Activity Ratios / Turnover Ratios / Efficiency Ratios: (…… Times)
I) Inventory Turnover Ratio = Cost of Revenue from Operations (Cost of Goods Sold)
Average Inventory
Cost of Revenue from Operations = Opening Inventory + Purchases + Carriage + Wages +
Other Direct Expenses - Closing Inventory
OR
= Revenue from Operations – Gross Profit
OR
= Revenue from Operations + Gross Loss
Average Inventory = Opening Inventory + Closing Inventory
2
NOTE: Loose Tools, Stores and Spares are excluded from inventory while calculating Inventory
Turnover Ratio.
II) Trade Receivables Turnover Ratio = Credit Revenue from Operations (Credit Sales)
Average Trade Receivables
Trade Receivables (T. R.) = Bills Receivables + Sundry Debtors (less Prov. for doubtful debts)
Total Rev. from Operations = Total Rev, from Operations – Cash Rev. from Operations
Average Trade Receivables = Opening T. R. + Closing T. R.
2
III) Trade Payables Turnover Ratio = Net Credit Purchases
Average Trade Payables
Trade Payables (T. P.) = Bills payables + Sundry Creditors
Average Trade Payables = Opening T. P. + Closing T. P.
2
IV) Fixed Asset Turnover Ratio = Revenue from Operations (Net Sales)
Net Fixed Assets
Rev. from Operations = Cash Rev. from Op. + Credit Rev. from Op. – Rev. from Op. Returns
Net Fixed Assets = Fixed Assets -- Depreciation
Fixed Assets = Tangible Assets (Land, Buildings, Plant & Machinery, Furniture
and Fixtures, Computers, Vehicles, Office Equipment etc.)
+ Intangible Assets (Goodwill, Brands/Trade Marks, Computer
Software, Patents, Copyrights, Mining Rights, Licences and
Franchise etc.)
V) Net Asset Turnover Ratio = Revenue from Operations (Net Sales)
Net Assets (or Capital Employed)
VI) Working Capital Turnover Ratio = Revenue from Operations (Net Sales)
Working Capital
Profitability Ratios / Income Ratios: ( % )
I) Gross Profit Ratio = Gross Profit × 100
Revenue from operations
Gross Profit = Rev. from Operations – Cost of Rev. from Operations
OR
= Net Profit After Interest + Operating Exp. + Interest Charges
Cost of Revenue from Operations = Opening Inventory + Purchases + Carriage + Wages +
Other Direct Expenses - Closing Inventory
OR
= Revenue from Operations – Gross Profit
OR
= Revenue from Operations + Gross Loss
II) Operating Ratio = Cost of Rev. from Op. + Op. Expenses – Op. Income × 100
Rev. from Operations
Operating Expenses = Employee Benefit Expenses + Depreciation &
Amortisation Expenses + Other Exp. (i.e. Office and
Administration Exp. + Selling and Distribution Exp. +
Discount + Bad-Debts + Interest on Short-term Loans)
Operating Income = Commission Received + Discount Received
NOTE:
1. Depreciation and Amortisation Expenses are included in Operating Expenses.
2. Spare Parts and Loose Tools are excluded from Inventory
III) Operating Profit Ratio = Operating Profit × 100
Revenue from Operations
Operating Profit = Gross Profit – Operating Exp. + Operating Income
OR
= Net Profit (before Tax) + Non-Op. Exp./Loss – Non-Op. Incomes
IV) Net Profit Ratio = Net Profit after Tax × 100
Revenue from Operations
Net Profit after Tax = Gross Profit – Indirect Exp & losses + Other Incomes – Tax
Indirect Expenses & Losses = Office Exp. + Selling Exp. + Interest on Long term
Borrowings + Accidental Losses
V) Return on Investment (R. O. I.) = Net Profit before Interest, Tax & Dividend × 100
Capital Employed
Capital Employed (Asset Side Approach) = Non-Current Assets + Working Capital
OR
= Non-Current Assets + Current Assets – Current Liabilities
Capital Employed (Liabilities Side Approach) = Shareholder’s Fund + Long Term Debts
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