This document provides information about ratio analysis and various ratio formulas. It begins by explaining that ratio analysis is used to gain insight into a company's financial health and performance by comparing quantitative information from financial statements. It then lists and defines various types of ratios including liquidity ratios, profitability ratios, working capital ratios, capital structure ratios, and overall profitability ratios. For each ratio type, formulas to calculate specific ratios like current ratio, return on investment, debt equity ratio, and overall profitability ratio are provided.

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EduPristine > Blog > Ratio Analysis –Ratios Formulae
RatioAnalysis – Ratios Formulae
May 19 2019 Written By: EduPristine
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2. Ratio analysis—the foundation offundamental analysis—helps to gain a
deeper insight into the financial health and the current and probable
performance ofthe company being studied. Forthis insight,the analysts
use the quantitative method where the information recorded in the
company’s financial statements are compared and analyzed.And there
are certain formulae that are used forthe same.
In this blog,we shall discuss various Ratio Analysis,the various Ratios
Formulae, and their importance.We would look into the classification of
ratios,where we have explained the importance of using various ratios
and the formulae to know howthey are calculated.To help you learn
better and forthe easy revisions later,you are provided here with the
formulae forthe ratios thatwe have discussed in this series. Let’s move
on and look into Ratio Analysis – Ratios Formulae.
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3. LiquidityRatios
Also known as Solvency Ratios, and as the name indicates, it focuses on
a company’s current assets and liabilities to assess if it can pay the
short-term debts.The three common liquidity ratios used are current
ratio, quick ratio, and burn rate.Among the three, current ratio comes in
handy to analyze the liquidity and solvency ofthe start-ups.
S. No. RATIOS FORMULAS
1 Current Ratio Current Assets/Current Liabilities
2 QuickRatio Liquid Assets/Current Liabilities
3 Absolute Liquid Ratio Absolute Liquid Assets/Current Liabilities
ProfitabilityRatios
These ratios analyze another key aspect of a company and that is how it
uses its assets and how effectively it generates the profit from the
assets and equities.This also then gives the analyst information on the
effectiveness ofthe use ofthe company’s operations.
S.
No.
RATIOS FORMULAS
1 Gross Profit Ratio Gross Profit/Net Sales X100
2 Operating Cost Ratio Operating Cost/Net Sales X100
3 Operating Profit Ratio Operating Profit/Net Sales X100
4 Net Profit Ratio Net Profit/Net Sales X100
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4. 5 Return on Investment
Ratio
Net ProfitAfterInterest And Taxes/ Shareholders
Funds orInvestments X100
6 Return on Capital
Employed Ratio
Net Profit afterTaxes/ Gross CapitalEmployed X100
7 Earnings PerShare
Ratio
Net ProfitAfterTax &Preference Dividend /Noof
EquityShares
8 Dividend PayOut
Ratio
Dividend PerEquityShare/Earning PerEquityShare X
100
9 Earning PerEquity
Share
Net Profit afterTax &Preference Dividend / No. of
EquityShare
10 Dividend Yield Ratio Dividend PerShare/ MarketValue PerShare X100
11 Price Earnings Ratio Market Price PerShare EquityShare/ Earning Per
Share X100
12 Net ProfittoNetWorth
Ratio
Net Profit afterTaxes / Shareholders NetWorth X100
Working Capital Ratios
Like the Liquidity ratios, it also analyses ifthe company can pay offthe
current debts or liabilities using the current assets.This ratio is crucial
forthe creditors to establish the liquidity of a company, and how quickly
a company converts its assets to bring in cash for resolving the debts.
S.
No.
RATIOS FORMULAS
1 InventoryRatio Net Sales / Inventory

5. 2 DebtorsTurnoverRatio TotalSales / Account Receivables
3 Debt Collection Ratio Receivables x Months ordays in ayear/ Net Credit
Salesfortheyear
4 CreditorsTurnover
Ratio
Net Credit Purchases / AverageAccounts Payable
5 Average Payment
Period
Average Trade Creditors / Net Credit Purchases X
100
6 Working Capital
TurnoverRatio
Net Sales / Working Capital
7 Fixed AssetsTurnover
Ratio
Cost ofgoods Sold / TotalFixed Assets
8 CapitalTurnoverRatio Cost ofSales / CapitalEmployed
Capital Structure Ratios
Each firm or company has capital orfunds to finance its operations.
These ratios, i.e.,the Capital Structure Ratios, analyze how structurally a
firm uses the capital orfunds.
S.
No.
RATIOS FORMULAS
1 Debt EquityRatio TotalLong Term Debts / Shareholders Fund
2 ProprietaryRatio Shareholders Fund/ TotalAssets
3 CapitalGearing
ratio
EquityShare Capital/ Fixed Interest Bearing Funds
4 Debt Service Ratio Net profit Before Interest &Taxes / Fixed Interest

6. Charges
Overall ProfitabilityRatio
True to its name,these ratios measure how profitable a particularfirm or
company is, or how it can turn its assets and capital into profits for
future use.
S. No. RATIOS FORMULAS
1 OverallProfitAbilityRatio Net Profit / TotalAssets
Hope the knowledge thatwe shared on the Ratio Analysis – Ratios
Formulae topic helped you understand these!
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7. RatioAnalysis:Introduction
RatioAnalysis:ProfitabilityRatios
RatioAnalysis:TurnoverRatio
RatioAnalysis:classificationratios andliquidityratio

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