Relationship between

items or groups of
items in the financial
statement.-What is
financial statement?
Income
statementBalance
sheet-expressed in
terms of another
figure-mathematical
yardstick- measures
the relation ship
between two figures

S
t
d
1
:
1
H
i
g
h
e

r ratio indicates weak working

capital
5. Capital Gearing Ratio = Fixed
income bearing securities /Non fixed
income bearing securities
High geared
= fixed interest bearing securities
are greater than equityshareholders
fund
Low geared
= just opposite to the above

IBalance Sheet Ratios:

Std 1:4

1. Current Ratio=
Current Assets /
Current Liabilities

6. Debt Equity Ratio = Long term

debts / Shareholders Funds

Std 2:1
2. Liquid Ratio =
Quick Assets / Quick
Liabilities
Std 1:1
3. Proprietary Ratio=
Proprietors Fund* /
Total Assets
Std Neither betoo high
or too low*Equity +
R.S + Pref+ Surplus Miscellaneous
4.Stock working
capital Ratio:= stock /
Working capital

Std 2:1
7. Fixed Assets Ratio = Fixed
Assets / Long term funds
II. Revenue Statement Ratios:
8.Gross Profit Ratio = Gross Profit /
Net Sales

1009.Operating Ratio = Operating

Cost / Net Sales

100Manufacturing Concern
highOther firms -low10.Expenses
Ratio = Concerned Expense / Net
Sales

10011.Net Profit Ratio

= Net profit / Net
Sales

10012.Net Operating
Profit Ratio =
Operating Profit / Net
Sales

100Operating profit =
GP- all expenses
including
finance13.Stock
Turnover Ratio = Cost
of Goods Sold/
Average Stock Std.:
Seasonable based on
nature of production

III Combined/
Composite Ratios:
14. Return on Capital
Employed = NPBIT /
Capital Employed

100-indicate the
management
efficiency-productivity
of capital utilizedoverall efficiency.15.
Return on Proprietors
Funds = NPAT /

P
r
o
p
ri
e
t
o
r
s
F
u
n
d
s

1
0
0
1
6
.
R
e
t
u
r
n
o
n
E
q
u
it
y
S
h
a

re capital = NPAT-Pref.Dividend /
Equity share capital17.Earnings per
share = NPAT- Pref. Dividend / No of
Equity Shares18.Dividend / Payout
Ratio = Divi. Per Equity share /
EPS19.Divi. Yield Ratio = Divi. Per
share / Mkt price per share20.Price
Earning Ratio = Mkt. Price Per Share
/ EPS21.Debt Service Ratio =
NPBIT / Interest( Interest coverage
Ratio)22.Creditors Turnover Ratio =
Credit Purchase /Average Accounts
PayableC.P.Period = days/ months in
a year / CTR 23.Debtors Turnover
Ratio = Credit Sales / Average
Accounts ReceivableD.C.Period =
days/ months in a year / DTR
24.Fixed Assets Turnover Ratio =
Sales / Fixed Assets25.Total Assets
Turnover Ratio = Sales / Total
Assets26.Working Capital Turnover
Ratio = Sales / Working
Capital27.Capital Turnover Ratio =
Sales/ Capital employed.

llustration: 12

2
4
9

20%

=
=
=
=

80%

12.5 %
2
8.
7
5
%

The following are the summarized profit and loss account of Sun India Ltd. for the year
ending 3151 Dec. 2003 and the Balance sheet as on that date:
Dr.

Profit and Loss Account

Particulars

Rs.

Cr.

Particulars

To Opening Stock

10,000

By Sales

To Purchases

60,000

Less : Sales Return

To Freight Expenses

5,000

By Closing Stock

To Gross Profit cld

50,000

5,000

Administrative Expenses
Selling and Distribution Expenses

10,000

1,10,000
15,000

1,25,000

By Gross Profit bId

Office Expenses

Rs.

1,20,000

1,25,000

To Operating Expenses:

Rs.

50,000

By Non-Trading Income:

15,000
5,000

Interest on Investment

5,000

Profit on sale of fixed Assets

1,000

Dividend Received

4,000

To Non-Operating Expenses:
Loss on Sale of Fixed Assets
To Net Profit

1,000
34,000

60,000

60,000

Balance Sheet for the year ending 31st Dec. 2001

Liabilities

Share Capital

Rs.

Assets

Rs.

15,000

~ash in Hand

2,000

Reserves

3,000

Cash at Bank

3,000

Debenture

12,000

Marketable Securities

5,000

Current Liabilities

20,000

Profit and Loss Nc

5,000

Inventories
Sundry Debtors

6,000

Prepaid Expense

4,000

Land and Building

55,000

15,000

20,000

55,000