Accounting Ratios

I. Profitability
Gross profit
Gross profit ratio=
Sales− Returnsinwards
Net profit
Net profit ratio=
Sales − Returns inwards
Gross profit Gross profit Nominator of mark -
Margin= = =
Sales − Returnsinwards Gross profit +Cost of goods sold Nominator of mark -up+ Denomin
Gross profit Gross profit Nominator of margin
Mark - up= = =
Cost of goods sold Sales −Gross profit Denominator of margin − Nominator of margin
Net profit
ℜ t urn on capitaleployed=
Capital employed
Operating profit
ℜ t urn onlong - term capital employed=
Share capital+ Reserves+ Non -current liabilities
Profit after tax
ℜ t urn on shareholders' equity=
Share capital + Reserves
Operating profit ( profit before tax )
ℜ t urn on assets=
Non - current assets +Current assets
Operating expenses
Expenses - sales ratio=
Sales − Returns inwards

II. Liquidity
Current assets
Current ratio=
Current liabilities
Current assets − Inventories
Quick ratio=
Current liabi lities
Sales− Returns inwards ( credit sales only )
Accountsreceivable turnover=
Average accounts receivable
Days ∈ a year
Days' sales ∈ accountsreceivable=
Accounts rece ivable turnover
Purchases − Returns outwards ( credit purchases only )
Accounts payableturnover =
Average accounts payable
' Days∈ a year
Days sales ∈ accounts payable=
Accounts payableturnover
Cost of goods sold
Inventory turnover =
Average inventory
 ' Days ∈a year
Days inventory on hand=
Inventory turnover

III. Solvency
Non -current liabities+Current liabilities
Debt ratio=
Non- current assets+Current assets
Non- current liabities+Current liabilities
Debt - - equity ratio=
Share capital + Reserves ( Owner s equity )
'

Operating profit
Interest cover =
Interest expenses

IV. Management efficiency

Sales − Returnsinwards
Asset turnover=
Non- current assets +Current assets

V. Return on investment
Profit after tax
Earning per preference share=
Number of preference shares issued
Profit after tax − Preference dividend
Earning per ordinary share=
Number of ordinary shares issued
Profit after tax
Preference dividend cover=
Preference dividend
Profit after tax − P reference dividend
Ordinary dividend cover=
Ordinary dividend
Market price per share
P rice - earning ( P/ E ) ratio=
Earnings per share

O perating profit=Gross profit − Operatingexpenses

Operating expenses= Administration expenses+ Selling ∧ Distribution expenses
Profit before tax=Operating profit − Finance cost ( Interests )
Profit after tax =Profit before tax − Taxation