# Ratios

Capital Gearing Ratio
Capital gearing ratio is using to analyze the capital structure of a company.

Formula:                                                                                                                                                                                                                     Capital Gearing Ratio = Equity Share Capital / Fixed Interest Bearing Funds

Dividend cover
This measures how many times a company can pay dividends over the profit. Ex: if dividend cover is 5, that means the company’s profit attributable to shareholders was 5 times the amount what the dividend cover exactly is.

Formula:
Dividend cover = Earnings per share / Dividend per share

Acid-Test Ratio
This indicates whether a firm has enough short-term assets to cover its immediate liabilities without selling inventory.

Formula:
Acid Test Ratio = [Cash + Accounts Receivables + Short Term Investments] / Current Liabilities

Debtor’s Turnover Ratio
Debtor’s turnover ratio indicates how long people normally take to pay a firm for their purchases on average.

Formula:
Debtors Turnover Ratio = Net Credit Sales / Average Accounts Receivables

Where; Average Accounts Receivables = [Opening Debtors and BR + Closing Debtors and BR] / 2
Net Credit Sales = Total Sales – Cash Sales

Return On Capital Employed – ROCE
This ratio indicates the efficiency and profitability of a company’s capital investments. It should always be higher than the rate at which the company borrows; otherwise any increase in borrowing will reduce shareholders’ earnings.

Formula:
ROCE = Earnings Before Interest and Taxes / [Total Assets – Current Liabilities]

Earnings Per Share
The portion of a firm’s profit allocated to each outstanding share of common stock. Earnings per share ratio basically indicate a company’s profitability.

Formula:
EPS = [Net Income – Dividends on Preferred Stock] / Average Outstanding Shares