16,000 = 2 : 1. Gross Profit Ratio = Gross Profit / Revenue from operation × 100  Current assets = Rs. shareholders’ funds. 1. Ratio Analysis It is a technique which involves re-grouping of data by application of arithmetical relationship. The cost of goods sold which are not included in the operating expenses is $1,000. It is a measure of security of interest payable on long-term debts. In the form of a formula this ratio is expressed as follows: 2,00,000. (b) Inventories (Excluding loose tools, stores and spares) (vii) Affected by personal bias and ability of the analyst. The operating ratio is determined by comparing the cost of the goods sold and other operating expenses with net sales. (ii) Trade payables (bills payable and sundry creditors). 22,000 = Rs. Profit refers to the Profit before Interest and Tax (PBIT) for computation of this ratio. 1,00,000 + Rs. To analyse the profitability of the business. or 2,50,000 Profit is necessary to give investors the return they require, and to provide funds for reinvestment in the business. 90,000 = Rs. Liquidity Ratio = Liquid Assets/Current Liabilities (a) Inventory Turnover Ratio: It determines the number of times inventory is converted into revenue from operations during the accounting period under consideration. When ratios are calculated on the basis of accounting information, they are called accounting ratios. Total Assets It includes 60,000/ Rs. Current Liabilities = Rs. = 1,00,000 + 10,000 + 30,000 + 20,000 + 40,000 = 2,00,000 The formula for its calculation is as follows: Inventory Turnover Ratio = Cost of Revenue from Operations / Average Inventory. *Non-current Assets (Tangible assets + Intangible assets + Non-current trade Current assets = 3.5x and Can someone clue me in to the formula used to calculate the ratio? 3,40,000 − Rs. (ii) Helps in simplifying accounting figures. Solution Use the below-given data for calculation of the operating ratio Therefore, the calculation of operating ratio is as follows, =(3000+1000)/5000 1. Operating profit ratio is an indicator of operational efficiency of the business. (v) Other current assets except prepaid expenses. (a) Fixed assets (tangible fixed assets, intangible fixed assets). Shareholders’ funds Rs. Current Ratio = 3.5 : 1  Quick Ratio = 2 : 1 (i) Debt to Equity ratio It establishes the relationship between long-term debt (external equities) and the equity (internal equities) i.e. current assets – current liabilities. NOTE Since,non-operating assets are excluded while determining capital employed, income from non-operating assets should also be excluded from profit. ∴ Inventory Turnover Ratio = Rs. 24,000, calculate current assets and current liabilities. A variation on the formula is to exclude production expenses, so that only administrative expenses are matched against net sales. Current Assets = Trade Receivables (sundry Debtors) + prepaid Expenses + cash and cash Equivalents + short term Investments + inventories Accounting Ratios It is a mathematical expression that shows the relationship between various items or groups of items shown in financial statements. 2,000 + Rs. = 32,00,000 / 16,00,000 = 2 : 1 Items Included in Long-term Debts It includes long-term borrowings and long-term provisions. If 70% of what you make is needed to pay _your_ bills, then your operating ratio is 0.7. 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