accounting ratios
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Accounting RatiosTypes and Formulae of ACCOUNTING
RATIOS
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Accounting Ratios ACCOUNTING RATIO is an arithmetical expression of relationship between two interrelated or related items.
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Types of Ratios1. Liquidity Ratios2. Solvency Ratios3. Activity or Turnover ratios4. Profitability Ratios
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Liquidity Ratios1. Current Ratio2. Liquid Ratio/Acid Test Ratio/Quick Ratio
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Formula of Current ratioCurrent ratio = current assets/current liabilities
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Formula of Liquid ratioLiquid ratio = liquid assets/current liabilities
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Solvency Ratios1. Debt to equity ratio2. Total assets to debt ratio3. Proprietary ratio4. Interest coverage ratio
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Formula of Debt to equity ratioDER = debt/equity
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Formula of Total assets to debt ratioTADR = total assets/debt
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Formula of Proprietary ratioPR = shareholders’ fund/total assets
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Formula of Interest coverage ratioICR = net profit before interest&tax/interest
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Activity Ratios1. Debtor turnover ratio2. Creditor turnover ratio3. Inventory or stock turnover ratio4. Working capital turnover ratio
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Formula of Debtor turnover ratioDTR = net credit sales/average dabtors+average bills
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Formula of Creditor turnover ratioCTR = net credit purchases/average creditors+average bills
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Formula of Inventory turnover ratioITR = COGS/average stock
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Formula of Working capital turnover ratioWCTR = sales/working capital
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Profitability Ratios1. Gross profit ratio2. Net profit ratio3. Operating ratio4. Operating profit ratio5. Return on investment (ROI) ratio
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Formula of Gross profit ratioGPR = GP/sales *100
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Formula of Net profit ratioNPR = NP/sales *100
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Formula of Operating ratioOR = COGS+operating expenses /sales *100
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Formula of Operating profit ratioOPR = operating profit/sales *100
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Formula of Return on investment ratioROI = net profitbefore interest,tax÷nd/capital employed *100