Ratio analysis was pioneered by Alexander wall in 1909.A ratio is a mathematical relationship between two items expressed in quantitative form.
Liquidity ratio gross profit ratio return on investment
Current ratio operating ratio return on shareholder funds
Proprietary ratio operating profit ratio stock turnover
Debt equity ratio expenses ratio debtor turn over ratio
Fixed assets ratio net profit ratio creditor turnover ratio
Capital gearing ratio fixed asset turnover
Earnings per share
CLASSIFICATION BY PURPOSE /FUNCTION
PROFITABILITY RATIO TURNOVER RATIO SOLVENCY RATIO
Return on investment stock turnover short term solvency long term solvency
Net profit debtor turn over ratio Liquidity ratio Proprietary ratio
Gross profit creditor turnover ratio Current ratio fixed asset ratio
Expenses ratio working capital turnover cash position ratio capital gearing
Operating profit ratio fixed asset turnover ratio
PROFITABILITY RATIOS
· Return on investment = operating profit/capital employed*100
· return on shareholder funds = np after interest&tax/shareholder fund*100
· return on total asset = np ater tax+interest/total asset-fictitious asset
· gross profit ratio = gp/sales*100
· operating ratio = cost of goods sold+operating exp/net sales*100
· operating profit ratio = operating profit/sales*100
· expenses ratio = specific expenses/sales *100
· net profit ratio = np/sales*100
· earnings per share = np after tax and preference dividend/no. of equity shares
· price earnings ratio = market per equity share/earnings per equity share
· pay out ratio = dividend per equity share/earnings per equity share
· interest cover ratio or
fixed charges cover ratio = profit before interest and tax/fixed interest charges
TURNOVER RATIO
· Inventory turn over ratio or
stock velocity = COGS/avg. inventory
· Debtors turnover ratio = net credit sales /avg. receivables
· Creditor turn over ratio = net credit purchase/avg. accounts payable
· Working capital turnover ratio = cost of sales/net working capital
· fixed asset turnover = cost of sales/net fixed asset
· capital turnover ratio = cost of sales/capital employed
SOLVENCY RATIO
short term solvency
· Liquidity ratio or
Quick ratio
or acid test ratio = liquid asset/current liability
· Current ratio = current asset/current liability
· Cash position ratio or
super quick ratio or
absolute liquidity ratio = cash and bank balance+marketable securities/current liabilities
long term solvency
· Proprietary ratio = shareholders fund/total tangible asset
· fixed asset ratio = fixed asset /long term fund
· capital gearing ratio = long term loans + debentures+pref.capital/ equity shareholders fund
· debt equity ratio = long term debts/shareholders fund
BY: GAYATHRI.K
IPCC Student
