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 Price earning 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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