Management Accounting – Useful Ratios

Short–term Financial Position or Test of Liquidity
(a) Current Ratios
=

Current Assets Current Liabilities
(b) Quick or Acid Test or Liquid Ratio
=

Liquid Assets Current Liabilities
(c) Absolute Liquid Ratio
=

Absolute Liquid Assets Current Liabilities
(d) Interval Measure
=

Liquid Assets Avg.Daily Operating Expenses
Current Assets Movement (Asset Management Ratios)
(a) Inventory /Stock Turnover Ratio
=

Cost of Goods Sold Avg.Inventory at Cost
(b) Debtors or receivables Turnover Ratio/Velocity
=

Net Credit Annual Sale Avg.Trade Debtors
(c) Average Collection Period
=

Total Trade Debtors Sale per Day
(d) Creditors / Payable Turnover Ratio / Velocity
=

Net Credit Annual Purchase Avg.Trade Creditors
(e) Average Payment Period
=

Total Trade Creditos / Payable Avg.Daily Purchase
(f) Working Capital Turnover Ratio
=

Sales or Cost of Sales Net Working Capital
Analysis of Long-term Financial Position or Test of Solvency
(a) Debt Equity Ratio
=

Outsiders Funds Shareholders′ Funds

or

=

Outsiders′ Equities Internal Equities
(b) Funded Debt to Total Capitalization Ratio
=

Funded Debts Total Capitalization

× 100

(c) Ratio of Long term Debt to Shareholders, Funds (Debt Equity)
=

Long term Debts Shareholders′ Funds
(d) Proprietary or Equity Ratio
=

Shareholders Funds Total Assets
(e) Solvency Ratio
=

Total Liabilities to Outsiders Total Assets
(f) Fixed Assets Net Worth Ratio
=

Fixed Assets after Depreciation Shareholders′ Funds
(g) Fixed Assets Ratio or Fixed Assets to Long Term Funds
=

Fixed Assets after Depreciation Total long term Fund
(h) Ratio of Current Assets to Proprietary funds
=

Current Assets Shareholders′ Funds
(i) Debt-Service or Interest Coverage
=

Net Profit (before Int. & Taxes) Fixed Interest Charges
(j) Total Coverage or Fixed Charge Coverage
=

EBIT Total 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
=

CF

1 +

SFD 1 − Tax Rate

CF = Annual cash flow before Int. & Tax

SFD = Sinking fund appropriation on debt

Analysis of Profitability
(i) General Profitability:
(a) Gross Profit Ratio
=

Gross Profit Net Sale

× 100

(b) Operating Ratio
=

Operating Cost Net Sale

× 100

(c) Expenses Ratio
=

Particular Expense Net Sale

× 100

(d) Net Profit Ratio
=

Net Profit after Tax Net Sale

× 100

(e) Operating Profit Ratio
=

Operating Profit Net Sale

× 100

Overall Profitability
(a) Return on Shareholders’ Investment (RoI)
=

Net Profiti after Tax & Interest Shareholders′ Fund

× 100

(b) Return on Equity Capital
=

Net Profit after Tax − Pref.Dividend Paid up Equity Capital

× 100

(c) Earnings per Share (EPS)
=

Net Profit after Tax − Pref.Dividend Number of Equity Share

× 100

(d) Return on Gross Capital Employed
=

Adjusted Net Profit Gross Capital Employed

× 100

(e) Return on Net Capital Employed
=

Adjusted Net Profit Net Capital Employed

× 100

(f) Return on Assets
=

Net Profit after Tax Avg.Total Assets

× 100

(g) Capital Turnover Ratio
=

Sale or Cost of Sale Capital Employed

× 100

(h) Fixed Assets Turnover Ratio
=

Sale or Cost of Goods Sold Fixed Assets

× 100

(i) Working Capital Turnover Ratio
=

Sale or Cost of Goods Sold Net Working Capital

× 100

Market Test or Valuation Ratio
(a) Dividend Yield Ratio
=

Dividend per Share Market Value per Share
(b) Dividend Payout Ratio
=

Dividend per Equity Share Earnings per Share
(c) Price/Earnings (P/E) Ratio
=

Market Price per Equity Share Earnings per Share
(d) Earning Yield Ratio
=

Earnings per Share Market price per share
(e) Market Value Book Value Ratio
=

Market value per share Book value per share
(f) Market Price to Cash Flow Ratio
=

Market price per share Cash flow per share
Market Test or Valuation Ratio
(a) Capital Gearing Ratio
=

Equity Share Capital + Reserve & Surplus Pref.Capital + Long term Debt bearing Fixed Interest
(b) Total Investment to Long Term Liabilities
=

Shareholders Fund + Long term Liabilities Long term Liabilities
(c) Debt Equity Ratio
=

Outsiders Funds Shareholders Funds
(d) Ratio to Fixed Assets to Funded Debt
=

Fixed Assets Funded Debts
(e) Ratio of Current Liabilities to Proprietors fund
=

Current Liabilities Shareholders′ Funds
(f) Ratio of Reserve to Equity Capital
=

Reserves Equity Share Capital

× 100

(g) Financial Leverage
=

EBIT EBIT − Interest & Pref.Dividend
(h) Operating Leverage
=

Contribution EBIT