Computation of Ratios

 

Gross profit ratios

 

net profit

 

 

Net Profit Ratio

It measures the relationship between net profit and sales of a firm.  It indicates management’s efficiency in manufacturing, administrating, and selling the products.  It is calculated by dividing net profit after tax by sales.

cost accounting net profit ratio 2nd year bcca

operating  net profit ratio operating ratio

expenses  ratio

 

stocks, turn over ratio

 

Current Ratio

The current ratio measures the short-term solvency of the firm.  It establishes the relationship between current assets and current liabilities.  It is calculated by dividing current assets by current liabilities.

cost accounting current ratio 2nd year bcca

Current assets include cash and bank balances, marketable securities, inventory, and debtors, excluding provisions for bad debts and doubtful debtors, bills receivables and prepaid expenses.  Current liabilities includes sundry creditors, bills payable, short- term loans, income-tax liability, accrued expenses and dividends payable.

 

Liquidity Ratio

It has been an important indicator of the firm’s liquidity position and is used as a complementary ratio to the current ratio.  It establishes the relationship between quick assets and current liabilities.  It is calculated by dividing quick assets by the current liabilities.

Quick assets are those current assets, which can be converted into cash immediately or within reasonable short time without a loss of value.  These include cash and bank balances, sundry debtors, bill’s receivables and short-term marketable securities.

 

Debtors  Turn Over Ratio

This indicates the number of times average debtors have been converted into cash during a year.  It is determined by dividing the net credit sales by average debtors.

cost accounting debtor turnover ratio 2nd year bcca

Net credit sales consist of gross credit sales minus sales return.  Trade debtor includes sundry debtors and bill’s receivables.  Average trade debtors (Opening + Closing balances / 2)

When the information about credit sales, opening and closing balances of trade debtors is not available then the ratio can be calculated by dividing total sales by closing balances of trade debtor

cost accounting debtor turnover ratio  2 2nd year bcca

 

 

 

 

 

 

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