Various Ratio Analysis Formulas

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            In the earlier article I have explained Ratio Analysis Meaning, Objectives of Ratio Analysis, Advantages and Disadvantages of Ratio Analysis.

Ratio Analysis

          Ratio means that comparison of one value with another value. It helps to make a quick informed decision. Ratio analysis is a process where we determine, interpret numerical value based on financial statements. Ratio analysis helps to reveal the reason and effect of one value  our another in financial statement and how them are related to each other and how they are effecting each other. It is one of the most common and useful  tool used to analyze the financial statement and understand the financial statement in depth.
          Ratio Analysis is  classified into three types based on the financial statements. They are
§  Balance Sheet Ratio
§  Profit & Loss A/c Ratio
§  Mixed Ratio
Now let us see each kind of ratios that are been calculated under various types to analyze financial statements

§  Balance Sheet Ratios

Under this the ratio that are calculated by taking both the values from the Balance Sheet only. The ratios which are calculated are
Current Ratio = Total Current Assets
             Total Current Liability
Quick Ratio = Quick / liquid Current Asset
                 Quick Current Liability
Absolute Liquidity Ratio = Absolute Liquid Current Asset
                                          Quick Current Liability
Share Holder’s Fund Ratio = Shareholder’s Fund
                                            Total Asset
Fixed Asset to SH Fund = Fixed Asset
                                    Shareholder’s fund
Current Asset to Shareholder’s fund = Current Asset
                                              Shareholder’s fund
Debt Equity Ratio = Debt
     Equity
Capital Gearing Ratio =Debt + Preference Shares
      Equity Share Capital
Fixed Asset to Current Asset Value = Fixed assets
                                                         Current Assets

§  Profit & Loss Ratios

Under this the ratio that are calculated by taking both the values from the Profit & Loss A/c only. The ratios which are calculated are
Gross Profit Ratio  = Gross Profit     X  100
                                              Net Sales
Operating Profit Ratio = Operating Profit   X  100
                                              Net Sales
Operating Profit = Gross Profit – Operating Expenses
Net Profit Ratio = Net Profit  X  100
                              Net Sales
Operating Ratio /Operating Expense Ratio
= Cost of Goods Sold + Operating Expenses  X  100
                          Net Sales

§  Mixed Ratios

Stock Turnover Ratio = Cost of Goods Sold
                                          Average Stock
Debtors Turnover Ratio = Credit Sales
                                                 Average Debtors
Average Debtors = Opening Drs & B/R + Closing Drs & B/R
                                                                 2
Creditors Turnover Ratio = Credit Purchase
Average Credit
Return on Share Holders Fund(SHF) = Net Profit –Tax
       SHF
Return of Equity SHF ratio
= Net Profit – Tax – Preference Dividend
                          SHF
Return on Capital Employed = Operating Profit   X  100
    Capital Employed
Return on Total Resources = Net Profit – Tax
  Total Asset
Fixed Asset Return over Ratio = Sales or Cost of Goods Sold
                                                                 Fixed Assets
Working Capital Turnover Ratio =      Sales  
                                                       Working Capital

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