Accounts

Study Plan

For 17 march 2020 to 31 March 2020

Ratio Analysis

A. Liquidity Ratios:

(i) Current Ratio: Current Assets / Current Liabilities

Current Assets = Current Investments + Inventories (excluding Loose Tools and Spare Parts) + Trade Receivables + Cash and Bank Balance + Short-term

Loans and Advances + Other Current Assets

Current Liabilities = Short term borrowings + Trade payables + Other Current Liabilities + Short term Provisions

(ii) Quick Ratio / Liquid Ratio:

Quick Assets /Current Liabilities

All Current Assets- Inventories(excluding Loose Tools and Spare Parts)- Prepaid Expenses

B. Solvency Ratios:

(i) Debt to Equity Ratio:

Debt / Long Term Debt/ Equity / Shareholders' Funds

Debt = Long Term Borrowings + Long Term Provisions Equity / Shareholders’ Funds = Share Capital + Reserves and Surplus

Or

Non Current Assets + (Current Assets –

Current Liabilities) - Non Current Liabilities = Non Current Assets + Working

Capital- Non Current Liabilities = (Tangible Assets + Intangible Assets + Non Current Investments +

Long Term Loans and Advances) + Working Capital – (Long Term Borrowings + Long Term Provisions)

(ii) Proprietary Ratio:

• Shareholders Funds/ Equity /Total Assets

• Total Assets = Non Current Assets + Current Assets = Tangible Assets + Intangible Assets + Non Current Investments + Long Term Loans and Advances + Current Investments + Inventories (including Loose Tools and Spare Parts) + Trade Receivables + Cash and Bank Balance + Short-term Loans and Advances + Other Current Assets

(iii) Debt to Total Assets Ratio:

• Debt / Total Assets

(iv) Interest coverage ratio =

• Net profit before interest and taxes/ Interest

• Interest includes interest on only long term borrowings.

C. Activity Ratios:

(i) Trade Receivable Turnover Ratio = Credit Revenue from Operation / Average Trade Receivable

• Credit Revenue from Operation = Revenue from Operation – Cash Revenue from Operation

• Average Trade Receivables = (Opening Trade Receivable + Closing Trade Receivable )/2

(ii) Trade Payable Turnover Ratio =

Net Credit Purchases / Average Trade Payable

Average Trade Payables = (Opening Trade Payable Closing Trade Payable)/2

(iii) Working Capital Turnover Ratio =

Revenue from Operations

Working Capital

(iv) Inventory Turnover Ratio =

Cost of Goods Sold /

Cost of Revenue from Operation

Average Inventory

Cost of goods sold= Opening Stock +

Net Purchases + Direct Expenses –

Closing Stock

Cost of Revenue from Operations =

Revenue from Operations – Gross

Profit

Or

Cost of Material Consumed (including

direct expenses) + Change in

inventories of WIP and Finished Goods

Or

Opening Inventory + Net Purchases+

Direct Expenses – Closing inventory

Average Inventory =

(Opening Inventory + Closing Inventory)/2

D. Profitability Ratios:

(i) Gross Profit Ratio:

(Gross Profit/Revenue from Operations)×100

• Gross Profit = Revenue from Operations –

Cost of Revenue from Operations/ Cost of

Goods Sold

• Cost of Revenue from Operations = Cost

of Material Consumed (including direct

expenses) + Change in inventories of WIP

and Finished Goods.

Or

• Opening Inventory + Net Purchases +Direct Expenses – Closing inventory

(ii) Net Profit Ratio: =

(Net Profit/Revenue from Operations)×100

• Net Profit = Gross profit + Other Income– Indirect Expenses – Tax

(iii)Operating Ratio:

(Cost of Revenue from Operations/Cost of Goods Sold+Operating Expenses/Revenue from Operations)x100

• Operating Expenses = Employee Benefit Expenses + Depreciation + Selling and Distribution Expenses+ Office and Administrative Expense.

• Operating Income = Sale of scrap, trading commission received, cash discount received,revenue from services.

(iv) Operating Profit Ratio:

(Net Operating Profit/Revenue from Operations)×100

• Net operating profit = Net Profit after Tax+ Non-Operating Expenses – Non Operating Incomes

Or

• Gross Profit – Operating Expenses +Operating Incomes

• Non Operating Expenses = Finance Cost (Interest on Borrowings) + Loss on sale of Non Current Assets

• Non Operating Incomes = Interest and Dividend Received on Investment + Profit on sale of Non Current Assets.

(v) Earning per share:

Net Profit after Tax and Preference Dividend/No. of Equity Shares

(vi) Price Earning Ratio

Market Value of an Equity share/Earning per share

(vii) Return on Investment

= (Net Profit before Interest and Tax/Capital Employed)×100

NOTE:

1. Current Ratio includes Net Debtors (Gross

Debtors – Provision for doubtful debts) while

Trade Receivables Turnover Ratio includes

Gross Debtors.

2. Capital employed = Shareholders’ Funds +

Non-current liabilities – non trade investments

OR

Non-current assets (excluding Non-trade

investments) + Working Capital

OR

Fixed Assets + Trade Investments + Working

Capital

3. Investments to be taken as non-trade

investments unless specified as trade

investments.

4. In Return on Investments Ratio- Net Profit

before interest and tax will not include interest

on non-trade investments.

5. Revenue from operation (for a manufacturing

company)

• Net Sales

For a manufacturing

• Sale of scrap company

Other Income: (for a manufacturing company)

• Rent received (non- operating)

• Commission received (operating)

• Interest and Dividend Received (non-

operating)

• Profit from Sale of Fixed Assets (non-

operating)

• Cash discount received (operating)

Week : 17th -22nd March

Chapter/ Topic: Ratio Analysis / Current & Liquid Ratio

Project guideline

Project 1- Ratio Analysis

Acknowledgement

Index

Page 1- concept and definition of ratio analysis.

Page 2- features of ratio analysis.

Page 3- advantages of ratio analysis.

Page 4- limitations of ratio analysis.

Page 5- different accounting ratios.

Page 6- illustrative examples of ratios (sums).

Page 7- case study.

Page 8- bibliography.

Given below is a sample project should not be copied.

Send your project to your respective subject teachers in the following email addresses :

Email id : <dipankar.bhattacharya@dpsn.org.in>

<arnab.saha@dpsn.org.in>

XI