Financial Accounting Ratios and Formulas:

This is a collection of financial ratio formulas which can help you calculate financial ratios in a given problem.

Analysis of Profitability:

General profitability:

• Gross profit ratio = (Gross profit / Net sales) × 100
• Operating ratio = (Operating cost / Net sales) × 100
• Expense ratio = (Particular expense / Net sales) × 100
• Operating profit ratio = (Operating profit / Net sales) × 100

Overall profitability:

• Return on shareholders’ investment or net worth = Net profit after interest and tax / Shareholders’ funds
• Return on equity capital = (Net profit after tax – Preference dividend) / Paid up equity capital
• Earnings per share (EPS) ratio =  (Net profit after tax – Preference dividend) / Number of equity shares
• Return on gross capital employed = (Adjusted net profit / Gross capital employed) × 100
• Return on net capital employed = (Adjusted net profit / Net capital employed) × 100
• Dividend yield ratio = Dividend per share / Market value per share
• Dividend payout ratio or pay-out ratio = Dividend per equity share / Earnings per share

Short Term Financial Position or Test of Solvency:

• Current ratio = Current assets / Current liabilities
• Quick or acid test of liquid ratio (for immediate solvency) = Liquid assets / Current liabilities
• Absolute liquid ratio = Absolute liquid assets / Current liabilities

Current Assets Movement, Efficiency or Activity Ratios:

• Inventory / Stock turnover ratio = Cost of goods sold / Average inventory at cost
• Debtors of receivables turnover ratios = Net credit sales / Average trade debtors
• Average collection period = (Trade debtors  No. of working days) / Net credit sales
• Creditors or payables turnover ratio = Net credit purchase / Average trade creditors
• Average payment period = (Trade creditors  No. of working days) / Net credit purchase
• Working capital turnover ratio = Cost of sales / Net working capital

Analysis of Long Term Solvency:

• Debt to equity ratio = Outsiders funds / Shareholders funds or External funds / Internal funds
• Ratio of long term debt to shareholders funds (Debt equity) = Long term debt / Shareholders funds
• Proprietary of equity ratio = Shareholders funds / Total assets
• Fixed assets to net worth = Fixed assets after depreciation / Shareholders’ funds
• Fixed assets ratio or fixed assets to long term funds = Fixed assets after depreciation / Total long term funds
• Ratio of current assets proprietors’ funds = Current assets / Shareholders’ funds
• Debt service or interest coverage ratio = Net profit before interest and tax / Fixed interest charges
• Capital gearing ratio = Equity share capital / Fixed interest bearing funds

You may also be interested in other articles from “financial statement analysis” chapter:

1. Horizontal and Vertical Analysis
2. Ratios Analysis
3. Horizontal Analysis or Trend Analysis
4. Trend Percentage
5. Vertical Analysis
6. Accounting Ratios Definition, Advantages, Classification and Limitations:
7. Gross profit ratio
8. Net profit ratio
9. Operating ratio
10. Expense ratio
11. Return on shareholders investment or net worth
12. Return on equity capital
13. Return on capital employed (ROCE) Ratio
14. Dividend yield ratio
15. Dividend payout ratio
16. Earnings Per Share (EPS) Ratio
17. Price earning ratio
18. Current ratio
19. Liquid/Acid test/Quick ratio
20. Inventory/Stock turnover ratio
21. Debtors/Receivables turnover ratio
22. Average collection period
23. Creditors/Payable turnover ratio
24. Working capital turnover ratio
25. Fixed assets turnover ratio
26. Over and under trading
27. Debt-to-equity ratio
28. Proprietary or Equity ratio
29. Ratio of fixed assets to shareholders funds
30. Ratio of current assets to shareholders funds
31. Interest coverage ratio
32. Capital gearing ratio
33. Over and under capitalization
34. Financial-Accounting- Ratios Formulas
35. Limitations of Financial Statement Analysis

Other Related Accounting Articles:

• Fixed Assets Turnover Ratio
• Current Assets to Proprietor’s Fund Ratio
• Dividend Yield Ratio
• Return on Equity Capital (ROEC) Ratio
• Proprietary Ratio or Equity Ratio
• Dividend Payout Ratio
• Over trading and Under Trading
• Return on Shareholders Investment or Net Worth Ratio
• Debt Service Ratio or Interest Coverage Ratio
• Fixed Assets to Proprietor’s Fund Ratio