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.

Ratio Analysis Problems and Solutions 1
Ratio Analysis Problems and Solutions 2

Ratio Analysis Problems and Solutions 3
Ratio Analysis Problems and Solutions 4
Ratio Analysis Problems and Solutions 5
Ratio Analysis Problems and Solutions 6

 

 

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