Accounting ratios

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&dividend/capital employed *100