Table of Content

Formula of Ratio Analysis | Grade 12| Account

 Formula of Ratio Analysis 

Grade 12 Account 

Liquidity ratio

        Current ratio

Formula of current ratio

 Where current assets are

Debtors, Bill / Notes/ Account receivable, Book debt, Inventory, Opening stock, Closing stock, Cash and Cash equivalent, Prepaid expenses, marketable securities, Interest accrued on investment, Stores and spare parts, Loose tools, Stock in trade, Work in progress, Advance, and loan to subsidiaries.

Current liabilities are

Bills / Notes /Account payable, Sundry creditors, Income received in advance, Unclaimed dividend, Bank overdraft, Premium on redemption of debenture, Outstanding expenses, Fixed deposit, Short-term loan, Other unsecured loans

         Quick / Liquid / Acid ratio 


Formula of quick ratio


Where Quick assets are

Current assets – Current liabilities

Solvency ratio

      Debt-equity ratio 


Formula of Debt to equity ratio
 

Long-term debt

Debenture + Loan and advance from bank + Bond + Other secure loans

Shareholder’s Fund / Shareholder’s Equity

Share capital + Share forfeiture + Calls in arrear + Share premium + Profit and loss appropriation a/c + Capital reserve + General reserve + Debenture premium + Capital redemption reserve + Sinking fund + Dividend equalization fund + other reserve – (Preliminary expenses + Discount allow in the issue of share + Loss incurred on issue of debenture)

       Debt to total capital ratio 


Formula of Debt to capital ratio

 Capital Employed = Long term debt + Shareholders’ fund / equity

Or,

                                       = Total assets (Excluding fictitious assets) – Current liabilities

Or,

                                      = Fixed assets + Current assets – Current liabilities

Or,                             

                                      = Fixed assets + Working capital

Note

Working capital = Current Assets – Current Liabilities  

 

Turnover Ratio

       Inventory Turnover Ratio


Inventory turnover ratio

Note:

Gross profit = Sales – Cost of Goods sold

Cost of Goods sold = Sales – Gross profit

Sales = Cost of Goods sold + Gross profit

And,

Average Inventory = (Opening stock + Closing stock) / 2

Note: In the case of inventory turnover ratio: if opening inventory and closing inventory both are calculated, we use (Cost of goods sold / Average inventory) and if inventory is, only we should use (Sales / Closing Inventory)

     Debtors Turnover ratio 

Formula of debtors turnover ratio

Note:

If credit sales and average debtors both can be calculated or given, we should use (Net credit sales / Average debtors) and if credit sales and average debtors anyone cannot be calculated what we should use (Total sales/closing debtors)

       Average collection period 

Formula of Average collection period      

      Fixed assets Turnover 

Formula of fixed assets turnover ratio

Note

Net sales = Sales – Return

Net fixed assets = Fixed assets – Depreciation

         Total assets turnover ratio   

Formula of total assets turnover ratio

      Capital employed turnover ratio 

Formula of capital employed turnover ratio

Profitability Ratio

       Gross profit margin

Formula of gross profit margin   

       Net profit margin

Net profit margin  

       Return on assets

Formula of return on assets ratio

     Return on shareholders’ equity

Formula of return on shareholders' equity

        Return on equity shareholders’ fund 

Formula of return on equity shareholders' fund 

Return on capital employed 

    Formula of return on capital employed

  .   Earnings per share

Formula of earning per share   

    Dividend per share 

Formula of dividend per share   


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