LIQUIDITY RATIOS - LIQUIDITY RATIOS 1 Current Ratio = Total...

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LIQUIDITY RATIOS 1. Current Ratio = Total Current Assets Total Current Liabilities 2. Liquid or Quick Ratio = Quick Assets Current Liabilities or Quick Assets Quick Liabilities Note: Quick liabilities may not include Bank Overdraft and Short Term Credits as they are not payable on demand.
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3. Absolute Liquidity Ratio : Super Quick Assets Quick Liabilities Note : Super Quick Assets include only cash in hand, cash at bank and marketable securities. 4. Stock to working Capital Ratio : Stock at the end Working Capital
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LEVERAGE / CAPITAL STRUCTURE RATIO/ SOLVENCY RATIOS These ratios measure the long-term solvency of a firm. Financial leverage refers to the use of debt finance. While debt capital is a cheaper source of finance, it is also a risky source. Leverage ratios help us assess the risk arising from the use of debt capital. Two types of ratios are commonly used to analyze financial leverage - structural ratios and coverage ratios. Structural ratios are based on the proportions of debt and equity in the financial structure of a firm. Coverage ratios show the relationship between the debt commitments and the sources for meeting them. The long-term creditors of a firm evaluate its financial strength on the basis of its ability to pay the interest on the loan regularly during the period of the loan and its ability to pay the principal on maturity.
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1. Proprietary Ratio : Total Shareholder’s Funds Total Assets Note: Total shareholder’s funds comprise equity capital, preference share capital and reserves and surplus minus Total fictitious assets. Assets do not include fictitious assets.( Total of Balance Sheet (-) FA 2. Debt – Equity Ratio : Total Debts ( External Equities) Owner’s Funds (internal Equity) Note: Total Debts include long-term liabilities. Owner’s Funds include Equity Share Capital + Preference Share Capital + Reserves and Surplus minus Fictitious Assets.
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Alternatively, Debt-Equity Ratio : Long-Term Debts Owner’s Funds+ Long-Term Debts 3. Capital Gearing Ratio : Fixed Interest / Dividends bearing Securities Equity Share Capital + Reserves and surplus Note : Fixed Interests / Dividends bearing securities include Debentures, bonds and Preference Share Capital. Highly Geared------------Low Equity Share Capital Low Geared---------------High Equity Share Capital 4. Long-Term Debts : Long-Term Debts to Total Capital Ratio Shareholder’s Funds + Long – Term Debts
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5. Interest Coverage Ratio : (Debt-Service ratio) Profit Before Interest on Long-Term Interest on Long-Term Debts
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LIQUIDITY RATIOS - LIQUIDITY RATIOS 1 Current Ratio = Total...

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