There are also other financial ratios such as current liabilities to net worth ratio, fixed assets to net worth ratio, assets to revenues ratio etc. (calculated from data of financial statements) can be used to assess the financial status of a company. The calculation of some of the financial ratios is presented in the following example.

Example -2

Calculate the current ratio and debt to worth ratio for ‘AB Construction Firm' (Balance Sheet, Lecture 3 of Module 6) and return on sales ratio for ‘XY Construction Firm' (Income Statement, Lecture 2 of Module 6).

Solution:

From the balance sheet of ‘AB Construction Firm', the values of current assets and current liabilities are Rs.1,60,98,000 and Rs.1,23,35,600 respectively. Further the values of total liabilities and net worth (or owners' equity) are Rs.1,69,46,300 and Rs.1,51,91,540 respectively.

The current ratio for ‘AB Construction Firm' is given by;

Thus the current ratio for the construction firm is 1.30.

The debt to worth ratio for ‘AB Construction Firm' is given by;

Thus the debt to worth ratio for the construction firm is 1.11.

From the income statement of ‘XY Construction Firm', the values of operating revenues (net sales revenue) and net profit (after taxes) are Rs.4,52,60,700 and Rs.49,45,570 respectively.

The return on sales ratio for ‘XY Construction Firm' is given by;

Thus the return on sales ratio for the construction firm is 10.9%.