Ratios

Meaning and Explanation Sacrificing ratio is the proportion in which old partners of a firm forego their share of profits in favour of new partner(s). The sacrificed portion is given to the new partner by the existing partner(s). On the other hand, the partner who gains the share calculates a gaining ratio at his/her end. […]

Meaning and Explanation The gaining ratio is the proportion in which one or more partners gain a share in the firm’s profit as a result of other partner(s) sacrifice. It is used to compute the amount of compensation paid by the gaining partners to the ones who are sacrificing their share of profit (known as […]

Accounting Ratios There are mainly 4 different types of accounting ratios to perform a financial statement analysis; Liquidity Ratios, Solvency Ratios, Activity Ratios and Profitability Ratios. A financial ratio is a mathematical expression demonstrating a relationship between two independent or related accounting figures. Such ratios are calculated on the basis of accounting information gathered from financial […]

Operating Profit Ratio Operating profit ratio establishes a relationship between operating Profit earned and net revenue generated from operations (net sales). operating profit ratio is a type of profitability ratio which is expressed as a percentage. Net sales include both Cash and Credit Sales, on the other hand, Operating Profit is the net operating profit i.e. […]

Net Profit Ratio Also known as Net Profit Margin ratio, it establishes a relationship between net profit earned and net revenue generated from operations (net sales). Net profit ratio is a profitability ratio which is expressed as a percentage hence it is multiplied by 100. Net sales include both Cash and Credit Sales, on the other […]

Gross Profit Ratio Also known as the Gross Profit Margin ratio, it establishes a relationship between gross profit earned and net revenue generated from operations (net sales). The gross profit ratio is a profitability ratio expressed as a percentage hence it is multiplied by 100. Net sales consider both Cash and Credit Sales, on the […]

Working Capital Turnover Ratio Working Capital Turnover Ratio is used to determine the relationship between net sales and working capital of a business. It shows the number of net sales generated for every single unit of working capital employed in the business. Companies may perform different types of analysis such as trend analysis, cross-sectional analysis, etc. to find […]

Creditor’s Turnover Ratio or Payables Turnover Ratio Creditor’s turnover ratio is also known as Payables Turnover Ratio, Creditor’s Velocity and Trade Payables Ratio. It is an activity ratio that finds out the relationship between net credit purchases and average trade payables of a business. It finds out how efficiently the assets are employed by a firm and […]

Debtor’s Turnover Ratio or Receivables Turnover Ratio Debtor’s turnover ratio is also known as Receivables Turnover Ratio, Debtor’s Velocity and Trade Receivables Ratio. It is an activity ratio that finds out the relationship between net credit sales and average trade receivables of a business. It helps in cash budgeting as cash flow from customers can be […]

Stock Turnover Ratio The inventory turnover ratio or stock turnover ratio indicates the relationship between “cost of goods sold” and “average inventory”. It indicates how efficiently the firm’s investment in inventories is converted to sales and thus depicts the inventory management skills of the organization. It is both an activity and efficiency ratio. This ratio […]

Interest Coverage Ratio Interest Coverage ratio is a type of solvency ratio (long-term solvency) which is derived by dividing “Earnings before Interest and Taxes” of a company with its “Interest on Long-Term Debt“. Ideal number for this ratio is 1.5 or above, anything less than that shows the company doesn’t earn enough w.r.t its interest […]

Fixed Assets Ratio The fixed Assets ratio is a type of solvency ratio (long-term solvency) which is found by dividing the total fixed assets (net) of a company by its long-term funds. It shows the amount of fixed assets being financed by each unit of long-term funds. It helps to determine the capacity of a […]

Operating Cash Flow Ratio Operating cash flow ratio also known as cash flow from operations ratio is calculated by dividing cash flow from operations by current liabilities. All cash generated from firm’s core business operations is termed as operating cash. It is different from cash generated through investing and financing in a way that it doesn’t […]

Proprietary Ratio This ratio shows the proportion of total assets of a company which are financed by proprietors’ funds. The proprietary ratio is also known as the equity ratio. It helps to determine the financial strength of a company & is useful for creditors to assess the ratio of shareholders’ funds employed out of the […]

Debt to Equity Ratio Debt to equity ratio shows the relationship between a company’s total debt with its owner’s capital. It reflects the comparative claims of creditors and shareholders against the total assets of the company. It is a measurement of how much the creditors have committed to the company versus what the shareholders have […]

Debt to Asset Ratio It is also called debt to total resources ratio or only debt ratio. The debt to asset ratio measures the percentage of total assets financed by creditors. It is computed by dividing the total debt of a company with its total assets. This ratio provides a quick look at the part of […]

Acid Test Ratio Acid Test Ratio/Liquid Ratio/Quick Ratio is a measure of a company’s immediate short-term liquidity. It is calculated by dividing liquid assets by current liabilities. Liquid assets can be termed as those assets which can almost immediately be converted to cash or an equivalent. Unlike the current ratio, this doesn’t take into account […]

Super Quick Ratio or Cash Ratio This ratio goes one step ahead of current ratio, liquid ratio & is calculated by dividing super quick assets by the current liabilities of a business. It is called super quick or cash ratio because unlike other liquidity ratios it only takes into account “super quick assets”. This is the […]

Current Ratio The current ratio is a type of liquidity ratio which is established by dividing total current assets of a company with its total current liabilities. It shows the amount of current assets available with a company for every unit of current liability payable This ratio helps to determine the short-term financial liquidity of […]