iii) Creditor’s/Payables Turnover Ratio (CTR) = Avg. or Creditor’s Payment Period = iv) Working Capital Turn Over Ratio =V) Analysis of Long Term Financial Positions or Test of Solvency i) Debt Equity Ratio = Outsider’s Fund = Long term debts like debentures, bonds, bank loans, or borrowings. Share Holder’s Fund = Equity Share Holder, Preference Share Holder, Reserves & Surplus, Undistributed profits. ii) Proprietary or Equity Ratio = × 100PraveenKumarKeskar 4
  5. 5. iii) Fixed Assets to Net worth’s Ratio = iv) Fixed Assets to Long Term Funds = v) Debt Service Ratio or Interest Coverage Ratio =PraveenKumarKeskar 5

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