Important Financial Ratios required for Analysis
Below are the important financial ratios along with the formula which helps you to analyse the financial health of any company. The result derived will be mentioned in the remarks column.
For more understanding, it's better to analyse the trend of the past 3 years with the respective data so that better financial analysis can be done.
For more understanding, it's better to analyse the trend of the past 3 years with the respective data so that better financial analysis can be done.
The following are the list of important financial ratios required for analysis grouped under the respective category.
Static Ratios
1. Asset Intensive Ratio: Fixed assets (Net) to Total Assets2. Proprietary Ratio: Proprietor’s Funds (capital plus Reserves) to Total Assets
3. Current Ratio: Current Assets to current Liabilities
4. Quick Ratio/Acid Test Ratio/Liquid Ratio: (Debtors plus cash/Bank Balances) to Creditors
5. Debt-Equity Ratio: Proprietor’s Funds to Loan Funds
6. Capital gearing Ratio: Equity capital to (Preference Capital plus Debentures)
Dynamic Ratios
1. Materials cost Ratio: Cost of Materials to Cost of Sales.2. Labors cost Ratio: Cost of personnel to cost of sales.
3. Overheads cost Ratio: Cost of expenses (excluding finance cost) to cost of sales.
4. Finance cost Ratio: Cost of finance to cost of sales.
5. Cost of sales Ratio: Cost of sales to sales.
6. Gross Profit Ratio: Gross profit to sales.
7. Net profit Ratio: (Profit before dividend) to sales.
Inter-Related Ratios
1. Working Capital Turnover Ratio: (Current Assets minus current Liabilities) to sales.2. Stock Turnover Ratio: Stock to sales.
3. Fixed Assets Turnover Ratio: Fixed Assets to sales.
4. Net Worth Turnover Ratio: (Equity Capital plus Reserves) to sales.
5. Capital Turnover Ratio: (Capital plus Long Term Loans) to sales.
6. Debtors Turnover Ratio: Debtors to sales
Profitability Ratios
1. Return on capital Ratio: Net profit (before Dividend) to Average Capital (Equity plus Reserves).2. Earnings per Share: Net Profit (before Dividend) to No of equity shares.
3. Interest Coverage Ratio: Profit before interest and Taxes to Interest plus Preference Dividend.
4. Debt Service Ratio: Profit before interest and Taxes to Interest plus Preference Dividend plus Annual debt installment due.
5. Operating Leverage: Fixed cost to Profit before interest and Taxes.
6. Financial Leverage: Profit before interest and Taxes to Profit before Taxes.
6. Financial Leverage: Profit before interest and Taxes to Profit before Taxes.
Growth Ratios
1. Book value per share: Equity Capital plus Reserves to No of equity shares.2. Annual growth: Closing book value per share minus operating book value per share to Opening book value per share.
3. Assets growth: Addition to Total Assets x 100 to Opening total Assets.
3. Assets growth: Addition to Total Assets x 100 to Opening total Assets.
4. Expansion Rate: Addition to fixed Assets x 100 to Opening fixed Assets.
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