Author: Anurag Agarwal (Adamas International School)

HB PRODUCTIONS

Accounting Ratio
There are three phases from which accounting ratios are derived:
1) Trading A/C
2) Profit & Loss A/C
3) Balance Sheet
Some ratios are derived only from nominal accounts (Trading and P/L), some are derived only from the Balance
Sheet, and some are derived from both theBalance Sheet and nominal accounts. The ratios derived from the above
situations are :
1) Revenue Statement Ratios
2) Balance Sheet Ratios
3) Balance Sheet & Revenue Statement Ratios
BALANCE SHEET RATIO:
1. Proprietary Ratio = Shareholders fund
Total Assets
Shareholders fund = Equity share capital + Preference share capital + Reserves & Surplus Fictitious assets.
Total Assets = Fixed Assets + Current Assets Fictitious Assets.
2. Current Ratio=_Current Assets_
[Ideal Ratio = 2:1]
Current Liabilities
Current Assets = Cash In Hand, Cash @ Bank, Marketable Securities, Sundry Debtors, Bills Receivable,
Accrued Income, Prepaid Income, Stock In Trade.
Current Liabilities= Sundry Creditors, Bills Payable, Liability for Taxes, O/S Expenses, Pre-received Income,
Provision for tax, Proposed Dividend, Bank Order.
3. Quick ratio/Liquid ratio/Acid Test ratio =_Quick/Liquid/Acid Test Assets_
Quick/Liquid/Acid Test Liabilities
Quick Assets = All current assets stock prepaid expenses.
Quick Liabilities = All current liabilities Bank Overdraft.
4. Total asset debt ratio=Total assets Fictitious assets
Long term debts
Long term debts = Debentures and any other loan of a long term nature.
5. Debt Equity Ratio=

Long term debts__

Shareholders funds

REVENUE STATEMENT RATIO:

1) Gross Profit Ratio = Gross Profit * 100
Net Sales
Net Sales = Total Sales Sales Returns
2) Net Profit Ratio = Net Profit * 100
Net Sales
3) Operating Ratio = (Cost of goods sold + Operating expenses) * 100 = 100 Operating Surplus
Net Sales
Cost of goods sold = Net Sales Gross Profit = Opening stock + Purchase + Direct Expenses Closing Stock
Operating Expenses = Administrative Expenses + Selling Expenses

Author: Anurag Agarwal (Adamas International School)

HB PRODUCTIONS

Note: Financial charges are not to be taken while calculating operating expenses.
4) Operating Profit Ratio = Operating Profit * 100
Net Sales
Operating Profit = Gross Profit Administrative Expenses Selling & Distribution Expenses
=Net profit + Non-operating expenses Non-operating income

5) Earnings per share = __Profit after tax__

No. of equity shares
Profit after tax = Net profit after tax Preference Dividend.
BALANCE SHEET AND REVENUE STATEMENT RATIO:
1) Debtors Turnover Ratio =

Net Credit Sales_______

Average Debtors + Average B/R
Average Debtors & B/R = (Opening Debtors & B/R) + (Closing Debtors& B/R)
2
If the opening and closing figure is not given, then take the given figure as average.
Net Credit Sales = Total Credit sales Sales Returns.

2) Creditors Turnover Ratio =

Net credit purchase____

Average creditors + Average B/P
Average Creditors & B/P= [(Opening Creditors & B/P) + (Closing Creditors & B/P)]
2
If the opening and closing figure is not given, then take the given figure as average.
Net Debit Sales = Total Debit sales Sales Returns.

3) Working Capital Turnover Ratio =

Net Sales___
Working Capital
Net Sales = Cash sales credit sales sales returns
Working Capital = Current assets current liabilities

4) Stock Turnover Ratio = Cost of goods sold

Average stock
Cost of goods sold = Net sales Gross profit
Average stock = Opening stock + Closing stock
2
5) Debtors Collection Period =

365/366/12
days/months
Debtors turnover ratio
365/366/12_
Net credit sales_______
Average Debtors + Average B/R

= (Average debtors + Average B/R) * 365/366/12

Net Credit Sales
6) Creditors Payment Period =

365/366/12
days/months
Creditors turnover ratio

Author: Anurag Agarwal (Adamas International School)

=

HB PRODUCTIONS

365/366/12 __
Net credit Purchase____
Average Creditors + Average B/P

= (Average Creditors + Average B/P) * 365/366/12

Net Credit Purchase
7) Stock Holding Period =

Average Stock * 365/366/12

Cost of goods sold

8) Operating Cycle = Debtors collection period + Stock earning period Creditors payment period