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′ Fundsor=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=CF1 +SFD1 − Tax RateCF = Annual cash flow before Int. & TaxSFD = 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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