Below is an example to illustrate the major accounting business ratio for the interpretation of the financial statement of a company.
A Comprehensive Illustration of Major Ratios 

Below major ratios have been computed to illustrate what we have learned from earlier articles on ratio analysis/interpretation of financial statement:


Required: Provide all major ratios


Suggested Solution:
EFFICIENCY RATIO: (1) Gross Profit Percentage: =Gross Profit/Sales x 100 =60,000/532,000 x 100 = 11.28%
(2) Expense Ratio (a) Adminstrative expense ratio =Administrative expense/Sales x100 = 28,000/532,000 x100 =5%
(b)Selling & Distribution(S&D) expense ratio = S&D/Sales x100 = 9,000/532,000 x100 = 1.69%
© Financial Expenses expense ratio =Financial Expenses/Sales x 100 =4,000/532,000 x100 = 0.75% (3) Net Profit Percentage: =Net Profit/Sales x 100 =22,000/532,000 x100 =4.25%
(4) Return On Capital Employed (R.O.C.E) =Net profit before interest and tax/Capital Employed x100 =22,600 x100/200,000 =11.3%
LIQUIDITY OR SOLVENCY RATO: (1) Quick Asset Ratio =Quick Assets ( Current Assets Stock)/Current Liabilities =60,000/30,000 =2:1 (2) Current Ratio =Current Assets/Current Liabilities =88,000/30,000 =2.93:1
(3) Stock Turnover Ratio =Cost of goods sold/Average Stock =472,000/(20,000+28,000)/2 =19.67times per annum Or Average stock/Cost of goods sold x 365 days =24,000/472,000 x365 days = 18.6 days
(3) Debtors Turnover Ratio =Debtors/Credit Sales x 365 days =36,000/448,000 x 365 days = 29.3 days
(4) Creditors Turnover Ratio = Creditors/Credit purchases x 365 days =18,000/480,000 x 365 days = 13.7 days
GEARING OR LEVERAGE RATIO: (1) Capital Gearing =Preference Shares + Long term loan capital/Shareholders fund +Long term loan capital x100 =50,000+30,000/200,000 x100 =40%
(2) Interest Times Covered =Net profit before interest and taxation/Interest payable =22,600/3,600 =6.3 times
MARKET OR GROWTH RATIO: (1) Earning per share (EPS) =Net profit after tax and preference dividend/number of ordinary share issued =2,000/100,000 =$0.02 per share
(2) Price/Earnings Ratio(PE) =Market price per share/Earnings per share =1.2/0.02 =60 times (3) Earnings Yield =Earning per share x Nominal value/market value =0.02 x1/1.20 x100 =1.66%
(4) Dividend Cover =Net profit after tax and preference dividend/Ordinary dividend payable =2,000/1,000 =2 times
(5) Dividend Yield =Dividend % x Nominal value per share/Market price per share =1%x 1/1.20 =0.83% 