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