Management Accounting - Useful Ratios

Short–term Financial Position or Test of Liquidity
(a) Current Ratios	=     Current AssetsCurrent Liabilities
(b) Quick or Acid Test or Liquid Ratio	=     Liquid AssetsCurrent Liabilities
(c) Absolute Liquid Ratio	=     Absolute Liquid AssetsCurrent Liabilities
(d) Interval Measure	=     Liquid AssetsAvg.Daily Operating Expenses
Current Assets Movement (Asset Management Ratios)
(a) Inventory /Stock Turnover Ratio	=  Cost of Goods SoldAvg.Inventory at Cost
(b) Debtors or receivables Turnover Ratio/Velocity	=  Net Credit Annual SaleAvg.Trade Debtors
(c) Average Collection Period	=  Total Trade DebtorsSale per Day
(d) Creditors / Payable Turnover Ratio / Velocity	=  Net Credit Annual PurchaseAvg.Trade Creditors
(e) Average Payment Period	=  Total Trade Creditos / PayableAvg.Daily Purchase
(f) Working Capital Turnover Ratio	=  Sales or Cost of SalesNet Working Capital
Analysis of Long-term Financial Position or Test of Solvency
(a) Debt Equity Ratio	=  Outsiders FundsShareholders′ Funds or =  Outsiders′ EquitiesInternal Equities
(b) Funded Debt to Total Capitalization Ratio	=  Funded DebtsTotal Capitalization  × 100
(c) Ratio of Long term Debt to Shareholders, Funds (Debt Equity)	=  Long term DebtsShareholders′ Funds
(d) Proprietary or Equity Ratio	=  Shareholders FundsTotal Assets
(e) Solvency Ratio	=  Total Liabilities to OutsidersTotal Assets
(f) Fixed Assets Net Worth Ratio	=  Fixed Assets after DepreciationShareholders′ Funds
(g) Fixed Assets Ratio or Fixed Assets to Long Term Funds	=  Fixed Assets after DepreciationTotal long term Fund
(h) Ratio of Current Assets to Proprietary funds	=  Current AssetsShareholders′ Funds
(i) Debt-Service or Interest Coverage	=  Net Profit (before Int. & Taxes)Fixed Interest Charges
(j) Total Coverage or Fixed Charge Coverage	=  EBITTotal Fixed Charges
(k) Preference Dividend Coverage Ratio	=  Net Profit (before Int.& Tax)Preference Dividend
(l) Cash to debt-Service Ratio or Debt Cash Flow Coverage	=  CF 1 +  SFD1 − Tax Rate CF = Annual cash flow before Int. & Tax SFD = Sinking fund appropriation on debt
Analysis of Profitability
(i) General Profitability:
(a) Gross Profit Ratio	=  Gross ProfitNet Sale  × 100
(b) Operating Ratio	=  Operating CostNet Sale  × 100
(c) Expenses Ratio	=  Particular ExpenseNet Sale  × 100
(d) Net Profit Ratio	=  Net Profit after TaxNet Sale  × 100
(e) Operating Profit Ratio	=  Operating ProfitNet Sale  × 100
Overall Profitability
(a) Return on Shareholders’ Investment (RoI)	=  Net Profiti after Tax & InterestShareholders′ Fund  × 100
(b) Return on Equity Capital	=  Net Profit after Tax − Pref.DividendPaid up Equity Capital  × 100
(c) Earnings per Share (EPS)	=  Net Profit after Tax − Pref.DividendNumber of Equity Share  × 100
(d) Return on Gross Capital Employed	=  Adjusted Net ProfitGross Capital Employed  × 100
(e) Return on Net Capital Employed	=  Adjusted Net ProfitNet Capital Employed  × 100
(f) Return on Assets	=  Net Profit after TaxAvg.Total Assets  × 100
(g) Capital Turnover Ratio	=  Sale or Cost of SaleCapital Employed  × 100
(h) Fixed Assets Turnover Ratio	=  Sale or Cost of Goods SoldFixed Assets  × 100
(i) Working Capital Turnover Ratio	=  Sale or Cost of Goods SoldNet Working Capital  × 100
Market Test or Valuation Ratio
(a) Dividend Yield Ratio	=  Dividend per ShareMarket Value per Share
(b) Dividend Payout Ratio	=  Dividend per Equity ShareEarnings per Share
(c) Price/Earnings (P/E) Ratio	=  Market Price per Equity ShareEarnings per Share
(d) Earning Yield Ratio	=  Earnings per ShareMarket price per share
(e) Market Value Book Value Ratio	=  Market value per shareBook value per share
(f) Market Price to Cash Flow Ratio	=  Market price per shareCash flow per share
Market Test or Valuation Ratio
(a) Capital Gearing Ratio	=  Equity Share Capital + Reserve & SurplusPref.Capital + Long term Debt bearing Fixed Interest
(b) Total Investment to Long Term Liabilities	=  Shareholders Fund + Long term LiabilitiesLong term Liabilities
(c) Debt Equity Ratio	=  Outsiders FundsShareholders Funds
(d) Ratio to Fixed Assets to Funded Debt	=  Fixed AssetsFunded Debts
(e) Ratio of Current Liabilities to Proprietors fund	=  Current LiabilitiesShareholders′ Funds
(f) Ratio of Reserve to Equity Capital	=  ReservesEquity Share Capital  × 100
(g) Financial Leverage	=  EBITEBIT − Interest & Pref.Dividend
(h) Operating Leverage	=  ContributionEBIT