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S.no.

Ratio Name

Formula

Ideal Ratio

What is better

Remarks

1

Debtor Turnover Ratio

Net Sales / Debtors

Depand upon Business to Business

Higher the better

Net Sales=Sales+Direct Income-Sales Return

2

Debtors Collection Period

360/ Debtors turnover ratio

Depand upon Business to Business

Lower the better

Bank normally does not takes debtors more then 90 days

3

Creditors for direct exp. And Purchases Turnover Ratio

Purchase +Direct Exp. / Creditors

Depand upon Business to Business

Lower the better

Only Creditors for Purchases to be taken

4

Creditors for Indirect Exp.  Turnover Ratio

Indirect Exp. / Creditors

Depand upon Business to Business

Lower the better

All Indirect Exp. Except Dep and Intrest

5

Creditors payment period (pur +direct exp)

360/CTR

Depand upon Business to Business

Lower the better

While taking bank loan, we should not show more then 30 to 60 days creditors, hence it should not be too high.

6

Creditors payment period (indirect exp)

360/CTR

Depand upon Business to Business

Higher the better

While taking bank loan, we should not show more then 30 to 60 days creditors, hence it should not be too high.

7

Inventory Turnover Ratio

COGS/Inventory

Depand upon Business to Business

Higher the better

COGS=Cost of Goods Sold

i.e.

Sales+ Direct Income-GP

Or

Opening Stock +Purchases-Closing Stock

 

In case of factories we calculated seprately for raw material, wip, finished goods.

8

Inventory Holding Period

360/ITR

Depand upon Business to Business

Lower the better

In case of factories we calculated seprately for raw material, wip, finished goods.

  1. Accounts and Finance
  2. Step 7 Ratio Analysis
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CA Maninder Singh's photo - Expert in Practical Accounts, Taxation and Efiling
CA Maninder Singh
CA Maninder Singh is a Chartered Accountant for the past 8 years. He provides courses for Practical Accounts, Taxation and Efiling at teachoo.com .
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