Every ratio in the CBSE Class 12 syllabus on one page: liquidity, solvency, activity and profitability, with what goes into each.
Accounting ratios carry dependable marks in Part B of the paper. Learn the formula, and just as importantly, what goes into each term.
Liquidity ratios
| Ratio | Formula |
|---|---|
| Current ratio | Current assets ÷ Current liabilities |
| Quick (liquid) ratio | Quick assets ÷ Current liabilities |
Quick assets = Current assets − Inventories − Prepaid expenses.
Solvency ratios
| Ratio | Formula |
|---|---|
| Debt to equity | Long-term debts ÷ Shareholders' funds |
| Total assets to debt | Total assets ÷ Long-term debts |
| Proprietary ratio | Shareholders' funds ÷ Total assets |
| Interest coverage | Net profit before interest and tax ÷ Interest on long-term debts |
Activity (turnover) ratios
| Ratio | Formula |
|---|---|
| Inventory turnover | Cost of revenue from operations ÷ Average inventory |
| Trade receivables turnover | Net credit revenue from operations ÷ Average trade receivables |
| Trade payables turnover | Net credit purchases ÷ Average trade payables |
| Working capital turnover | Revenue from operations ÷ Working capital |
Cost of revenue from operations = Opening inventory + Net purchases + Direct expenses − Closing inventory.
Profitability ratios
| Ratio | Formula |
|---|---|
| Gross profit ratio | Gross profit ÷ Net revenue from operations × 100 |
| Operating ratio | (Cost of revenue from operations + Operating expenses) ÷ Net revenue from operations × 100 |
| Operating profit ratio | Operating profit ÷ Net revenue from operations × 100 |
| Net profit ratio | Net profit ÷ Net revenue from operations × 100 |
| Return on investment | Profit before interest and tax ÷ Capital employed × 100 |
Operating profit ratio = 100 − Operating ratio. Keep the timeline in mind: Gross profit → Operating profit → Net profit.
How to avoid losing marks
- Write the formula first; it earns a mark even if the arithmetic slips.
- Show the calculation of every term (quick assets, average inventory) as a working note.
- Express the answer in the right form: "2 : 1" for current ratio, "times" for turnover ratios, "%" for profitability.
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