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Financial-Accounting-Ratios Formulas:

This is a collection of financial ratio formulas which can help you calculate financial ratios in a given problem.

Analysis of Profitability:

General profitability:

• Gross profit ratio = (Gross profit / Net sales) × 100
• Operating ratio = (Operating cost / Net sales) × 100
• Expense ratio = (Particular expense / Net sales) × 100
• Operating profit ratio = (Operating profit / Net sales) × 100

Overall profitability:

• Return on shareholders' investment or net worth = Net profit after interest and tax / Shareholders' funds
• Return on equity capital = (Net profit after tax – Preference dividend) / Paid up equity capital
• Earnings per share (EPS) ratio =  (Net profit after tax – Preference dividend) / Number of equity shares
• Return on gross capital employed = (Adjusted net profit / Gross capital employed) × 100
• Return on net capital employed = (Adjusted net profit / Net capital employed) × 100
• Dividend yield ratio = Dividend per share / Market value per share
• Dividend payout ratio or pay-out ratio = Dividend per equity share / Earnings per share

Short Term Financial Position or Test of Solvency:

• Current ratio = Current assets / Current liabilities
• Quick or acid test of liquid ratio (for immediate solvency) = Liquid assets / Current liabilities
• Absolute liquid ratio = Absolute liquid assets / Current liabilities

Current Assets Movement, Efficiency or Activity Ratios:

• Inventory / Stock turnover ratio = Cost of goods sold / Average inventory at cost
• Debtors of receivables turnover ratios = Net credit sales / Average trade debtors
• Average collection period = (Trade debtors  No. of working days) / Net credit sales
• Creditors or payables turnover ratio = Net credit purchase / Average trade creditors
• Average payment period = (Trade creditors  No. of working days) / Net credit purchase
• Working capital turnover ratio = Cost of sales / Net working capital

Analysis of Long Term Solvency:

• Debt to equity ratio = Outsiders funds / Shareholders funds or External funds / Internal funds
• Ratio of long term debt to shareholders funds (Debt equity) = Long term debt / Shareholders funds
• Proprietary of equity ratio = Shareholders funds / Total assets
• Fixed assets to net worth = Fixed assets after depreciation / Shareholders' funds
• Fixed assets ratio or fixed assets to long term funds = Fixed assets after depreciation / Total long term funds
• Ratio of current assets proprietors' funds = Current assets / Shareholders' funds
• Debt service or interest coverage ratio = Net profit before interest and tax / Fixed interest charges
• Capital gearing ratio = Equity share capital / Fixed interest bearing funds

You may also be interested in other relevant articles:

• Horizontal Analysis or Trend Analysis
• Trend Percentage
• Vertical Analysis
• Limitations of Financial Statement Analysis
• Accounting Ratios definition, advantages, classifications and limitations
• Financial Ratio Formulas

Profitability ratios:

• Gross profit ratio
• Net profit ratio
• Operating ratio
• Expense ratio
• Return on shareholders investment or net worth
• Return on equity capital
• Return on capital employed (ROCE) ratio
• Dividend yield ratio
• Dividend payout ratio
• Earnings Per Share Ratio

Liquidity ratios:

• Current ratio
• Liquid /Acid test / Quick ratio

Activity ratios:

• Inventory/Stock turnover ratio
• Debtors/Receivables turnover ratio
• Average collection period
• Creditors/Payable turnover ratio
• Working capital turnover ratio
• Fixed assets turnover ratio
• Over and under trading

Leverage ratios or long term solvency ratios:

• Debt equity ratio
• Proprietary or Equity ratio
• Ratio of fixed assets to shareholders funds
• Ratio of current assets to shareholders funds
• Interest coverage or debt service ratio
• Capital gearing ratio
• Over and under capitalization

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