You can compare Principal Ratios of your company over a period with industry averages as well as with ratios pertaining to other periods to assess current performance.
Current Ratio
(Current Assets: Current Liabilities)
Known as the liquidity or solvency ratio, this is the most frequently used for assessing the company’s capability of meeting its short-term obligations. More specifically, it elucidates a firm's ability to cover its current assets with current liabilities.
Quick Ratio
(Current Assets-Stock in Hand: Current Liabilities)
Known as Acid-Test Ratio it concentrates on the liquid part of the current assets, leaving out the closing stock. It used to measure a firm's ability to meet its current obligations. Stocks and inventories are the least liquid of all current assets and if current assets comprise a high proportion of inventories, a firm may be considered less solvent.
Debt-Equity Ratio
(Loans (Liability): Capital Account + Nett Profit)
This is a gearing ratio that shows the extent to which long-term debt is helpful in financing the firm and shows the proportion of borrowed funds to owners' equity. The lower the ratio, the greater the amount of funds invested by the owners. If the ratio is high it indicates that the borrowed funds are more than the own funds of the firm, which makes the firm less credit-worthy.
Gross Profit %
This represents the trading profit exclusive of indirect expenses and tax deductions, expressed as a percentage of total sales. It measures the efficiency of a firm's operations and indicates how products are priced.
Nett Profit %
This is the profit inclusive of all expenses (direct and indirect) except tax deductions, expressed as a percentage of total sales. It is a more specific measure of the efficiency of a firm's operations.
Both Gross Profit % and Nett Profit % put together provide an insight into a firm's operations and the role played by direct and indirect expenses.
Operating Cost %
(as percentage of Sales Accounts)
This is the total cost inclusive of direct and indirect expenses except for tax deductions, expressed as a percentage of sales. A high ratio shows that even a slight rise in costs would be risky and might necessitate increase in price.
Receivable. Turnover in Days
(payment performance of Debtors)
It is an efficiency ratio that measures the quality of a firm's receivables and determines how successfully the firm collects its debts. Receivable Turnover days is a figure that gives us the average number of days for which the receivables are outstanding. It must be compared with the average credit policy of the firm.
Computation of Receivable. Turnover
Recv. Turnover in Days = (Closing Balance of debtors/Total Sales)*Number of Days
Return on Investment %
(Nett Profit/Capital Account+Nett Profit) %
Nett Profit is the profit after all expenses but before deduction of taxes. This is a profitability ratio that an investor is most interested in. The investor needs to know how much is earned on each dollar invested. If the investor finds other avenues that give better returns, he will move his money out of the firm.
Return on Wkg. Capital %
(Nett Profit/Working Capital)%
This is another profitability ratio that ignores sunk costs in Fixed Assets and assesses how profitably a firm uses its net current assets.