Financial Ratio Analysis Formula (Abridged Version)A. Liquidity Ratios:

1. Current Ratio = Current Assets / Current Liabilities Std.= 2:1

Current Assets (cash and others easily convertible into cash within 1 year or less): Cash at hand, marketable securities or readily realizable investments, bills receivables, sundry debtors (net), inventories, work in progress, prepaid  expenses, banks balance, a/c receivables, short term investments, earned revenues (accrued), stock in trade, treasury bills (t- bills).

Current Liabilities (obligations which are payable within a short period of tie generally one year): outstanding expenses, bills/notes payable, sundry creditors, a/c payables, bank overdraft, accrued expenses, short term advances(loan), income tax payable/ tax provision, (proposed) dividend payable, interest payables, unearned revenues/ advance receipts.

2. Quick Ratio/Acid test ratio/Liquid Ratio= Quick assets / (Current Liabilities –*Bank o/d) Std.= 1:1

Quick assets: Current assets- inventories & prepaid expenses

3. Working Capital Ratio =Working Capital/Current Liabilities Std.= 2:1

Working Capital= Current assets- Current Liabilities

4. Absolute Liquid Ratio = Absolute Liquid Assets / Current Liabilities Std.= 0.5:1

Absolute Liquid Assets: cash, bank balance and marketable securities

B. Activity Ratios:

1. Inventory Turnover= Cost of goods sold/Average inventory

“Or” = Net Sales / Inventory

2. Average collection period/Days sales outstanding = Accounts receivables / Average sales per day

“Or”= 360/Debtors turnover ratio

Average sales per day= Net Credit sales/360

3. Debtors/Ac. Receivables turnover=Net Credit Sales/Average acc. receivables + notes receivables

Average acc. receivables + notes receivables= (Beginning A/R+ Ending A/R)/2

4. Creditors / Acc. Payables turnover= Net credit purchase/Average creditors + notes payables

5. Average payment period = A/c payables/ average purchase per day

“Or”= 360/Creditors turnover ratio

Average purchase per day =Net Credit Purchase/360

6. Total assets turnover = Net Sales/Total net assets

Total net assets = Total assets- Fictitious assets (i.e. Preliminary expense, Discount on share and debenture, Debit balance on profit and loss a/c, Underwriter’s commission)

7. Fixed assets turnover = Net sales/ Total net fixed assets

Total net fixed assets: Total assets-Current assets- Fictitious assets

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Md. Sahabul HasanBBA (Finance), DU

Cell: 01677269758

C. Proportion of Debt (Balance Sheet) Ratios:

1. Debt-Equity Ratio: Total long term debt/Total Equity

Total long term debt= Debentures, bonds, mortgages, Long term loan, Industrial loan

Total equity/shareholders fund= Paid up equity share capital, preference share capital, capital reserves, revenue reserves, and reserves , reserves for contingencies, undistributed profit, sinking fund-(Accumulated losses, deferred expenses, preliminary expenses and other fictitious assets)

2. Long term debt- Total capital ratio= Total long term debt/Total long term capital

Total long term capital/invested capital=Total long term debt, Shareholders equity, preferred stock

3. Proprietary or Equity Ratio = Shareholders funds / Total Assets

4. Debt Ratio = Total Liabilities (CL+LTL)/ Total assets

5. Interest Coverage Ratio/Times Int. Earned = Earnings before Interest & Tax / Fixed Interest Charges

6. Capital Gearing Ratio = Fixed Interest Bearing Funds/ Equity Share Capital

Fixed Interest Bearing Funds= Debentures, bonds, mortgages, Long term loan, Industrial loan & preferred Equity

D. Profitability Ratios:

1. Gross profit margin= (Sales-Cost of goods sold)/Sales

2. Net profit margin= Net profit (income)/Sales

3. Operating profit margin= operating profit (EBIT)/Sales Operating profit=Gross profit-SG&A expenses

4. Earnings per share= Earnings available for common stockholders/No. of common shares outstanding

Earnings available for common stockholders= Net Income-Preferred Dividend

5. Return on Asset (ROA) = Earnings available for common stockholders/Total Assets

6. Return on Equity (ROE) = Earnings available for common stockholders/Total Equity

7. Dividend per share (DPS) = Dividend paid or declared to common shareholder/ No. of Common share

8. Dividend payout ratio= DPS/EPS (*100)

9. Retention rate= (EPS-DPS)/EPS (*100)

10. Return on Capital Employed= EBIT “or” EAT/Average total capital employed (*100)

Average total capital employed=Shareholders funds (Common &Preferred), Long term debt

11. DuPont Ratio=ROE = EACS

Total Equity×1 =

EACSTotal Equity

×Net SalesNet Sales

×Total AssetsTotal Assets

=EACSNet Sales

×Net SalesTotal Assets

×Total AssetsTotal Equity

= Profit Margin×TAT × Financial Leverage

E. Market Ratios:

1. Price/Earnings (P/E) ratio = Market price per share/EPS

2. Market/Book value (M/B) ratio = Market Price per share/ Book value per share

Book value per share =Shareholders funds (total equity)/No. of shares outstanding

3. Dividend Yield = DPS/Mkt. price per share *100

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