Ratio analysis is a tool that is used for getting a quick indication of a company’s financial condition in respect to market. As a form of Financial Statement Analysis, this is calculated in a specific manner.

**How to calculate ratio analysis?**

Certain details are to be placed while calculating ration analysis. These include:

Liabilities:

- Sundry creditors
- Dividends and payable bills
- Share capital
- Debentures
- Short term advances
- Accrued expenses

Assets:

- Fixed capital (Machinery, Land, Building)
- Receivable bills
- Sundry debtors
- Cash at bank
- Inventories
- Patents
- Prepaid expenses

Current Ratio = Current Assets/Current Liabilities

Liquid Ratio = (Current Assets – Prepaid and Stock Expenditure)/Current Liabilities

Gross Profit Ratio = (Gross Profit/Net Sales) x 100

Gross Profit = Sales – Cost of Goods Sold

Net Sales = Gross Sales – Sales Return/Return Inwards

Inventory Turnover Ratio = (Turnover/Total Assets) x 100

With help of these formulas most of the sums can be calculated.

**Links of Next Finance Topics:-**

- Introduction to accounting and branches of accounting
- Preparation of final accounts
- Introduction of fund flow statement
- Introduction cash flow statement
- Ratio analysis significance of ratio analysis
- Advantages of ratio analysis
- Limitation of ratio analysis
- Classification of ratios
- Liquidity short term solvency ratios
- Long term solvency ratios
- Profitability ratios
- Activity or turnover ratios

**Links of Next Finance Topics:-**