For queries kindly mail to the contributor(s) at prashant.

kotecha@kcmeht
This professional tool has been downloaded from
www.wirc-icai.org
Financial Ratio Analysis Ver. 1 For queries kindly mail to the contributor(s) at
prashant.kotecha@kcmehta.com

INPUT SHEET - 1 BALANCE SHEET RELATED ITEMS INPUT DATA

INPUT SHEET - 2 PROFIT AND LOSS ACCOUNT RELATED ITEMS INPUT DATA

[A] LIQUIDITY RATIOS - SHORT TERM SOLVENCY DETAILS ANALYSIS

[B] CAPITAL STRUCTURE RATIOS-INDICATOR OF FINANCING TECHNIQUES AND LONG TERM SOLVENCY DETAILS ANALYSIS

[C] COVERAGE RATIOS DETAILS ANALYSIS

[D] PROFITABILITY RATIO DETAILS ANALYSIS

[E] TURNOVER RATIO / ACTIVITY RATIO / VELOCITY RATIO DETAILS ANALYSIS

[F] MARKET-TEST RATIO / FINANCIAL POSITION RATIO DETAILS ANALYSIS

@kcmehta.com

This professional tool is that of the contributor(s). While

every care is taken to ensure the accuracy of this
professional tool, neither contributor(s) nor Western
India Regional Council of The Institute of Chartered
Accountants of India is liable for any inadvertent errors
or any action taken on the basis of this professional tool.

SIS

YSIS

YSIS

YSIS

YSIS

YSIS
 INPUT SHEET - 1 BALANCE SHEET RELATED ITEMS

Particulars
Share Capital
Equity share capital (issued and paid up) (enter number of shares)
Preference share capital (issued and paid up) (enter number of shares)

Equity Share Capital (Issued and Paid up)

Preference Share Capital (Issued and Paid up)
Market Price per Share

Reserves and Surplus

General Reserves
Accumulated Profits
Other reserves (available for shareholders)

Long Term Borrowings

Debentures / Bonds
Long Term Loans
Institutional Loans
Other long term borrowed funds

Current Liabilities
Trade Payables (For Goods)
- Opening Balance
- Closing Balance
Bills Payable
- Opening Balance
- Closing Balance
Advance received
Provision for Expenses
Short term Borrowings
Bank Overdraft
Cash Credit
Provision for Taxation (net of Advance Tax)
Proposed or Unclaimed Dividend
Other Current Liabilities (if any)
Total Current Liabilities

Property, Plant and Equipment

Gross Block (Including Intangible)
Less: Accumulated Depreciation and amortisation
Net Block (Including Intangible)
Investment
Long Term Investment
Short - Term Investment (other than securities)
Investment in Non-trade marketable securities (Non-trade investment)
Other Investments (if any)

Current Assets
Inventories
Trade receivables
- Opening Balance
- Closing Balance
Bills Receivable
- Opening Balance
- Closing Balance
Prepaid Expenditure
Advances
Cash on hand
Balances with Banks
Receivables/Accruals
Short term Loans
Other Current Assets (if any)
Total Current Assets

Accumulated Loss and Other (if any)

Accumulated Loss
Other (if any)

Other Items
Net working capital
Average Total Assets (1/2 of opening + closing)

Total Assets
 Back to Index
Company Name: ABC Ltd.
Period of Analysis: Q1

Current Year Previous Year

400 400
100 100
100 100

200 200
200 200
2 2

9 9
3 3
3 3
3 3

16 16
4 4
4 4
4 4
4 4

5 5
5 5
5 5
5 5
5 5
5 5
5 5
5 5
5 5
5 5
5 5
5 5
5 5
5 5
50 50

8 8
2 2
6 6
 7 7
7 7
7 7
7 7

8 8
8 8
8 8
8 8
8 8
8 8
8 8
8 8
8 8
8 8
8 8
8 8
8 8
8 8
80 80

6 6
6 6

150 150
200 200

114 114
 INPUT SHEET - 2 PROFIT AND LOSS ACCOUNT RELATED ITEMS

Particulars
Profit and Loss Account items
Income
Closing Stock of Finished / Traded Goods
Closing Stock of Raw Material
Sales net of returns
Credit Sales
Other operating income
Non-operating income
Total Income (total of credit side of P&L A/c) (Please enter this figure manualy from P&L)

Expenses
Opening Stock of Finished / Traded Goods
Opening Stock of Raw Material
Raw Material Consumed
Credit Purchase
Cost of Goods sold (cost of sales)
Interest on Borrowed funds or on debts
Depreciation
Other non-cash operating expenses / adjustments (if any) (e.g. written off items or like debits)
Provision for Tax
Total Non-operating Expenditures
Total Expenditure (total of debit side of P&L A/c) (Please enter this figure manualy from P&L)

Profits
Gross Profit
Net Profit
Profit Before Tax and Interest (PBIT)
Profit After Tax (PAT or EAT)
Operating Profit = Net profit + Non operating expenses - Non operating Incomes

Distribution of Profit
Dividend on Preference Shares (Enter total dividend)
Dividend on Equity Shares (Enter total dividend)

Other Items
Principal amount of debt repaid during the year (Installment)
 Back to Index Company Name: ABC Ltd.
Period of Analysis: Q1

Current Year Previous Year

50 30
40 20
120 150
120 120
120 150
120 150
1000 1200

30 60
20 40
80 70
70 70
100 90
100 90
100 90
100 90
100 90
100 90
800 800

500 500
300 300
400 390
200 210
280 240

100 100
80 80

100 100
[A] LIQUIDITY RATIOS - SHORT TERM SOLVENCY

No Ratio Formula Numerator

Inventories
+ Debtors
Current Assets + Cash & Bank
1 Current Ratio
Current Liabilities + Receivables/Accruals
+ Short term Loans
+ Marketable Investments
Current Assets
Quick Ratio or Quick Assets
2 Less: Inventories
Acid test Ratio Quick Liabilities
Less: Prepaid Expenses

Cash In Hand
Cash Reservoir + Balance at Bank
3 Absolute Cash Ratio
Current Liabilities + non-trade Marketable investments
+ Short Term investments

Cash In Hand
Cash Position to total Cash Reservoir + Balance at Bank
4
Assets Ratio Total Assets + non-trade Marketable investments
+ Short Term investments
Cash In Hand
Internal Cash Cash Reservoir + Balance at Bank
5
Measure Ratio Cash Expenses per Day + non-trade Marketable investments
+ Short Term investments

[B] CAPITAL STRUCTURE RATIOS-INDICATOR OF FINANCING TECHNIQUES AND LONG TERM SOLVENCY

No Ratio Formula Numerator

Long term borrowed funds, i.e.

Debt
1 Debt Equity Ratio Debentures, Long term loans from
Equity
institutions

Long term borrowed funds, i.e.

Debt to Capital Debt
2 Debentures, Long term loans from
Employed Ratio Capital Employed
institutions

Equity Share Capital

Proprietary / Equity Proprietary Funds + Preference Share Capital
3
Fund Ratio Total Assets + Reserves & Surplus
Less Accumulated Reserves
 Preference Share Capital
Fixed Charge Bearing Capital + Debentures
4 Capital Gearing Ratio
Equity share holders Funds + Long Term Loans

Fixed Asset to Fixed Assets Net Fixed Assets i.e.

5
Capital Employed Capital Employed Gross Block - Depreciation

[C] COVERAGE RATIOS

No Ratio Formula Numerator

Preference Dividend Earnings after Tax

1 EAT (or PAT)
Coverage Ratio Preference Dividend

Equity Dividend Earnings after Tax

2 EAT (or PAT)
Coverage Ratio Equity Dividend
PBIT
Debt Service Earnings for Debt service
3 + Non Cash Operating expense
Coverage Ratio (Interest + Installment)
+ Non Operating Adjustments
Interest Coverage Earnings before Interest & Tax
4 EAT+Tax+ Interest on debt funds
Ratio Interest

[D] PROFITABILITY RATIO

No Ratio Formula Numerator

Gross profit
1 Gross Profit ratio Gross profit as per trading Account
Sales
Net profit
2 Net profit Ratio Net profit
Sales
Net profit
Operating profit
3 Operating profit Ratio Add: Non operating expenses
Sales
Less: Non operating Incomes

Return On
PBIT
Investment (ROI) Or Total Earnings
4 Add: Non operating Expenses net of
Return On Capital Total capital Employed
non operating income
Employed (ROCE)

Return on Equity or
Earnings After Tax
5 Return on Equity EAT / PAT
Shareholder's Fund
Shareholder's fund
 Net Profit after Taxes
6 Return On Assets Net Profit After Taxes
Average Total Assets
Opening Stock
Cost of Goods Sold Cost of goods sold + Purchase
7
Ratio Sales + Direct Expenditures
+ Manufacturing Exp. - closing stock

[E] TURNOVER RATIO / ACTIVITY RATIO / VELOCITY RATIO

No Ratio Formula Numerator

Opening Stock
Finished Goods or Cost of Goods Sold + Purchase
1
Stock Turnover Ratio Average Stock + Direct Expenditures
+ Manufacturing Exp. - closing stock
Raw Material Raw Material Consumed
2 Materials + Wages+ Production OH
Turnover Ratio Average stock of Raw material
Inventory Holding
365 Days Either 365 days or 12 months or 52
3 Period
Stock Turnover Ratio weeks
(Velocity Period)
Debtors Turnover Credit Sales
4 Credit Sales net of returns
Ratio Average Accounts receivable
Debtors Collection 365 Days Either 365 days or 12 months or 52
5
Period Debtor turnover ratio weeks

Creditors Turnover Credit Purchases

6 Credit Purchases Net of returns if any
Ratio Average Accounts payable

Creditors Payment 365 Days Either 365 days or 12 months or 52

7
Period Creditors turnover ratio weeks
Working Capital Turnover
8 Sales Net of returns
Turnover Ratio Net Working Capital
Fixed Asset Turnover Turnover
9 Sales Net of returns
Ratio Fixed Assets

Capital employed Sales

10 Sales net of returns
Turnover Ratio Capital Employed

[F] MARKET-TEST RATIO / FINANCIAL POSITION RATIO

No Ratio Formula Numerator

PAT - Preference Dividend Profit After Taxes
1 Earnings Per Share
Number of Equity Shares Less: Preference Dividend
 Dividend to Equity Shareholders Profit distributed to equity share
2 Dividend Per Share
Number of Equity Shares holders
Dividend Pay-Out Total Dividend
3 Equity Dividend + Preference Dividend
ratio PAT
DPS
4 Dividend Yield Ratio Dividend per share
MPS
Price Earning Ratio MPS
5 Market price per share
(P/E Ratio) EPS
 Back to Index

Denominator
Sundry Creditors (For Goods)
+ Outstanding Expenses
+ Short Term Loans & advances
+ Bank Overdraft/ Cash Credit
+ Provision for Taxation
+ Proposed or Unclaimed Dividend
Current Liabilities
Less: Bank Overdraft
Less: Cash Credit
Sundry Creditors (For Goods)
+ Outstanding Expenses
+ Short Term Loans & advances
+ Bank Overdraft/ Cash Credit
+ Provision for Taxation
+ Proposed or Unclaimed Dividend

Total Assets

Annual Cash Expenses

365
Cash expenses=Total expenses -
Depreciation and write offs

G TERM SOLVENCY Back to Index

Denominator
Equity Share Capital
+ Preference Share Capital
+ Reserves and Surplus
Less: Accumulated losses if any

Equity Share Capital

+ Preference Share Capital
+ Reserves and Surplus
Less: Accumulated losses if any
+ Debt (i.e. Numerator)

Net Fixed Assets

+ Total Current Assets
(Only tangible Assets will be included)
Equity Share Capital
+ Reserves and Surplus
Less: Accumulated Losses if any

Equity Share Capital

+ Preference Share Capital
+ Reserves and Surplus
Less: Accumulated losses if any
+ Long term borrowed funds, i.e.
Debentures, Long term loans from
institutions

Back to Index

Denominator

Dividend on Preference Share Capital

Dividend on Equity Share Capital

Interest on Debt
+ Installment of Debt
(Principal Repaid)

Interest on debt Fund

Back to Index

Denominator
Sales net of returns

Sales net of returns

Sales net of returns

Equity Share Capital

+ Preference share capital
+ Reserves & Surplus
+ Debentures and long term Loans
Less: Accumulated Losses
Less: Non trade Investments

Total Share capital

Less: Preference Share Capital
Add: Reserves and Surplus
Less: Accumulated Losses
1/2 of Opening and Closing Balance

Sales net of returns

Back to Index

Denominator

Opening Stock +Closing Stock

2

Opening WIP+Closing WIP

2

Finished goods Turnover Ratio or Raw

material Turnover Ratio

Accounts Receivable = Debtors+ Bills

Receivable

Debtors turnover ratio as per above

AP= Creditors+ BP
Average AP=
Opening Bal+Closing Bal
2

Creditors turnover ratio as per above

Current Assets Less Current liabilities

Net Fixed Assets

Equity Share Capital

+ Preference Share Capital
+ Reserves and Surplus
Less: Accumulated losses if any
+ Long term borrowed funds, i.e.
Debentures, Long term loans from
institutions

Back to Index

Denominator
Total Number of Equity shares
Outstanding
Total Number of Equity shares
Outstanding

Profit After Tax

Market price per share

Earning Per Share

 Company Name: ABC Ltd. Denotes ratio not meeting standard ratio
Period of Analysis: Q1 Standard ratio can be changed as per industry

[A] LIQUIDITY RATIOS - SHORT TERM SOLVENCY Back to Index

Actual Ratio Actual Ratio

No Ratio Formula Standard Ratio Analysis
Current Year Previous Year

1. From Creditor's Point of View higher ratio is the best.

Current Assets 2. Higher ratio is good for company to get credit facility.
1 Current Ratio 2.00 1.60 1.60
Current Liabilities 3. Higher ratio indicates blockage of investment in Current Assets.
4. Lower ratio Indicates strict credit policy and maintenance of optimal stock

Quick Ratio or
Quick Assets 1. Higher is the best for both creditors' and company's point of view.
2 Acid test Ratio or 1.33 1.60 1.60
Quick Liabilities 2. Lower ratio indicates huge investment in inventories by the company.
Liquid Ratio
Cash Reservoir
3 Absolute Cash Ratio 0.20 0.60 0.60 Indicates availability of cash to meet short term commitments.
Current Liabilities
Cash Position to total Cash Reservoir
4 0.10 0.26 0.26 Indicates cash position of the company.
Assets Ratio Total Assets
Internal Cash Measure Cash Reservoir
5 10.00 18.25 17.66 Ability to meet regular cash expenses.
Ratio Cash Expenses per Day

[B] CAPITAL STRUCTURE RATIOS-INDICATOR OF FINANCING TECHNIQUES AND LONG TERM SOLVENCY Back to Index

Actual Ratio Actual Ratio

No Ratio Formula Standard Ratio Interpretation
Current Year Previous Year

1. If company's Rate of return is higher than interest rate then higher ratio
shall be the best. However lower ratio shall be the best if the company's
rate of return is lower.
Debt 2. If the ratio is higher, it indicates that company is more dependent on out-
1 Debt Equity Ratio 2.00 0.04 0.04
Equity sider funds.
3. If the ratio is lower and company's rate of return is higher than interest
rate, then it indicates that the company is not taking benefit of trade on
Equity.
 1. If company's Rate of return is higher than interest rate then higher ratio
shall be the best. However lower ratio shall be the best if the company's
rate of return is lower.
Debt to Capital Debt 2. If the ratio is higher, it indicates that company is more dependent on out-
2 2.00 0.04 0.04
Employed Ratio Capital Employed sider funds.
3. If the ratio is lower and company's rate of return is higher than interest
rate, then it indicates that the company is not taking benefit of trade on
Equity.

1. Shows extend of owners fund utilized in financing assets.

2. If major part of total assets is of current assets then lower ratio may not
Proprietary / Equity Proprietary Funds
3 3.15 4.69 4.69 be the cause for liquidity problem.
Fund Ratio Total Assets
3. If core (permanent) working capital is higher, higher ratio is the best.
4. If core (permanent) working capital is lower, ratio of 1:1 is good.

1. Shows Proportion of fixed charge (dividend or interest) bearing capital to

equity funds, the extend of advantage or leverage enjoyed by equity
Fixed Charge Bearing Capital shareholders.
4 Capital Gearing Ratio 1.00 1.06 1.06
Equity share holders Funds 2. If the rate of return on Capital Employed is higher than fixed charge bearing
capital in capital structure, then the higher ratio shall be the best and
vice versa.

Fixed Asset to Capital Fixed Assets

5 Less than 1 0.01 0.01 The ratio indicates proportion of total capital employed invested in fixed assets.
Employed Capital Employed
1
Back to Index

[C] COVERAGE RATIOS Back to Index

Actual Ratio Actual Ratio

No Ratio Formula Standard Ratio Interpretation
Current Year Previous Year
Preference Dividend Earnings after Tax 1. Indicates ability to pay dividend on Preference share capital.
1 3.00 2.00 2.10
Coverage Ratio Preference Dividend 2. Higher shall be the best.
Equity Dividend Earnings after Tax 1. Indicates ability to pay dividend on Equity share capital.
2 3.00 2.50 2.63
Coverage Ratio Equity Dividend 2. Higher shall be the best.
1. Indicates extend of current earnings available for meeting commitments
Debt Service Coverage Earnings for Debt service
3 3 times 3.00 3.00 and outflow towards interest and installments.
Ratio (Interest + Installment)
2. Higher shall be the best
Earnings before Interest & Tax
4 Interest Coverage Ratio Greater than 1 4.00 4.33 1. Indicates ability to meet interest obligations of the current year.
Interest
3 1
Back to Index
[D] PROFITABILITY RATIO Back to Index

Actual Ratio Actual Ratio

No Ratio Formula Standard Ratio Interpretation
Current Year Previous Year
1. Higher shall be the best. Initial target of the company to match with
Gross profit
1 Gross Profit ratio 25.00% 416.67% 333.33% industry standard.
Sales
2. This ratio indicates basic profitability
1. Higher shall be the best. Initial target of the company to match with
Net profit
2 Net profit Ratio 15.00% 250.00% 200.00% industry standard.
Sales
2. This ratio indicates overall profitability.
1. Higher shall be the best. Initial target of the company to match with
Operating profit
3 Operating profit Ratio 22.00% 233.33% 160.00% industry standard.
Sales
2. This ratio indicates management efficiency.
1. Higher shall be the best. Initial target of the company to match with
Return On Investment
industry standard.
(ROI) Or Return On Total Earnings
4 10.00% 90.69% 78.76% 2. This ratio indicates the company's ability to earn return on funds invested.
Capital Employed Total capital Employed
3. Comparison of ROCE with rate of interest of debt leads to financial
(ROCE)
leverage. If ROCE > Interest rate, use of debt funds is justified
Return on Equity or 1. Higher shall be the best. Initial target of the company to match with
Earnings After Tax
5 Return on Equity 12.00% 98.52% 103.45% industry standard.
Shareholder's Fund
Shareholder's fund 2. This ratio indicates the company's ability to provide return to shareholders.
Net Profit after Taxes
6 Return On Assets 15.00% 100.00% 105.00% Net Income per rupee of average fixed assets
Average Total Assets
Cost of Goods Sold Cost of goods sold
7 80.00% 83.33% 60.00% Indicates ratio of cost of sales
Ratio Sales

Back to Index

[E] TURNOVER RATIO / ACTIVITY RATIO / VELOCITY RATIO Back to Index

Actual Ratio Actual Ratio

No Ratio Formula Standard Ratio Interpretation
Current Year Previous Year
1. Lower ratio indicates maintaining excess stock or inclusion of outdated /
Finished Goods or Cost of Goods Sold slow moving items in the stock.
1 3.00 2.50 2.00
Stock Turnover Ratio Average Stock 2. Higher ratio indicates that the company's Purchase and Sales department
works efficiently
1. Lower ratio indicates the efficiency level of purchase department or it
Raw Material Turnover Raw Material Consumed
2 6.00 2.67 2.33 indicates that company is maintaining stock lower than its normal
Ratio Average stock of Raw material
requirements.
 Inventory Holding
365 Days
3 Period 150.00 146.00 182.50 Same as Above
Stock Turnover Ratio
(Velocity Period)
1. Higher indicates efficiency of credit division or it indicates that the company
Credit Sales is offering attractive credit / discount policy.
4 Debtors Turnover Ratio 6.00 7.50 7.50
Average Accounts receivable 2. Lower ratio indicates that company needs to review its credit policy for its
customers.

1. Lower period indicates efficiency of credit division or it indicates that the

Debtors Collection 365 Days company is offering attractive credit / discount policy.
5 40.00 48.67 48.67
Period Debtor turnover ratio 2. Higher period indicates that company needs to review its credit policy for
its customers.

1. Lower ratio Indicates company's higher creditworthiness and company is

utilizing interest free investment from Creditors or it indicates that the
Creditors Turnover Credit Purchases company is not availing discount offers by the suppliers or the liquidity of
6 5.00 7.00 7.00
Ratio Average Accounts payable the company is not good.
2. Higher ratio indicates that the company uses discount offer optimally or it
is new in the market

1. Higher ratio Indicates company's higher creditworthiness and company is

utilizing interest free investment from Creditors or it indicates that the
Creditors Payment 365 Days company is not availing discount offers by the suppliers or the liquidity of
7 40.00 52.14 52.14
Period Creditors turnover ratio the company is not good.
2. Lower ratio indicates that the company uses discount offer optimally or it
is new in the market

Working Capital Turnover

8 3.00 4.00 5.00 Indicates working capital cycle
Turnover Ratio Net Working Capital
Indicates ability of the company to generate sales per rupee of Fixed Asset
Fixed Asset Turnover Turnover
9 2.00 20.00 25.00 1. Higher ratio indicates optimal use of assets.
Ratio Fixed Assets
2. Lower ratio indicates that company has idle assets or unused assets

Capital employed Sales Indicates ability of company to generate sales per rupee of long term
10 0.25 0.29 0.36
Turnover Ratio Capital Employed investment. The higher the turnover, better the ratio is.

Back to Index

[F] MARKET-TEST RATIO / FINANCIAL POSITION RATIO Back to Index

Actual Ratio Actual Ratio

No Ratio Formula Standard Ratio Interpretation
Current Year Previous Year
PAT - Preference Dividend Return or income per share, whether or not distributed as dividends
1 Earnings Per Share 2.00 1.00 1.10
Number of Equity Shares Higher shall be the best
 Dividend to Equity Shareholders
2 Dividend Per Share 2.00 0.80 0.80 Amounts of dividend distributed per share
Number of Equity Shares
Total Dividend
3 Dividend Pay-Out ratio 60.00% 90.00% 85.71% Indicates portion of profit distributed as dividend
PAT
DPS
4 Dividend Yield Ratio 30.00% 40.00% 40.00% Indicates return on market price based on dividend
MPS
Price Earning Ratio MPS
5 1.50 2.00 1.82 Indicates price earning capacity of the company
(P/E Ratio) EPS

Back to Index