1. Md. Sahabul Hasan
BBA (Finance), DU
Cell: 01677269758
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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2. 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 =
=
=
= 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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