Discussion on ratios:
Function
Computation
Analytical value and aid to decision
making
Assessment/Bench marking
Strategic key drivers
Classification of Ratios:
1. Return on Investment
ratios:
Return on Net Worth (RONW) (in %)
= (Profit Preference dividend) * 100
Equity Shareholders Fund or Net
worth
Earning per share (EPS) (in Rs)
= Profit Preference dividend
No of equity shares outstanding
2. Solvency Ratios:
Net Asset Value (NAV) (in Rs.)
=
Equity shareholders fund
No. of equity share outstanding
Debt Equity Ratio (times)
=
Long term debt
Total net worth
Total net worth = Equity shareholders fund +
Preference capital
Interest Cover(times)
= Profit + Interest on long term debt + Non cash
charges
Interest on long term debt
Debt Service Cover Ratio (DSCR) (times)
= Profit + Interest on long term debt + Non cash
charges
Interest on long term debt + Installments of
principal
due
3.Liquidity Ratios:
Current Ratio (in times)
= Current assets, loans and advances + Short term
investments
Current liabilities + Provisions + Short term debt
Quick Ratio (in times)
= (Current assets, loans and advances + Short term
investments) (Prepaid expenses + Inventories)
Current liabilities + Provisions
5. Profitability Ratios:
Multistep profits to sales ratios
Individual expenses or cost to sales
ratio
Ratios of other income to PBT
Effective tax rate