1.

Current Ratio : Current Ratio = Current Assets Current Liabilities Interpretations of the Ratio A high value of the current ratio gives us an indication that the firm is liquid and has the ability to pay dues. On the other hand, a low value of Current Ratio gives us an indication that it will be difficult for the firm to pay its short term obligations. A standard value of current ratio as 2:1 is considered satisfactory. 2. Quick Ratio or Acid Test Ratio Quick ratio = Quick or liquid assets (Current Assets Inventory) Current Liabilities Bank Borrowing Interpretation A standardised value of 1:1 is considered as a satisfactory value for quick ratio and represents a satisfactory current financial condition. A higher value shows less dependence on Inventory for paying short term liabilities and vice versa. 3. Debt Equity Ratio Debt equity ratio = Long term debt Tangible Net worth Interpretation The ratio shows the extent to which debt financing has been used in business. A high ratio shows that the claims of creditors are greater than those of owners. A low debt equity ratio implies a greater claim of the owners than creditors. A high ratio will indicate high stake of creditors in relation to total funds. A low ratio will indicate non-utilisation of the borrowed funds for financing the business activity. 4. Inventory turnover = Cost of goods sold Averse inventory Interpretation A high inventory turnover indicates good inventory management while a low turnover suggests inefficient inventory management. A low turnover may indicate excessive inventory or slow moving inventory is comparison with sales. or Term liabilities Tangible Net worth

5. Debtors turnover and collection period Debtors turnover = Credit sales Average debtors Average Collection period = Days in a year Debtors Turnover Interpretation The shorter collection periods shows better quality of debtors and prompt payment by debtors. The collection period, should however, be compared with the industry average.

6. Creditors Turnover or Payment Period = Average Sundry Creditors x 12 or 52 or 365 Annual Purchases of Raw Material Interpretation Increasing period may be a concern for the lenders as they may doubt the intention of the party to pay its creditors or due to a possible liquidity crunch due to non-payment by the debtors. On the other hand the rising period may be due to the string reputation of the party to enjoy more credit and also the business trend. 7. Fixed Assets Turnover Fixed Assets Turnover = Sales

Net Fixed Assets Interpretation of the ratio Generally, a high fixed assets turnover ratio indicates efficient utilisation of fixed assets in generating sales, while a lower ratio indicates inefficient management and utilisation of fixed assets. 8. Total Assets Turnover Sales Total Assets Interpretation A higher value of this ratio indicates the firm's ability of generating more sales per rupee invested in assets. 9. Capital Employed Turnover Capital Employed Turnover = Sales/Capital employed.

Interpretation Higher the ratio more is the efficient utilisation of owners and long term creditors funds. The ratio should be compared to that of the industry. 10. Gross Profit Margin Gross profit margin = Sales - Cost of goods sold x 100 Sales A higher ratio indicates better management and profitability. 11. Net Profit Margin/ Net Profit Ratio Net Profit margin = Net profit Sales A high value indicates that a large extent of expenditure related to marketing, administration, discount, commission etc. is reducing the profitability of the company and vice versa. 12.Return on Investment (ROA) Return on Assets = PBIT Total Assets Interpretation A higher ratio indicates higher profitability of all financial resources invested in the firms assets and vice versa. 13.Return on Capital Employed (ROCE) ROCE = Net profit after taxes Capital employed (CL + TL + TNW) Higher the ratio, more efficient is the firm in using funds entrusted to it. 14. Return on Share Holder's Equity/ Net Worth x 100

Return on Share holders' equity = Net profit after taxes/ Share Holders Equity (Net Worth).

Interpretation A higher value indicates a greater extent of earnings generated on the shareholders funds which is one of the major objectives of business and vice versa.