Information For Clients
Accounting Ratios
To Test Name Of Ratio Formula Parties Interested Industry Norm
Liquidity and
Solvency 		i) Current Ratio
Current Liabilities 		Current Assets
Short-term creditors,
investors, money lenders
2:1
  ii) Liquid / Quick / Acid Test Ratio Current assets - Stock - Prepaid exp. Current Liabilities -Bank Overdraft- Prereceived Income
- do -
1:1
Capitalisation i) Debt Equity Ratio Debt Equity
[Debt = Long/Short-term loans, debentures, bills, etc, Equity - Proprietor's funds]
- do -
2:1
  ii) Capital Gearing Ratio Fixed cost funds Funds not carrying fixed cost [Fixed cost funds = Preference share capital, Debentures, Loans from banks, financial Institutions, other unsecured loans]. [Funds not carrying fixed cost = Equity share capital + undistributed profit - P & L A/c (Dr. Bal.) - Misc. expenses]
- do -
2:1
Profitability and management efficiency i) Gross Profit Ratio Gross Profit X 100 Net sales
Shareholders, Long-term Creditors, Government.
20% to 30%
  ii) Net Profit Ratio Net Profit X 100
Net Sales
[Net profit may be either Operating Net Profit, Profit before tax or Profit after tax.]
- do -
5% to 10%
  iii) Return on
Capital Employed (ROCE) 		Net profit X 100
Capital employed
[Capital employed = Fixed Assets + Current Assets - Current Liabilities].
- do -
-
  iv) Earnings per Share [EPS] Profit after tax less pref. Dividend X 100 Equity Share Capital
-do-
-
  v) Dividend per Share [DPS] Total Dividend paid to ordinary sharholders /
Number of ordinary shares
Shareholders, Invetors
-
Management efficiency    
 
 
  i) Stock turnover Cost of goods sold / Avg. Stock
Management
5 to 6 times
  ii) Debtors Debtors + Bills receivables * 365 / Net Credit sales
Management
45 to 60 days
  iii) Creditor's Turnover Rate Creditors + Bills payable X 365 /Credit purchases
Management
-
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