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:
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.