• Depreciation & methodsDepreciation is reduction in the value of fixed assets due to its usage and technology changes. Generally depreciation is charged at some percentage on value of an asset. If we don’t use fixed asset also, we should provide depreciation. Depreciation is provides on the tangible asset except land

Accumulated Depreciation: The total to date of the periodic depreciation charges on depreciable assets.

Methods:

Fixed Instalment method or Stright line method

Dep. = Cost price – Scrap value/Estimated life of asset.

Diminishing Balance method: Under this metod, depreciation is calculated at a certain percentage each year on the balance of the asset, which is bought forward from the previous year.

Annuity method: Under this method amount spent on the purchase of an asset is regarded as an investment which is assumed to earn interest at a certain rate. Every year the asset a/c is debited with the amount of interest and credited with the amount of depreciation.

• provision vs Reserve Provisions means any amount written off by way of reduction, alterations of any assets and any liability.

Provisions is charged on p&l account

Provisions creations are mandatory.

Provisions are reducing netprofit.

Reserves are charged on profit and loss appropriation amount

These reserves are created for future loss.

Reserves creation is possible when there is net profit is available

• AmortizationIt is process of written off an intangible assets. Amortization provides on intangible assets. Intangible assets means which is not physically touched and seen like good will, patent rights, copy rights.

• Dilapidation: means damage done to a building or other property during tenancy.• Operating expenses vs non Operating expenses

These expenses incurred during running the business within a year.

Like admin, sales & distribution

Non operating expenses incurred out of the business. Like interest paid, commission paid etc.

• Operating income vs non operating incomeThe income arised from the business during specific period.

Like sale of goods,

The income arised out of the business. Interest received, commission received, dividend received etc.

2.revenue expendatures/deffered revenue expenditures/capital expenditureRevenue expenditure incurred when purchase of rawmaterial to make a goods. This revenue expenditure give benefit within a year.like administrations and selling & distribution expenses.This expenditure shown in debit side P&l a/c

Differed Revenue expenditure means it is a revenue nature, this exp incurred during particular period of time. But it applicable to future periods also like 2-3 years. For heavy advertisement , R&D, preliminary expenses, this expenditure should not taken full amount in P&l account . only one year amount should be taken in P&L a/c remaining balance shown in liabilities side in balance side.

Copyright The legal right granted to an author, composer, playwright, publisher, or distributor to exclusive publication, production, sale, or distribution of a literary, musical, dramatic, or artistic work.Patent A government license that gives the holder exclusive rights to a process, design, or new invention for a designated period of time.

general reserve or capital reserveThese reserves can be transffered from normal profits of business. These reserves can be use for future loss.These reserves can be transferred from capital gains. Capital gains like sale of fixed assets . if company need assets, these reserves can be used. Secret reserves: secret reserves are reserves the existence of which does not appear on the face of balance sheet. In such a situation, net assets position of the business is stronger than that disclosed by the balance sheet.           These reserves are crated by:

• Excessive dep.of an asset, excessive over-valuation of a liability. • Complete elimination of an asset, or under valuation of an asset.

• 72. Undisclosed reserves: Sometimes a reserve is created but its identity is merged with some other a/c or group of accounts so that the existence of the reserve is not known such reserve is called an undisclosed reserve. 

80. Financial break even point: it denotes the level at which a firm’s EBIT is just sufficient to cover interest and preference dividend.  

• Contingent liabilityAn obligation to an existing condition or situation may arise in future depending on occurance of one or more uncertain future events

Is called

• Funds flow & cash flowFunds flow statement shows where the funds can be obtained and where the funds can be utilized. There are different sources for obtaining the funds like issue of share, debentures, sales of fixed assets etc. and the funds can be utilized as a redumption of shares, purchase of assets.

When preparation of fundsflow statement working capital is necessary.

The fund means longterm debt of the organization. It is one of financial statement.

Cash flow statement show inflow and outflow of cash and cash equallent of particular period.

It is helpful for short term analysis and cash planning of the company.

When preparation of cashflow statement , need not required for preparation of working capital.

There are three activities of cash flow statement

1.operating activities: sales, commission received, dividend received,bad debt recovery, // indirect expenses salaries, wages

2.investment activities: sale of asset // acquiring asset

3. financing activities: issue of shares, debentures// redumption of shares, debentures

• Cost of capital: it means the minimum rate of return expected by investments.

• Holding company & subsidiary company & associate company

A company which is controlled by its holding company. The control could be because of any of the following factors.More than 50% of capital being owned by holding company.Majority of the Board of directors of subsidiary are from holding company.

• Merger & acquisitionOne or more companies joined together and established new company is called as merger

TYPES OF MERGERS1)Horizontal mergers: The consolidation of firms that are direct rivals--i.e. firms that sell substitutable products or services within the same geographic market.2)Vertical Mergers: The consolidation of firms that have potential or actual buyer-seller relationships.3)Conglomerate Mergers: Consolidated firms may share marketing and distribution channels and perhaps production processes; or they may be wholly unrelated.4)Congeneric mergers occur where two merging firms are in the same general industry, but they have no mutual buyer/customer or supplier relationship, such as a merger between a bank and a leasing company. Example: Prudential's acquisition of Bache & Company.

Acquisition means one company purchase another same company is acquisition

• Minority interestMinority interest refers to the equity of minority shareholders in

subsidiary company. The holding company pays the amount to the subsidiary company equity share holders. Minority interest it should be disclosed on the consolidated statements of the subsidiary company.

• Fictitious assetsThese assets are not represented by the tangible possession, but these assets are peculiar assets, which represents past losses and expenses like preliminary expenses, discount on issue of shares, debit balance in the profit and loss a/c

• Bank reconciliation statement

The main objective of BRS is to find out the reasons for where the difference between the passbook and cash book. This is prepared when there is bank account in bank only.

Various reasons occurred difference b/w passbook and cash book

Cheque issued but not presented in bank

Dividends, interests collected by bank

Wrong credit made in cash book

Cheque deposited but not collected by bank

Directly payment by bank on behalf of customer

Bank charges

Wrong debit made in cash book

15.Public company vs private companyPublic company there is no upper limit on number of share holders and there is no restriction on transfer of shares. Articles of Association does not contain the public limited company

Private company: corporate entity in which limits the number of its members to 50, and does not invite the public for subscribe to its capital, restricted members to right to transfer of shares. As private co,, followed by Articles of Association.

• Capital budgeting Capital budjeting means process of taking decision making regarding investment in long term projects or investment in fixed assets.

The capital budjeting is two types

• Traditional method• Discounted cashflow methods

Time value of money.

Money has time value. A rupee today is more valuable than a rupee a year hence. The relation between value of a rupee today and value of a rupee in future is known as “Time Value of Money

Why is the time value of money so important in capital budgeting decisions?

The time value of money is critical to the decision-making process of capital budgeting. Both individuals and businesses use the time value of money to best determine how to plan for and bring about future economic growth. In many situations, allocating cash and analyzing investment opportunities will require the use of time value of money calculations. Understanding how the time value of money works and the reasons this concept is important helps make these budgeting decisions easier.

For two or more mutually exclusive investments, decision makers should usethe net present value technique instead of the internal rate of return because the former uses

the cost of capital as the reinvestment rate.The reason for this is that under net present value, the reinvestment assumes cash flows are reinvested at the cost of capital;under the internal rate of return, the reinvested rate is assumed to be reinvested at the internalrate of return. This is a disadvantage of the internal rate of return technique as it yieldsoverstated rates of return because it assumes cash flows are reinvested at the internal rate ofreturn.

4.Types of sharesThere are two types of sharesEquity shares: there is no preference right, those who have equity shares, thus people have owners of company, the quity shareholders have right to vote in AGM. They can enjoy benefit and bear the loss , the equity share holders get dividend after pre . shareholders.

Preference shares: the pre shareholders get fixed dividend , there is no right to vote in AGM.If the company not getting the profits, the co.. will pay dividend to its pre share holders.

5.share premium/discount on issue of sharesThe excess of issue price than a face value of share is called share premium. The diff b/w issue price and face value is called Share premium. If there is demand in the market of that share than When security sold lessthan the face value is called issue at discount.

• Primary market & secondary marketThe primary market provides the channel for sale of new securities. Primarymarket provides opportunity to issuers of securities; Government as well as corporates, to raise resources to meet their requirements of investment and/or discharge some obligation. They may issue the securities at face value, or at a discount/premium andthese securities may take a variety of forms such as equity, debt etc. Theymay issue the securities in domestic market and/or international market.When a security is sold above its face value, it is said to be issued at aPremium and if it is sold at less than its face value, then it is said to beissued at a Discount.

IPO:initial public offering: is when an unlisted company makes either afresh issue of securities or an offer for sale of its existing securities or bothfor the first time to the public. This paves way for listing and trading of theissuer’s securities. This is the way to trading and listing of the issure’s securities.the sale of securities are issued trhough book building or normal public issue

A follow on public offering (Further Issue) is when an already listedcompany makes either a fresh issue of securities to the public or an offer forsale to the public, through an offer document.Rights Issue is when a listed company which proposes to issue fresh

securities to its existing shareholders as on a record date. The rights are normally offered in a particular ratio to the number of securities held prior tothe issue. This route is best suited for companies who would like to raisecapital without diluting stake of its existing shareholders.

Preferential issue: the shares can be issued at selected group of persons, which is neither rights issue or public issue. This is faster way for a company raise equity capital

Buy back shares: If company may not doing well and it sufferd losses in such cases share prices declining,to prevent further decline share prices , the company take a decision to buy back shares from nervous investors. The prices they offer for these shares would higher than the market price. So the investor gain profit. Simply the investor can get buy back form and sent to the company.

Benefit of Bonus shares: Joint stock companies which make huge profits, issue bonus shares to their ordinary shareholders out of the accumulated profits. These shares are issued free of cost in proportion to the number of existing equity share holding. In case they do not take up the shares offered to them, the same can be issued to others. Thus, equity shareholders get the benefits of the right issue.

Capital appreciation: The nominal or par value of equity shares is fixed but the market value fluctuates. The market value mainly depends upon profitability and prosperity of the company. High rate of dividend is paid with high rate of profit, the shareholders capital is appreciated through an appreciation in the market value of shares.

Book Building is basically a process used in IPOs for efficient price discovery.It is a mechanism where, during the period for which the IPO is open, bidsare collected from investors at various prices, which are above or equal tothe floor price. The offer price is determined after the bid closing date.

Secondary market: it is a market provides where securities are traded after being initially offered to the public in the primary market. Majority of trading is done in secondary market. Stock exchange is example of buying and selling of shares trading. Secondary market two typesEquity market and debt market

Prospectus: a large number of new companies issuing shares. So the investor can know the company information before applying for any issue.a part of guidelines by issued by SeBI , the company can disclose information to the public. The disclosure includes information like reason for raising money, the money is proposed to be spent, returns expected on money etc. this information is in the form of prospectus. In this includes size of issue, current status of company, its equity capital , its current and past performance, the promoters, cost of project . this helps for evaluating long term and short term prospect of company.

Stock exchange:it is trading platform, where buyers and sellers can meet to transact in securities.the sebi has regulating and supervising the stock exchange. The trading plotform of NSE is an electronic form, there is no need to meet physically . there can be trade compurised screens available for trading purpose.

Earnings per share (EPS): It is a financial ratio that gives the information regarding earring available to each equity share. It is very important financial ratio for assessing the state of market price of share. The EPS statement is applicable to the enterprise whose equity shares are listed in stock exchange.

Types of EPS:Basic EPS ( with normal shares)Diluted EPS (with normal shares and convertible shares)

EPS Statement:

Sales ****Less: variable cost ****

Contribution ***Less: Fixed cost ****

EBIT *****Less: Interest *** EBT ****Less: Tax **** Earnings **** Less: preference dividend ****Earnings available to equity Share holders (A) *****

EPS=A/ No of outstanding SharesEBIT and Operating Income are sameThe higher the EPS, the better is the performance of the company.

BSE: it is oldest stock exchange in india. The major companies trading in this stock exchange.the index of bse is sensex, the index shows how specified portfolio of share prices moving upward and downward according to market condition. This is a sensitivity index because various factors affected . in bsc top 30 stocks taken for moving the index

Sensex & Nifty: the sensex is index of bsc. This index shows how the portfolio of shares prices moving upward and downward according to market trends. It is sensitive index , it fluctuates various factors like national and international factors. The sensex fluctuates top 30 stocks in bsc.

Market capitalization:total number of shares issued multiflies with market price per share is called market capitalization. The total value of company in stock exchange is called market capitalization

Stock split/ reverse split Stock split is corporate action which splits existing shares of particular face value in to smaller denominations , so the number of shares increase , but market capitalization is unchanged, if price of share is , the investor can feel that share price is high, so when split the share , the investor has interest to buy the share.splitting stock may lead to increase in the stock liquidity Spin off: new company created from existing company because of sale of securities

Goodwill: Goodwill shows reputation of the company. It shows increasing the value of assets that’s why we taken as imitable asset in the side of assets. the present value of firms anticipated excess earnings.

Amalgamation:the term is used in two sensesRepayment of lone over a period of timeWritten off expenses (like issue cost of shares) over a period of time

Insider trading----The illegal buying or selling of securities on the basis of information that is unavailable to the public.

Proxy : The authorization given by one person to another person to vote on behalf of in the shareholders meeting.

Bridge finance: companies taken loans from commercial banks for short term pending disbursement of financial institutions. If there is time gap between company and financial institutions regarding the funds, then the companies taken funds from commercial banks with high rate of interest.

Factoring: It is an arrangement under which a firm (called borrower) receives advances against its receivables, from a financial institutions (called factor) factoring services deals with customer and client. customer buys goods from client and factoring agent pays amount to client.after than the agent received cash from customer with factoring services commission also.

Sinking Fund: It is created to have ready money after a particular period either for the replacement of an asset or for the repayment of a liability. Every year some amount is charged from the P&L a/c and is invested in outside securities with the idea, that at the end of the stipulated period, money will be equal to the amount of an asset.

YTM: ; The measure of the average rate of return that will be earned on a bond if it is bought now and held until maturity. To calculate this, we need the information on bond price, coupon rate and par value of the bond.

Revaluation Account: It records the effect of revaluation of assets and liabilities. It is prepared to determine the net profit or loss on revaluation. It is prepared at the time of reconsititution of partnership or retirement or death of partner.

Realisation Account: It records the realisation of various assets and payments of various liabilities. It is prepared to determine the net P&L on realisation.

Differed incometax

A liability recorded on the balance sheet that results from income already earned and recognized for accounting, but not tax, purposes. Also, differences between tax laws and accounting methods can result in a temporary difference in the amount of income tax payable by a company

For example, let's say that the amount of tax that a business should pay is $100,000, but due to tax laws, the amount actually payable for this fiscal year is $85,000. The additional $15,000 would be a deferred income tax liability that the company would need to pay later on.

Leverage: - It arises from the presence of fixed cost in a firm capital structure.

Generally leverage refers to a relationship between two interrelated variables.

These leverages are classified into three types.

• Operating leverage • Financial Leverage.• Combined leverage or total leverage.

Operating Leverage: It arises from fixed operating costs (fixed costs other than the financing costs) such as depreciation, shares, advertising expenditures and property taxes.

When a firm has fixed operatingcosts, a change in 1% in sales results in a change of more than 1% in EBIT

%change in EBIT

% change in sales

The operaying leverage at any level of sales is called degree.

Degree of operatingLeverage= Contribution/EBIT

Significance: It tells the impact of changes in sales on operating income.

If operating leverage is high it automatically means that the break- even point would also be reached at a highlevel of sales.

Financial Leverage: It arises from the use of fixed financing costs such as interest. When a firm has fixed cost financing. A change in 1% in E.B.I.T results in a change of more than 1% in earnings per share.

F.L =% change in EPS / % change in EBIT

Degree of Financial leverage= EBIT/ Profit before Tax (EBT)

Significance: It is double edged sword. A high F.L means high fixed financial costs and high financial risks.

Combined Leverage: It is useful for to know about the overall risk or total risk of the firm. i.e, operating risk as well as financial risk.

C.L= O.L*F.L

= %Change in EPS / % Change in Sales

Degree of C.L =Contribution / EBT

A high O.L and a high F.L combination is very risky. A high O.L and a low F.L indiacate that the management is careful since the higher amount of risk involved in high operating leverage has been sought to be balanced by low F.L

A more preferable situation would be to have a low O.L and a F.L.

Letter of Credit

When Party A supplies goods to Party B, the payment terms may provide for a Letter of Credit.

In such a case, Party B (buyer, or opener of L/C) will approach his bank (L/C Issuing

Bank) to pay the beneficiary (seller) the value of the goods, by a specified date, against

presentment of specified documents. The bank will charge the buyer a commission, for

opening the L/C.

Venture capital and seed money

It refers to the financing of high risk ventures promoted by new qualified entrepreneurs who require funds to give shape to their ideas.

Seed capital assistance:  The seed capital assistance scheme is desired by the IDBI for professionally or technically qualified entrepreneurs and persons possessing relevant experience and skills and entrepreneur traits.

Arbitrage: it means purchase and sale of securities in different markets in order to profit from price discrepancies. In other words arbitrage is a way of reducing risk of loss caused by price fluctuations of securities held in a portfolio.

Marginal costing: it is a technique of costing in which allocation of expenditure to production is restricted to those expenses which arise as a result of production, i.e., materials, labour, direct expenses and variable overheads. opportunity cost

Opportunity Cost is the cost incurred by the organisation when one alternative is selected over another. For example: A person has Rs. 100000 and he has two options to invest his money, either invests in fixed deposit scheme or buy a land with the money. If he decides to put is money to buy the land then the loss of interest which he could have received on fixed deposit would be an opportunity cost.

 Zero- base- budgeting:  It is a management tool which provides a systematic method for evaluating all operations and programmes, current of new allows for budget reductions and expansions in a rational manner and allows reallocation of source from low to high priority programs.

Mutual funds & schemes: a pool of money, collected from small investors and invested in different securities according to the investment objectives.the fund manager taken decision where the funds can be invested.

Net asset value(NAV): the value of one unit of investment called as NeV.NAV per unit is simply that net value of assets divided by the number of units outstanding. Buying and selling into funds is done on the basis of NAV-related prices.The NAV of a mutual fund are required to be published in newspapers. The

NAV of an open end scheme should be disclosed on a daily basis and theNAV of a close end scheme should be disclosed at least on a weekly basis

GDR & ADRADR is American Depository Receipt. A non US company issues ADRs in US in order to rise capital from U.S investors. An ADR will normally be in multiples of Equity shares of that company. ADS provide opportunity to U.S investors to invest in overseas securities.and these securities traded in U.S stock market.

GDR: is defined as global finance vehicle, that allows an issuer to raise capital simultaneously in two or more market through global offering.

What is stock option? ----Stock option is an instrument that carries a right to buy the underlying stock at a certain price during certain time frame. Normally issued to the employees of the companies to motivate and retain them.

An acquisition or takeover is the purchase of one business or company by another company or other business entity. Such purchase may be of 100%, or nearly 100%, of the assets or ownership equity of the acquired entity. Acquisitions are divided into "private" and "public" acquisitions, depending on whether the acquiree or merging company (also termed a target) is or is not listed on a public stock market. Whether purchase a company being friendly or hostile depends on how we proposed and communicated to perceived by target company’s board of directors, employees , share holders. "Acquisition" usually refers to a purchase of a smaller firm by a larger one. Sometimes, however, a smaller firm will acquire management control of a larger and/or longer-established company that is known as Reverse acquisition or takeover.

merger happens when two firms agree to go forward as a single new company rather than remain separately owned and operated. Both companies' stocks are surrendered and new company stock is issued in its place.

Reverse merger occurs privately held company buys a publicly listed company because of that has strong prospect and eagar to raise financing.

Sweat equity shares are equity shares issued by a company to its employees or directors at a discount, or as a consideration for providing know-how or a similar value to the company.A company may issue sweat equity shares of a class of shares already issued if these conditions are met:

The issue of sweat equity shares should be authorised by a special resolution passed by the company in a general meeting The resolution should specify the number of shares, current market price, consideration, if any, and the section of directors /employees to whom they are to be issued As on the date of issue, a year should have elapsed since the company was entitled to commence business.

Securitization: To convert asset in to a security that can be sold to investor. Nearly income generated assets can be turned into security.

Dematerialization: is a process by physical certificate of investor can converted into equal number of shares in electronic form

Underwriter: the function performed by investment banks when they help companies issue securities to investors. The investment bank buys securities from companies and immediately resell the securities to investors for slightly high price.

Arbitrage: it means busy the stock in one market with low price and resell the stock into another market with high price for reducing risks to gaining profits.

Float: the number of shares available for trading in the market times the price . Generally bigger float, the greater the stock liquidity.

HEDGING is strategy focused upon reducing exposure to risk of loss resulting from fluctuations in exchange rates, commodity prices, interest rates etc

Hedge funds: These funds can be raised from large investor ( usually wealthy individuals) These hedge funds are one of the best component of buy side. These hedge funds can be invested in multitude stock, derivatives, bonds market. These funds can be reduced risk.

Private Debt: If the companies raise capital from different ways by public issue or private debt. These funds can be taken from commercial banks. This is called as private debt.

Zero coupan bonds: Bonds can be issued at discount and repaid at face value. There is no periodic interest paid. The difference between issue price and redumption price represents returns to the holder. The buyer of these bonds received only one payment at the maturity of bond.

Warrents: the options generally lives up to one year. The majority options are traded in stock exchange have maximum maturity up to nine months. Longer dated options are called as warrents. And trade over the counter.

Capital Redemption ReserveCapital Redemption Revere is an reserve created when a company buys it owns shares which reduces its share capital. This reserve is not distributable to shareholders and can be used to pay bonus shared issued.A greenshoe option

Reverse greenshoe option is a put option for a given amount of shares (15% of the issued amount, for example) held by the underwriter "against" the issuerThe IPO price is set at $10 per share. If it falls to $8, the underwriter purchases X amount of shares in the market and then exercises the option, buying the shares at $8 in the market and selling back to the issuer at $10. Buying a large bloc of shares stabilizes the price.If the price rises to $12, the underwriter neither purchases stock nor exercises the option.

A greenshoe option (sometimes green shoe, but must[1] legally be called an "over-allotment option" in a prospectus) allows underwriters to short sell shares in a registered securities offering at the offering price. The greenshoe can vary in size and is customarily not more than 15% of the original number of shares offered.The mechanism by which the greenshoe option works to provide stability and liquidity to a public offering

Irredeemable: Equity shares are always irredeemable. This means equity capital is not returnable during the life time of a company.

Realization concept: According to this concepts, revenue is considered as being earned on the data which it is realized, i.e., the date when the property in goods passes the buyer and he become legally liable to pay.

Accrual concept: The profit arises only when there is an increase in owners capital, which is a result of excess of revenue over expenses and loss.

Define the term accrual : Recognition of revenues and costs as they are earned or incurred. It includes recognition of transaction relating to assets and liabilities as they occur irrespective of the actual receipts or payments. 245. Accrued Expenses: An expense which has been incurred in an accounting period but for which no enforceable claim has become due in what period against the enterprises.

246. Accrued Revenue: Revenue which has been earned is an earned is an accounting period but in respect of which no enforceable claim has become due to in that period by the enterprise.

247. Accrued liability: A developing but not yet enforceable claim by an another person which accumulates with the passage of time or the receipt of service or otherwise. it may rise from the purchase of services which at the date of accounting have been only partly performed and are not yet billable.

252. Appropriation : It is application of profit towards Reserves and Dividends.

Gross profit ratio: It indicates the efficiency of the production/trading operations.Formula : Gross profit

-------------------X100 Net sales

208. Net profit ratio: it indicates net margin on sales Formula: Net profit --------------- X 100 Net sales

209. Return On Share Holders Funds : It indicates measures earning power of equity capital.Formula : profits available for Equity shareholders -----------------------------------------------X 100 Average Equity Shareholders Funds

210. Earning per Equity share (EPS): It shows the amount of earnings attributable to each equity share.Formula : profits available for Equity shareholders ---------------------------------------------- Number of Equity shares

211. Dividend Yield Ratio: It shows the rate of return to shareholders in the form of dividends based in the market price of the share Formula : Dividend per share ---------------------------- X100 Market price per share

212. Price Earning Ratio: It a measure for determining the value of a share. May also be used to measure the rate of return expected by investors. Formula : Market price of share(MPS) -------------------------------X 100 Earning per share (EPS)

213. Current Ratio: It measures short-term debt paying ability. Formula : Current Assets ------------------------ Current Liabilities

214. Debt-Equity Ratio: It indicates the percentage of funds being financed through borrowings; a measure of the extent of trading on equity. Formula : Total Long-term Debt --------------------------- Shareholders funds

215. Fixed Assets Ratio: This ratio explains whether the firm has raised adepuate long-term funds to meet its fixed assets requirements.

Formula Fixed Assets -------------------

Long-term Funds

216 . Quick Ratio: The ratio termed as ‘ liquidity ratio’. The ratio is ascertained y comparing the liquid assets to current liabilities.Formula : Liquid Assets ------------------------ Current Liabilities

217. Stock turnover Ratio: The ratio indicates whether investment in inventory in efficiently used or not. It, therefore explains whether investment in inventory within proper limits or not. Formula: cost of goods sold

------------------------ Average stock

218. Debtors Turnover Ratio: The ratio the better it is, since it would indicate that debts are being collected more promptly. The ration helps in cash budgeting since the flow of cash from customers can be worked out on the basis of sales. Formula: Credit sales

------------------- Average Accounts Receivable

219. Creditors Turnover Ratio: It indicates the speed with which the payments for credit purchases are made to the creditors.

Formula: Credit Purchases -----------------------

Average Accounts Payable

220. Working Capital Turnover Ratio: It is also known as Working Capital Leverage Ratio. This ratio Indicates whether or not working capital has been effectively utilized in making sales.

Formula: Net Sales ---------------------------- Working Capital

221. Fixed Assets Turnover Ratio: This ratio indicates the extent to which the investments in fixed assets contributes towards sales.

Formula: Net Sales --------------------------

Fixed Assets

222. Pay-out Ratio: This ratio indicates what proportion of earning per share has been used for paying dividend.

Formula: Dividend per Equity Share --------------------------------------------X100

Earning per Equity share

223. Overall Profitability Ratio: It is also called as “ Return on Investment” (ROI) or Return on Capital Employed (ROCE) . It indicates the percentage of return on the total capital employed in the business.

Formula : Operating profit ------------------------X 100 Capital employed

The term capital employed has been given different meanings a.sum total of all assets whether fixed or current b.sum total of fixed assets, c.sum total of long-term funds employed in the business, i.e., share capital +reserves &surplus +long term loans –(non business assets + fictitious assets). Operating profit means ‘profit before interest and tax’

224. Fixed Interest Cover Ratio: The ratio is very important from the lender’s point of view. It indicates whether the business would earn sufficient profits to pay periodically the interest charges.

Formula : Income before interest and Tax ---------------------------------------

Interest Charges

225. Fixed Dividend Cover Ratio: This ratio is important for preference shareholders entitled to get dividend at a fixed rate in priority to other shareholders.

Formula : Net Profit after Interest and Tax ------------------------------------------ Preference Dividend

226. Debt Service Coverage ratio: This ratio is explained ability of a company to make payment of principal amounts also on time.Formula : Net profit before interest and tax ---------------------------------------- 1-Tax rate Interest + Principal payment installment

227. Proprietary Ratio: It is a variant of debt-equity ratio . It establishes relationship between the proprietor’s funds and the total tangible assets. Formula : Shareholders funds----------------------------

Total tangible assets