How to Calculate of Accounting Ratio

To calculate of accounting ratio, you need to remember and use of accounting ratio formula. These formulae are made by the persons who have both the knowledge of accounting and mathematics because ratio is the part of mathematics science and if you same ratio for financial statement analysis, then, it will be helpful also for those who are interested in business and its analyzed results. Every person is interested in business for knowing its profitability, liquidity and solvency position. Accounting ratio is easy way to explain complex and big financial statement in % form. We are calculating following Accounting ratios with given information. I think example is better than writing any detail of concept.

You are required to calculate :

i) Dividend yield on equity share
ii) Cover for the preference dividend
iii) Cover for the equity dividend
iv) Earning per share
v) the price earning ratio
vi) Net cash flow

Given information

The capital of star co. ltd. is as follows :

80000 equity share of Rs. 10 each = Rs. 800000
9% 30000 preference shares of Rs. 10 each = 300000

The following information has been obtained from the books of the company:

Profit after tax at 60% = Rs. 270000
depreciation = Rs. 60000
equity dividend paid = 20%
market price of equity share = Rs. 40


i ) DYES = DPS/ MPPS = 10 X 20% / 0 = 5%

ii ) CPD = Profit after tax / pref. dividend = 270000/ 300000 X 9% = 10 times

iii) CED = Profit after tax and pref. dividend/ equity dividend = 270000 -27000/ 800000 X 20% = 1.52 times

iv) EPS = Profit after tax and pref. dividend/ no. of equity shares = 270000 -27000/ 80000 = Rs. 3.04

v) PER = Market price per share / earning per share = 40/ 3.04 = 13.1 : 1

vi) Net Cash flow = net profit after tax + depreciation - total dividend = 270000 + 60000 - 27000 -160000 = Rs. 143000

( Note : because depreciation is not paid in cash, so it is operating loss but not cash, so it will include in net profit, if we are interested to calculate cash profit of business. )


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Accounting Education: How to Calculate of Accounting Ratio
How to Calculate of Accounting Ratio
Accounting Education
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