CCP Ratios

Ratio Analysis::

1. Accounting ratios are relationship expressed in mathematical terms between accounting figures which
for meaningful purpose.
2. Classification: P & L Ratios
3. Balance Sheet Ratios
4. Composite or Inter-Statement Ratios.

Functional Classification
1. Profitability
2. Turnover/Activity Ratios
Financial/Solvency Ratios
3. Financial Ratios may be further classified as Short Term Ratios/Liquidity Ratios or Long Term/
Solvency Ratios

Return on Capital Employed
1. EBIT * 100
Capital Employed

Earnings before Interest & Tax

2. Op. Profit means profit from the Operations of the Company plus Int(Long term) & Tax
3. Capital Employed = Share Capital+ Reserves & Surplus+ Long Term loans –( Non- business assets +
Fictitious assets)
4. Proper calculation gives us Return on Capital Employed

Earnings Per Share (EPS)
EPS = Net Profit after tax & Pref. Dividend
No. of Equity Shares
This shows whether equity Capital of Co. is properly used or not Company’s capacity to pay Dividend.
EPS helps us at estimating Market Price of the Company
Price Earning (P/E Ratio)
Market Price of per Equity Share
EPS
Helps to decide whether to buy Share of a Company.
Gross Profit Ratio
Gross Profit* 100
Net Sales
It helps in Price decision & Profit from Op. before Charging all other expenses.
Net Profit Ratio
Net Operating Profit * 100
Net sales

Solvency Ratios
Long Term Solvency Ratios
1. Fixed Assets Ratios : Fixed Assets
Long Term Funds
2. The ratio should not be more than one.
3. If it is less than one then it indicates part of the Working Capital Financed through Long term Funds i.e.
we may call Core Working Capital
Debt- Equity Ratio
1. i) DE Ratio : Total Long Term Debt
Total Long Term Funds
2. Ii) DE Ratio : Total Long Term Debt
Shareholders Funds
3. Debt Service Coverage Ratio= Cash Profit available for debt
4. Interest+ Instalment
5.Short Term Solvency Ratio
i) Current Ratio = Current Assets
Current Liabilities
Ideal ratio: 2
Acceptable to Bank 1.33
ii) Liquidity Ratio/Acid Test or Quick Ratio:
Liquid Assets
Current Liability

Turnover Ratios:;

Stock Turnover Ratio =
Cost of goods Sold during the year
Average Inventory

Debtors Turn over Ratios (Debtors Velocity) =
Credit Sales
Average Accounts Receivable

Debtors Collection Period =
Months or days in a year
Debtors turnover or
Accounts receivable
Average Monthly or daily Credit sales
Fixed Assets Turnover Ratio =
Cost of Goods Sold
Net Fixed Assets