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

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