Accounting Ratios Class 12 All Formulas

The relationship between two figures expressed in arithmetical terms is called a ratio. Ratios may be classified into the four categories as follows:

Liquidity Ratios
Solvency Ratios
Activity or Turnover Ratios
Profitability Ratios or Income Ratios

Topics Discussed

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Liquidity Ratios

Liquidity is the ability of the firm to meet its current obligations as they fall due. It includes

Current Ratio = Current Assets/Current Liabilities
Quick Ratio = Liquid Assets/Current Liabilities

Solvency Ratios

Solvency ratios disclose the firm’s ability to meet the interest costs regularly & long-term indebtedness at maturity.

Solvency ratios include:

Debt Equity Ratio = Debt/Equity
Total Assets to Debt Ratio = Total Assets/Debt
Proprietory Ratio = Equity/Total Assets
Interest Coverage Ratio = Profit before charging interest & income tax/Fixed Interest Charges

Activity Ratios

These ratios indicate how efficiently the working capital & inventory is being used to obtain revenue from operations. Some important turnover ratios are:

Inventory Turnover Ratio = Cost of Revenue From Operations/Average Inventory
Debtors or Receivable Turnover Ratio = Credit Revenue From Operations/Average Trade Receivables
Creditors or Payable Turnover Ratio = Net Credit Purchases/Average Trade Payables
Working Capital Turnover Ratio = Revenue From Operations/Working Capital

Formulas:

Cost of goods sold = Opening Inventory + Purchases + Carriage & Wages + Other Direct Charges – Closing Inventory

Average Inventory = Opening Inventory + Closing Inventory / 2

Accounting for Share Capital Class 12 Notes

Profitability Ratios

Profitability ratios measure the various aspects of the profitability of a company. Profitability ratios include:

Gross Profit Ratio = Gross Profit/ Net Sales * 100
Operating Ratio = Cost of Revenue from Operations + Operating Expenses – Operating Income/ Net Sales * 100
Operating Profit Ratio = Operating Profit/ Revenue from Operations * 100
Net Profit Ratio = Net Profit after Tax / Revenue from Operations * 100
Return on investment (ROI) = Net Profit before Interest, tax & Dividends / Capital Employed * 100

Formulas:

Operating Profit = Gross Profit – Operating Expenses + Operating Income

Net Profit = Gross Profit – Indirect Expenses & Losses + Other Income – Tax

Comparative and Common Size Statements Notes

Various tools or devices employed for analyzing the financial statements are as follows:

Comparative Statements
Common Size Statements
Trend Analysis
Accounting Ratios
Cash Flow Statement
Funds Flow Statement
Break-Even Point Analysis

Comparative Statements

When financial statement figures for two or more years are placed side by side to facilitate comparison, these are called ‘Comparative Financial Statements’.

Various types of financial statements are prepared in comparative form for analysis, but in practice, generally, the statements of profit & loss & Balance sheet are prepared in a comparative form.

Format of Comparative Balance Sheet

Particulars	Note No.	31.3.23	31.3.24	Absolute Change	Percentage Change
*EQUITY & Liabilities* 1. Shareholder’s Funds a) Share Capital b)Reserves and Surplus 2. Non-Current Liabilities a) Long Term Borrowings b) Long Term Provisions 3. Current Liabilities a) Short Term Borrowings b) Trade Payables c) Short Term Provision d) Other Current Liabilities
TOTAL
*ASSETS* 1. Non-Current Assets a) Fixed Assets (i) Tangible Assets (ii) Intangible Assets b) Non-Current Investments c) Long Term Loans & Advance 2. Current Assets a) Current Investments b) Inventories c) Trade Receivables d) Cash & Cash Equivalents
TOTAL

Comparative Balance Sheet

Format of Comparative Statement of Profit & Loss

Particulars	Note No.	2023-24	2024-25	Absolute Change	Percentage Change
1. Revenue From Operations 2. Add- Other Incomes 3. Total Revenue 4. Less: (Expenses) (Cost of Material Consumed) (Purchase of Stock in Trade) (Changes in Inventories) (Employee Benefit Expenses) (Depreciation & Amortization Expenses) (Other Expenses) TOTAL Expenses 5. Profit Before Tax (3-4) 6. Less: (Tax) 7. Profit After Tax

Comparative Statement of Profit & Loss

Common Size Statements

Common size statements are those in which individual figures are converted into percentages to some common base.

Format of Common Size Balance Sheet

Particulars	Note No.	31.3.23 (in absolute amt.)	31.3.24 (in absolute amt.)	31.3.23 (in %)	31.3.24 (in %)
*EQUITY & LIABILITIES* 1. Shareholder’s Funds a) Share Capital b) Reserve & Surplus 2. Non-Current Liabilities a) Long Term Borrowings b) Long Term Provisions 3. Current Liabilities a) Short Term Borrowings b) Trade Payables c) Other Current Liabilities d) Short Term Provisions
TOTAL
*ASSETS* 1. Non-Current Assets a) Fixed Assets (i) Tangible Assets (ii) Intangible Assets b) Non-Current Investments c) Long Term Loans & Advances 2. Current Assets a) Current Investment b) Inventories c) Trade Receivables d) Cash & Cash Equivalents e) Short Term Loans & Advances f) Other Current Assets
TOTAL

Common Size Balance Sheet

Format of Common Size Statement of Profit & Loss

Particulars	Note No.	2023-24 (absolute Rs.)	2024-25 (absolute Rs.)	2023-24 (in %)	2024-25 (in %)
1. Revenue From Operations 2. Add: Other Incomes 3. Total Revenue (1+2) 4. Less: (Expenses) (Cost of Materials Consumed) (Purchase of Stock in Trade) (Changes in Inventories) (Employee Benefit Expenses) (Finance Cost) (Other Expenses) Total Expenses 5. Profit Before Tax (3-4) 6. Less: (Tax) 7. Profit After Tax (5-6)

Common Size Statement of Profit and Loss