V P A 6619041/9823109752

By: CA Vipul Vora

VIDARBHA PROFESSIONAL ACADEMY

(Vision.. Planning Accomplishment.

CA @ VPA
1. Liquidity Ratio (a) Current Ratio (b) Quick Asset Ratio (a) Current Ratio: Current Ratio = Current Assets: Current Liabilities or Current Assets Current Liabilities Current assets include cash in hand bank balance debtors bill recei!able stock prepaid e"penses accrued inco#e and short$ter# in!est#ents (#arketable securities). Current liabilities include creditors bills payable %utstandin& e"penses pro!ision 'or ta"ation net o' ad!ance ta" bank o!erdra't short$ter# loans inco#e recei!ed in ad!ance etc. (b)Quick Ratio: Quick Ratio = Quick Assets: Current Liabilities or Quick Assets Current Liabilities

(he )uick assets are de'ined as those assets *hich are )uickly con!ertible into cash. +hile calculatin& )uick assets *e e"clude the closin& stock and prepaid e"penses 'ro# the current assets. Because o' e"clusion o' non$li)uid current assets it is considered better than current ratio as a #easure o' li)uidity position o' the business. ,t is calculated to ser!e as a supple#entary check on li)uidity position o' the business and is there'ore- also kno* as .Acid /(est Ratio0 2. Solvency Ratios (he persons *ho ha!e ad!anced #oney to the business on lon&$ter# basis are interested in sa'ety o' their pay#ent o' interest periodically as *ell as the repay#ent o' principal o' a#ount at the end o' the period. 1ol!ency ratios are calculated to deter#ine the ability o' the business to ser!ice its debt in the lon& run. (he 'ollo*in& ratios are nor#ally co#puted 'or e!aluatin& sol!ency o' the business:

V P A 6619041/9823109752
,). ,,) ,,,) ,V) V). I) 2ebt e)uity ratio2ebt ratio3roprietary Ratio(otal Assets to 2ebt Ratio,nterest Co!era&e Ratio-

By: CA Vipul Vora

Debt Equity Ratio 2ebt$4)uity ratio= Lon&$ter# 2ebt0s 5 1hareholders 6und or

or

Lon&$ ter# 2ebt 1hare holders 6und

+here 1hareholders 6unds = 4)uity 1hare Capital 7 Reser!es and 1urplus (4)uity) $6ictitious Assets 7 3re'erence 1hare Capital Alternati!ely it can be calculated as 8on 6ictitious (otal Assets ($) (otal 4"ternal Liabilities Lon& (er# 6unds =2ebentures 7 Lon& ter# loans ,,) Debt Ratio: Lon& ter# 2ebt5 Capital 4#ployed (or 8et Assets) 2ebt Ratio = (otal 2ebt (otal Assets ,,,) Pro rietary Ratio: 3roprietary Ratio= 1hareholder 6unds 5 Capital e#ployed (or net assets). (,V)!otal "ssets to Debt Ratio: (otal Assets to 2ebit Ratio= (otal assets 5 Lon& (er# debt (V) Interest Covera#e Ratio ,nterest Co!era&e Ratio = 8et pro'it be'ore interest and (a" ,nterest on lon& ter# debt 9. "ctivity $or !urnover) Ratios: (he turno!er ratios basically e"hibit the acti!ity le!els characteri:ed by the capacity o' the business to #ake #ore sales or turno!er. (he acti!ity ratios e"press the nu#ber o' ti#es assets e#ployed or 'or that #atter any constituent o' assets is turned into sales durin& an accountin& period. ;i&her turno!er ratios #eans better utili:ation o' assets and si&ni'y i#pro!ed e''iciency and pro'itability and as such are kno*n as e''iciency ratios. (he i#portant acti!ity ratios calculated under this cate&ory are: A) B) C) 2) 4) 6) 1tock (urn$o!er: 2ebtors (recei!able) (urno!erCreditors (3ayable) (urno!er,n!est#ent (8et Assets) (urno!er6i"ed Assets (urno!er+orkin& Capital (urno!er-

V P A 6619041/9823109752

By: CA Vipul Vora

A) Stock $or inventory) !urnover Ratio: 1tock (urno!er Ratio= Cost o' <oods 1old5 A!era&e 1tock. B) Debtors $Receivables) !urnover Ratio: 2ebtors (urno!er Ratio = 8et Credit 1ales 5 A!era&e Accounts Recei!able +here A!era&e Account Recei!able = (%penin& 2ebtors and Bills Recei!able 7 Closin& 2ebtors and Bills Recei!able)5= C) Creditors $Payable) !urnover Ratio: Creditors (urno!er ratio = 8et Credit 3urchases 5 A!era&e accounts payable +here A!era&e account payable = (%penin& Creditors and bills payable 7 Closin& Creditors and Bill 3ayable)5= 2) Invest%ent $&et "ssets) !urnover Ratio: ,n!est#ent (8et Assets) (urno!er ratio = 8et 1ales5 Capital 4#ployed 4) 'i(ed "ns)er !urnover: 6i"ed Asset turno!er = 8et 1ales 5 8et 6i"ed Assets 6) *orkin# Ca ital !urnover: +orkin& capital (urno!er = 8et 1ales 5 +orkin& Capital >. Pro+itability Ratios (a) <ross 3ro'it Ratio (b) %peratin& Ratio (c) %peratin& 3ro'it Ratio (d) 8et 3ro'it Ratio (e) Return on ,n!est#ent (R%,) or Return on Capital 4#ployed (R%C4) (') Return on 8et +orth (R%8+) (&) 4arnin&s per 1hare (h) Book Value per 1hare (i) 2i!idend 3ayout Ratio (?) 3rice 4arnin& Ratio. a) ,ross Pro+it Ratio: <ross 3ro'it Ratio = <ross 3ro'it 5 8et 1ales 1@@ b) - eratin# Ratio: %peratin& Ratio= (Cost o' 1ales7 %peratin& 4"penses)5 8et 1ales1@@ c) - eratin# Pro+it Ratio: %peratin& 3ro'it Ratio %peratin& 3ro'it Ratio = = 1@@$ %peratin& Ratio %peratin& 3ro'it 5 1ales 1@@

V P A 6619041/9823109752
+here %peratin& pro'it =

By: CA Vipul Vora

1ales ($) Cost o' %peration

d) &et Pro+it Ratio: 8et 3ro'it Ratio= 8et 3ro'it 51ales1@@ e) Return on Ca ital E% loyed or Invest%ent $R-CE or R-I): Return on ,n!est#ent (or Capital 4#ployed) = 3ro'it be'ore interest and (a"5 Capital 4#ployed 1@@ ') Return on S.are.olders/ 'und: Return on 1hareholders0 6und = 3ro'it a'ter (a" 1hareholders 6und &) Earnin#s Per S.are: 431= 3ro'it a!ailable 'or e)uity shareholders 58o o' 4)uity 1hares .) 0ook 1alue Per S.are: Book Value per 1hare= 4)uity shareholders0 6unds58o. o' 4)uity 1hare i) Dividend Payout Ratio: 2i!idend 3ayout Ratio= 2i!idend 3er 1hare 4arnin&s 3er 1hare 2) Price Earnin# Ratio: 354 Ratio =Aarket 3rice o' a share 54arnin&s per share.