Liquidity Ratios
| S No | Ratio Name | Formula |
| 1 | Current Ratio | Current Assets / Current Liabilities |
| Note : Stores and spares and Loose tools are to be excluded from inventories Note : Prov for bad Debts will be deducted from Sundry Debtors | ||
| 2 | Quick Ratio | Quick Assets / Current Liabilities |
| where | ||
| Quick Assets | Current Assets - Inventories - Prepaid expenses | |
| Note : Prov for bad Debts will be deducted from Sundry Debtors | ||
| Note : Quick ratio is also known as Liquid ratio or acid test ratio | ||
| Note : Quick assets are also known as Liquid assets | ||
| 3 | Working Capital | Current Assets - Current Liabilities |
Solvency Ratios
| S No | Ratio Name | Formula |
| 4 | Debt Equity Ratio | Debt / Equity |
| where | ||
| Debt | Non Current Liabilities or Long Term Debts | |
| Equity | Shareholders Funds (Share Capital + Reserves and Surplus) | |
| 5 | Total assets to Debt Ratio | Total Assets / Debt |
| where | ||
| Total Assets | Total of all the assets on the assets side of Balance Sheet | |
| or | ||
| Non Current Assets + Current Assets | ||
| Debt | Same as in Debt Equity Ratio | |
| 6 | Proprietary Ratio | (Equity or Proprietary Funds)/ Total Assets |
| where | ||
| Equity | Same as in Debt Equity Ratio | |
| Total Assets | Same as in Total Assets to Debt ratio | |
| 7 | Interest Coverage Ratio | Net profit before interest and tax / Interest on Long Term Debts |
| where | ||
| NP before interest and tax | If Net profit after tax is given then - NP after Tax + Tax + Interest on Long term loans |
Activity Ratio of Turnover Ratios
| S No | Ratio Name | Formula |
| 8 | Inventory Turnover Ratio | Cost of Goods Sold / Average Inventory |
| where | ||
| Cost of Goods Sold | Same as in Gross profit ratio explained below | |
| Average Inventory | (Opening Inventory + Closing Inventory) /2 | |
| Note : Inventory and Stock are same thing | ||
| Note : If Cost of Goods Sold is not given then use Revenue from Operations | ||
| Note : If Opening and closing inventory are not given separately then consider inventory given in question as average inventory | ||
| 9 | Trade Receivables Turnover Ratio | Credit Revenue from Operations / Average Trade receivables |
| Note : Credit Revenue from Operations is also known as Credit Net Sales | ||
| where | ||
| Average Trade Receivables | (Opening Trade Receivables + Closing Trade receivables) / 2 | |
| Trade Receivables | Bills Receivables + Sundry Debtors | |
| Note : Provision for Bad Debts not to be deducted from debtors | ||
| 10 | Debt Collection Period | In Months : 12/Trade Receivable Turnover Ratio |
| In Days : 365 / Trade Receivables Turnover Ratio | ||
| Sometimes question says to assume year to be of 360 days In that case formula will be | ||
| In Days : 360 / Trade Receivables Turnover Ratio | ||
| Note : Debt Collection Period is also known as average collection period | ||
| 11 | Trade Payables Turvover Ratio | Net Credit Purchases / Average Trade Payables |
| where | ||
| Average Trade Payables | (Opening Trade Payables + Closing Trade Payables) / 2 | |
| where | ||
| Trade Payables | Bills Payable + Sundry Creditors | |
| 12 | Average Payment Period | In Months : 12/Trade Payables Turnover Ratio |
| In Days : 365 / Trade Payables Turnover Ratio | ||
| Sometimes question says to assume year to be of 360 days In that case formula will be | ||
| In Days : 360 / Trade Receivables Turnover Ratio | ||
| Note : Average Payment Period is also known as 'Average age of Payables' | ||
| 13 | Working Capital Turnover Ratio | Revenue from Operations / Working Capital |
| where | ||
| Working Capital | Current Assets - Current Liabilities | |
| Note : If Revenue from Operations is not given then use Cost of Goods Sold |
Profitability Ratios
| S No | Ratio Name | Formula |
| 14 | Gross Profit Ratio | Gross Profit / Net Sales X 100 |
| where | ||
| Gross Profit | Net Sales - Cost of Goods Sold | |
| Net Sales | Gross Sales - (Sales Return or Returns Inward) | |
| Note : Net Sales and Revenue from Operations are same | ||
| Note : If GP ratio is given then it is always on Net Sales unless otherwise stated | ||
| 15 | Cost of Goods Sold | (Op Stock - Closing Stock) + Net Purchases + Direct Expenses |
| or | ||
| Change in Stock + Net Purchases + Direct Expenses | ||
| or | ||
| Excess of Opening Stock over Closing Stock + Net Purchases + Direct Expenses | ||
| or | ||
| Decrease in inventory + Net Purchases + Direct Expenses | ||
| or | ||
| - Excess of Closing Stock over Opening Stock + Net Purchases + Direct Expenses | ||
| or | ||
| - Increase in inventory + Net Purchases + Direct Expenses | ||
| Note : Cost of Goods Sold is same as Cost of Revenue from Operations | ||
| Note : Inventory can be of Raw Materials, Work in Process, Finished Goods, Stock in Trade | ||
| Note : Stores and spares and Loose tools are to be excluded from inventories | ||
| where | ||
| Net Purchases | Gross Purchases - (Purchases Return or return outwards) | |
| Direct Expenses | Wages + Carriage Inwards | |
| 16 | Operating Ratio | Operating Cost / Revenue from Operations X 100 |
| where | ||
| Operating Cost | Cost of Goods Sold + Operating Expenses | |
| Note : Revenue from Operations is same as Net Sales | ||
| Operating expenses | Office Expenses + Administrative expenses + Selling & Distribution Expenses + Employee Benefit Expenses + Depreciation and amortization expenses | |
| 17 | Operating Profit Ratio | Operating Profit / Revenue from Operations X 100 |
| where | ||
| Operating Profit | Revenue from Operations - Operating Cost | |
| or | ||
| Gross Profit - Operating Expenses | ||
| 18 | 100 | Operating Ratio + Operating Profit Ratio |
| 19 | Net Profit Ratio | Net Profit / Revenue from Operations X 100 |
| where | ||
| Net Profit | Operating Profit - Non Operating Expenses + Non Operating Income | |
| or | ||
| Gross Profit - Operating expenses - Non Operating Expenses + Non Operating income | ||
| or | ||
| Net Sales - Operating Cost - Non Operating Expenses + Non Operating income | ||
| Note : Net Profit here is the Net Profit after tax | ||
| where | ||
| Non Operating Expenses | a) Interest on loans b) Interest on Debentures c) loss on sale of fixed assets d) Any other Interest e) Loss by fire | |
| Non Operating Income | a) interest received b) dividend received c) gain on sale of fixed assets d) Income from investment e) Rent received | |
| 20 | Return on Investment | Net Profit before interest, tax and dividend / Capital Employed X 100 |
| Note : any income from non trade investments is to be excluded from Net Profit | ||
| where | ||
| Capital Employed | Liabilities side approach | |
| Shareholders Funds + Non Current Liabilities - Goodwill - Non Trade Investments - Fictitious Assets | ||
| Assets Side Approach | ||
| Non Current Assets + Current Assets - Current Liabilities | ||
| Note : In assets exclude Goodwill, Non Trade Investments and Fictitious Assets | ||
| Note : Non Current Investments are assumed to be trade investments unless otherwise specified | ||
| Note : Capital Employed and Investment is same so this ratio is also known as 'Return on Capital Employed' | ||
| 21 | 100 | Cost of Goods Sold % + Gross Profit Ratio |