ratio

ANALYSIS The above table shows the ratios obtained in 3 years. In the year 2001-02, the operating profit of the firm was 71340 and the capital employed was 180366. The overall profitability ratio for this year was 39.55%. For the year 2002-03 the operating profit was 62079 and the...

FIXED ASSETS RATIO This ratio expresses the relationship between fixed assets and shareholder’s fund. Formula:- Fixed Assets Ratio = Fixed Assets Shareholder’s Fund Significance:- This ratio indicates as to how the...

EQUITY RATIO This equity ratio is also known as ‘proprietary ratio’ or ‘net worth ratio’. This ratio expresses the relationship between shareholders fund and total assets. Formula:- Equity Ratio = Shareholder’s Fund Total Assets...

CASH RATIO This ratio is also known as ‘Absolute Liquid Ratio’. This ratio expresses the relationship between cash and bank balance and current assets. Formula:- Cash Ratio = Cash & Bank Balance Current Assets Significance:-...

QUICK RATIO This ratio is also termed as ‘acid test ratio’ or ‘liquidity ratio’. Quick ratio is more severe and stringent test of a firm’s ability to meet current obligation. The ratio is ascertained by comparing the liquid assets to current liabilities. An asset is liquid, if it can be...

CURRENT RATIO This ratio is an indicator of the firm’s commitment to meet its short-term liabilities. The ratio establishes a relationship between current assets and current liabilities. Objectives:- The objective of computing this ratio is to measure the ability of the firm to meet its...

TOTAL ASSETS TURNOVER RATIO Total assets turnover ratio is the ratio between total assets and net sales. This ratio is expressed as a proportion. Objectives:- The objective of this ratio is to indicate the efficiency or inefficiency in the use of total assets or resources of the...

FIXED ASSETS TURNOVER RATIO This ratio indicates the extent to which the investments in fixed assets contribute towards sales. If compared with previous period, it indicates whether the investment in fixed assets has been judicious or not. Objectives:- The objective of calculating this...

CAPITAL TURNOVER RATIO This ratio establishes a relationship between net sales and capital employed. Objectives:- The objectives of computing this ratio are to determine the efficiency with which the capital employed is utilized. Formula:- Capital Turnover Ratio =...

TURNOVER RATIO Turnover ratios indicate the efficiency with which the capital employed is rotated in the business. The overall profitability of the business depends on two factors: (i) the rate of return on capital employed; and (ii) the turnover, i.e., the speed at which the...

NET PROFIT RATIO This ratio measures the relationship between net profit and net sales. Objectives:- The main objective of computing this ratio is to determine the overall profitability. Formula:- Net Profit Ratio = Net Profit x 100...

PRICE EARNING RATIO (P.E.R.) This ratio indicates the number of times the earning per share is covered by its market price. It is mainly concerned to the investors. In this ratio, the relationship is established between the market price of the share and the earning per share (EPS)...

Limitations of overall profitability ratio The overall profitability ratio suffers from certain important limitations. These are as under: 1. Manipulation Possible: the overall profitability ratio is based on earnings and investments. Both these figures can be manipulated by management...

OVERALL PROFITABILITY RATIO This ratio is also called as “Return on Investments” (ROI) or “Return on Capital Employed” (ROCE). It indicates the percentage of return on the total capital employed in the business. This ratio measures the relationship between net profit before interest and...

DEMERITS OF RATIO ANALYSIS Accounting ratios are subject to certain limitations. They are: 1. Comparative study required: Ratios are useful in judging the efficiency of business only when they are compared with the past results of the business or with the result of a similar business...

MERITS OF RATIO ANALYSIS Following are some of the advantages of ratio analysis: 1. Simplifies financial statements: Ratio analysis simplifies the comprehension of financial statements. Ratios tell the whole story of changes in the financial condition of the business. 2. Facilitates...

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Importance of Ratio Analysis for financial analysis. Managementparadise.com is bring some of the tool for financial analysis and report. Understand the term of Ratio Analysis steps and process. IMPORTANCE OF RATIO ANALYSIS The ratio analysis is the most important tools of financial...

RATIO ANALYSIS: Ratio analysis is a widely used tool of financial analysis. It is defined as the systematic use of ratio to interpret the financial statements so that the strengths and weakness of a firm as well as its historical performance and current financial condition can be...

Current Ratio Current ratio measures short-term solvency of the company to meet its short term obligation. Curretn ratio in the year 1983 was 1.64:1. It signifies that a decline in the value of current assets will adversely affect the ability of the firm to meet its obligation and from point of...