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Ratio Analysis Formula
Ratio analysis is the basic analysis, which represents the ratio as a single number. The ratio analysis formula gives the summary and quick metrics to understand the ratio as a single number. Ratio Analysis is represented as a single number or as a percentage value. The concept of ratio analysis is used in accountancy, business, engineering, physics. Liquidity ratios, profitability ratios, working capital ratios, capital structure ratios, are a few examples of ratio analysis formulas in accountancy.
What is Ratio Analysis Formula?
Ratio Analysis Formula is obtained by dividing the first number of the ratio with the second number of the ratio. It is expressed as a single decimal number or sometimes multiplied by 100 and expressed as a percentage.
Ratio = a : b
Ratio analysis formula = a/b
Ratio Analysis Formula = a/b × 100%
Some of the frequently used ratios in accountancy and business are as follows. These ratios are helpful to quickly analyze and make the needed conclusion.
Current Ratio = Curent Assets / Curent Liabilities
Quick Ratio = Liquid Assets / Current Liabilities
Gross Profit Ratio = Gross Profit / Net Sales × 100
Net Profit Ratio = Net Profit / Net Sales × 100
Inventory Ratio = Net Sales / Inventory
Working Capital Turnover Ratio = Net Sales / Working Capital
Overall Profitability Ratio = Net Profit / Total Assets
Let us check out a few examples below to more clearly understand the ratio analysis formula.
Solved Examples on Ratio Analysis Formula
Example 1: The gross profit of a company is $ 8 million and it has made net sales of $32 million. Find the gross profit ratio of the company
The given values of profit and sales are as follows:
Gross Profit = $8 million
Net Sales = $32 million
Ratio of gross profit and net sales = &
Gross Profit Ratio = Gross Profit/Net Sales × 100
= $8 million/$32million × 100
Answer: Gross Profit Ratio of the Company = 25%
Example 1: A plastic material is used to manufacture tables and its transversal strain is 0.8 and its axial strain is 0.6. Find the Poisson ratio of the plastic material.
The given values of strain are as follows.
Transversial strain = 0.8
Axial Strain = 0.6
Poisson Ratio = Transversial Strain/Axial Strain
Answer: Hence the Poisson's ratio is 1.33