{"id":9536,"date":"2018-02-12T16:23:53","date_gmt":"2018-02-12T10:53:53","guid":{"rendered":"http:\/\/mycbseguide.com\/blog\/?p=9536"},"modified":"2019-03-11T15:27:19","modified_gmt":"2019-03-11T09:57:19","slug":"accounting-ratios-class-12-notes-accountancy","status":"publish","type":"post","link":"https:\/\/mycbseguide.com\/blog\/accounting-ratios-class-12-notes-accountancy\/","title":{"rendered":"Accounting Ratios Class 12 Notes Accountancy"},"content":{"rendered":"<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_76 counter-hierarchy ez-toc-counter ez-toc-grey ez-toc-container-direction\">\n<div class=\"ez-toc-title-container\">\n<p class=\"ez-toc-title\" style=\"cursor:inherit\">Table of Contents<\/p>\n<span class=\"ez-toc-title-toggle\"><a href=\"#\" class=\"ez-toc-pull-right ez-toc-btn ez-toc-btn-xs ez-toc-btn-default ez-toc-toggle\" aria-label=\"Toggle Table of Content\"><span class=\"ez-toc-js-icon-con\"><span class=\"\"><span class=\"eztoc-hide\" style=\"display:none;\">Toggle<\/span><span class=\"ez-toc-icon-toggle-span\"><svg style=\"fill: #999;color:#999\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" class=\"list-377408\" width=\"20px\" height=\"20px\" viewBox=\"0 0 24 24\" fill=\"none\"><path d=\"M6 6H4v2h2V6zm14 0H8v2h12V6zM4 11h2v2H4v-2zm16 0H8v2h12v-2zM4 16h2v2H4v-2zm16 0H8v2h12v-2z\" fill=\"currentColor\"><\/path><\/svg><svg style=\"fill: #999;color:#999\" class=\"arrow-unsorted-368013\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" width=\"10px\" height=\"10px\" viewBox=\"0 0 24 24\" version=\"1.2\" baseProfile=\"tiny\"><path d=\"M18.2 9.3l-6.2-6.3-6.2 6.3c-.2.2-.3.4-.3.7s.1.5.3.7c.2.2.4.3.7.3h11c.3 0 .5-.1.7-.3.2-.2.3-.5.3-.7s-.1-.5-.3-.7zM5.8 14.7l6.2 6.3 6.2-6.3c.2-.2.3-.5.3-.7s-.1-.5-.3-.7c-.2-.2-.4-.3-.7-.3h-11c-.3 0-.5.1-.7.3-.2.2-.3.5-.3.7s.1.5.3.7z\"\/><\/svg><\/span><\/span><\/span><\/a><\/span><\/div>\n<nav><ul class='ez-toc-list ez-toc-list-level-1 eztoc-toggle-hide-by-default' ><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/mycbseguide.com\/blog\/accounting-ratios-class-12-notes-accountancy\/#CBSE_Guide_Accounting_Ratios_class_12_Notes_Accountancy\" >CBSE Guide Accounting Ratios class 12 Notes Accountancy<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/mycbseguide.com\/blog\/accounting-ratios-class-12-notes-accountancy\/#Class_12_Accountancy_notes_Chapter_14_Accounting_Ratios\" >Class 12 Accountancy notes Chapter 14 Accounting Ratios\u00a0<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/mycbseguide.com\/blog\/accounting-ratios-class-12-notes-accountancy\/#CBSE_Class_12_Accountancy_Revision_Notes_Chapter_4_Accounting_Ratios\" >CBSE Class 12\u00a0Accountancy Revision Notes Chapter 4 Accounting Ratios<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-4\" href=\"https:\/\/mycbseguide.com\/blog\/accounting-ratios-class-12-notes-accountancy\/#CBSE_Class-12_Revision_Notes_and_Key_Points\" >CBSE Class-12 Revision Notes and Key Points<\/a><\/li><\/ul><\/nav><\/div>\n<p><strong>Accounting Ratios class 12 Notes Accountancy<\/strong> in PDF are available for free download in myCBSEguide mobile app. The best app for CBSE students now provides accounting for partnership firm\u2019s fundamentals class 12 Notes latest chapter wise notes for quick preparation of CBSE board exams and school-based annual examinations. Class 12 Accountancy notes on chapter 14 accounting for partnership firm\u2019s fundamentals are also available for download in CBSE Guide website.<\/p>\n<h2><span class=\"ez-toc-section\" id=\"CBSE_Guide_Accounting_Ratios_class_12_Notes_Accountancy\"><\/span><strong>CBSE Guide Accounting Ratios class 12 Notes Accountancy<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p>CBSE guide notes are the comprehensive notes which covers the latest syllabus of CBSE and NCERT. It includes all the topics given in NCERT class 12 Accountancy text book. Users can download CBSE guide quick revision notes from myCBSEguide mobile app and my CBSE guide website.<\/p>\n<h2><span class=\"ez-toc-section\" id=\"Class_12_Accountancy_notes_Chapter_14_Accounting_Ratios\"><\/span><strong>Class 12 Accountancy notes Chapter 14 Accounting Ratios\u00a0<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p>Download CBSE class 12th revision notes for chapter 14 Accounting Ratios\u00a0in PDF format for free. Download revision notes for Accounting Ratios\u00a0class 12 Notes and score high in exams. These are the Accounting Ratios\u00a0class 12 Notes prepared by team of expert teachers. The revision notes help you revise the whole chapter 14 in minutes. Revision notes in exam days is one of the best tips recommended by teachers during exam days.<\/p>\n<p style=\"text-align: center;\"><strong><a class=\"button\" href=\"https:\/\/mycbseguide.com\/downloads\/cbse-class-12-accountancy\/1315\/cbse-revision-notes\/7\/\">Download Revision Notes as PDF<\/a><\/strong><\/p>\n<h2><span class=\"ez-toc-section\" id=\"CBSE_Class_12_Accountancy_Revision_Notes_Chapter_4_Accounting_Ratios\"><\/span><strong>CBSE Class 12\u00a0Accountancy Revision Notes Chapter 4 Accounting Ratios <\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p>Accounting Ratio: It is an arithmetical relationship between two accounting variables.<\/p>\n<p>Ratio Analysis : It is a technique of analysis of financial statements to conduct a quantitative analysis of information in a company\u2019s financial statements.<\/p>\n<p>\u201cRatio analysis is a study of relationship among various financial factors in a business.\u201d<\/p>\n<p>&#8211; Myers<\/p>\n<p>Expression of ration: Ratios are expressed in following four ways:<\/p>\n<p>\u00b7 Pure Ratio Like 2:1. All liquidity and solvency ratios are expressed in pure form.<\/p>\n<p>\u00b7 Percentage e.g. 15%. All profitability ratios are presented in percentage form.<\/p>\n<p>\u00b7 Times Like 4 times. All turnover ratios and Interest Coverage Ratio are presented in this form.<\/p>\n<p>\u00b7 Fraction like 3\/4.<\/p>\n<p>Classification or Types of Ratios:<\/p>\n<p>Ratios can be classified into following 4 categories:<\/p>\n<p>1. Liquidity Rations<\/p>\n<p>2. Solvency Rations<\/p>\n<p>3. Activity Rations also known as turnover Ratios or Performance Ratios.<\/p>\n<p>4. Profitability Rations<\/p>\n<p>IMPORTANT POINT<\/p>\n<p>Note: For Calculation of ratios Formula must be written as it carries marks.<\/p>\n<p>Liquidity Ratios: These measure short term solvency, i.e. the firm\u2019s ability to pay its current dues. In Liquidity Rations the following two ratios are included.<\/p>\n<p>1. Current Ratio also called Working Capital Ratio.<\/p>\n<p>2. Liquid Ratio also called Quick Ratio or Acid Test Ratio.<\/p>\n<p>1. Current Ratio : It shows the relationship of current assets with current liabilities<\/p>\n<p>Current Ratio =\u00a0\u00a0\u00a0<span class=\"cke_widget_wrapper cke_widget_inline cke_widget_selected\"><span class=\"math-tex cke_widget_element\"><img loading=\"lazy\" decoding=\"async\" class=\"alignnone\" src=\"https:\/\/elpiscart.com\/cgi-bin\/mathtex.cgi?\\frac{{Current\\,Assets}}{{Current\\,Liabilities}}\" alt=\"Accounting Ratios Class 12 Notes Accountancy\" width=\"142\" height=\"34\" \/><\/span><\/span><\/p>\n<p>Current Assets<\/p>\n<p>An asset shall be classified as current when it satisfies any of the following criteria:<\/p>\n<p>(a) it is expected to be realized in, or is intended for sale or consumption in, the company\u2019s normal operating cycle:<\/p>\n<p>(b) it is held primarily for the purpose of being traded:<\/p>\n<p>(c) it is expected to be realized within twelve months after the reporting date; or<\/p>\n<p>(d) it is cash or cash equivalent unless it is restricted from being exchanged\u00a0 or used to settle a liability for at least twelve months after the reporting date.<\/p>\n<p>The following items are include under Current Assets:<\/p>\n<p>(a) Current investments<\/p>\n<p>(b) Inventories<\/p>\n<p>(c) Trade receivables (Debtors and Bills Receivables) after deducting any provision for Doubtful Debts)<\/p>\n<p>(d) Cash and cash equivalents<\/p>\n<p>(e) Short term loans and advances<\/p>\n<p>(f) Other current assets (Restricted to prepaid expenses, accrued incomes and advance tax only)<\/p>\n<p>Current Liabilities<\/p>\n<p>A liability shall be classified as current when it satisfies any of the following criteria:<\/p>\n<p>(a) It is expected to be settled in the company\u2019s normal operating cycle;<\/p>\n<p>(b) It is held primarily for the purpose of being traded:<\/p>\n<p>(c) It is due to be settled within twelve\u00a0 months after the reporting date; or<\/p>\n<p>(d) The company does not have an unconditional right to defer settlement of the liability for at least twelve months after the reporting date. Terms of a liability that could, at the option of the counter party\u2019 result in its settlement by issue of equity instruments do not affect its classification.<\/p>\n<p>The following items are include under Current Liabilities :<\/p>\n<p>\u00b7 Short term borrowings<\/p>\n<p>\u00b7 Trade payables (Creditors and Bills Payable)<\/p>\n<p>\u00b7 Other current liabilities<\/p>\n<p>\u00b7 Short terms provisions<\/p>\n<p>1. Significance : It assesses the ability of a business to pay its short term liability on time.<\/p>\n<p>2. Ideal Ratio : 2:1 is considered as best.<\/p>\n<p>\u00b7 A Low ratio indicates that the company cannot meet its short term liability on time.<\/p>\n<p>\u00b7 A High ratio indicates that funds have not been used efficiently and lying idle.<\/p>\n<p>2. Quick Ratio : It shows the relationship of quick assets with current liabilities.<\/p>\n<p>Current Ratio =\u00a0<span class=\"cke_widget_wrapper cke_widget_inline cke_widget_selected\"><span class=\"math-tex cke_widget_element\"><img loading=\"lazy\" decoding=\"async\" class=\"alignnone\" src=\"https:\/\/elpiscart.com\/cgi-bin\/mathtex.cgi?\\frac{{Current\\,Assetors\\,Liquid\\,Assets}}{{Current\\,Liabilities}}\" alt=\"Accounting Ratios Class 12 Notes Accountancy\" width=\"235\" height=\"33\" \/><\/span><\/span><\/p>\n<p>Quick Assets = Current Assets \u2013 Inventory \u2013 Prepaid Expenses \u2013 Advance Tax \u2013 Accrued Income<\/p>\n<p><strong>OR<\/strong><\/p>\n<p>Quick Assets = Current Assets \u2013 Other Current Assets<\/p>\n<p>1. Significance : It assesses the ability of a business to pay its short term liability promptly.<\/p>\n<p>2. Ideal Ratio : 1:1 is considered as best.<\/p>\n<p>3. It is better indicator of liquidity as some current assets are not easily convertible into cash.<\/p>\n<p>Solvency Ratio : Solvency ratios convey an enterprise\u2019s ability to meet its long term obligations as and when they becomes due.<\/p>\n<p>1. Debt Equity Ratio<\/p>\n<p>2. Total Assets to Debt Ratio<\/p>\n<p>3. Proprietary Ratio<\/p>\n<p>4. Interest Coverage Ratio<\/p>\n<p>1. Debt Equity Ratio: It show relationship between Debts (Long term Liabilities or Non Current Liabilities) and Equity (Shareholders\u2019 Funds).<\/p>\n<p>Debt Equity Ratio =\u00a0<span class=\"cke_widget_wrapper cke_widget_inline cke_widget_selected\"><span class=\"math-tex cke_widget_element\"><img loading=\"lazy\" decoding=\"async\" class=\"alignnone\" src=\"https:\/\/elpiscart.com\/cgi-bin\/mathtex.cgi?\\frac{{Debt\\,or\\,Long\\,Term\\,Lialilities}}{{Equity\\,or\\,Shareholder's\\,Funds}}\" alt=\"Accounting Ratios Class 12 Notes Accountancy\" width=\"230\" height=\"36\" \/><\/span><\/span><\/p>\n<p>Debts = Long-term borrowing + Long-term provisions<\/p>\n<p>Equity\/Shareholders\u2019 Funds = Share Capital + Reserves and Surplus \u2013 Non \u2013 Trading Investments<\/p>\n<p>OR<\/p>\n<p>Equity\/Shareholders\u2019 Funds = Fixed Assets (Tangible and Intangible) + Non Current Investment (Excluding Non Trading investment) +Long Terms Loans and Advances + Current Assets \u2013 Current Liabilities \u2013 Long \u2013term borrowings \u2013 Long \u2013 term Provision<\/p>\n<p>1. Significance: It assesses the long term soundness of financial position of a business.<\/p>\n<p>2. Ideal Ratio: 2:1 is considered as best but it should not be more than this.<\/p>\n<p>2. Total Assets to Debt Ratio : It shows the relationship between Total Assets and Debts.<\/p>\n<p>Total Assets To Debt Ratio =\u00a0<span class=\"cke_widget_wrapper cke_widget_inline cke_widget_selected\"><span class=\"math-tex cke_widget_element\"><img loading=\"lazy\" decoding=\"async\" class=\"alignnone\" src=\"https:\/\/elpiscart.com\/cgi-bin\/mathtex.cgi?\\frac{{Total\\,Assets}}{{Debts\\,or\\,Long\\,Liabilities}}\" alt=\"Accounting Ratios Class 12 Notes Accountancy\" width=\"182\" height=\"36\" \/><\/span><\/span><\/p>\n<p>Total Assets = Fixed Assets (Tangible and Intangible) + Non Current Investment (Excluding Non Trading Investment) + Long Term Loans and Advances + Current Assets<\/p>\n<p>Debts = Long-term borrowing + Long-term provisions<\/p>\n<p>Significance: It measures the safety margin available to the providers of long term loans.<\/p>\n<p>Ideal Ratio: No ideal ratio but a high ratio indicates higher safety to lenders and low ratio represents risky position.<\/p>\n<p>3. Proprietary Ratio: It shows the relationship between Proprietors\u2019 Funds\/shareholders\u2019 Funds and Total Assets of the business.<\/p>\n<p>Proprietary Ratio =\u00a0\u00a0<span class=\"cke_widget_wrapper cke_widget_inline cke_widget_selected\"><span class=\"math-tex cke_widget_element\"><img loading=\"lazy\" decoding=\"async\" class=\"alignnone\" src=\"https:\/\/elpiscart.com\/cgi-bin\/mathtex.cgi?\\[\\frac{{Equity\\,or\\,Shareholder's\\,Funds}}{{Total\\,Assets}}\" alt=\"Accounting Ratios Class 12 Notes Accountancy\" width=\"230\" height=\"36\" \/><\/span><\/span><\/p>\n<p>Proprietors\u2019 Funds = Share Capital + Reserves and Surplus-Non Trading Investment<\/p>\n<p><strong>OR<\/strong><\/p>\n<p>Equity\/Proprietors\u2019 Funds = Fixed Assets (Tangible and intangible) + Non Current investments (Excluding Non Trading investment) + Long Terms Loans and Advances + Current Assets \u2013 Current Liabilities \u2013 Long \u2013 term borrowings \u2013 Long term provisions.<\/p>\n<p>Total Assets = Fixed Assets (Tangible and Intangible) + Non Current Investment (Excluding Non trading Investment) +long Term Loans and Advances + Current Assets<\/p>\n<p>1. Significance: It measures the proportion of total assets financed by the Proprietors of the business. It shows the safety margin available to the lenders of the business as they can ascertain the portion of the shareholders in the business.<\/p>\n<p>2. Ideal Ratio: No ideal ratio but a high ratio indicates higher safety to lenders and law ratio represents risky position from lender\u2019s point of view.<\/p>\n<p>4.Interest Coverage Ratio : This ratio establishes relationship between the Net Profit before Interest &amp; Tax and interest payable on long term debts (Fixed Interest Charges)<\/p>\n<p>Interest Coverage Ratio =\u00a0<span class=\"cke_widget_wrapper cke_widget_inline cke_widget_selected\"><span class=\"math-tex cke_widget_element\"><img loading=\"lazy\" decoding=\"async\" class=\"alignnone\" src=\"https:\/\/elpiscart.com\/cgi-bin\/mathtex.cgi?\\frac{{Net\\,\\Pr ofitbefore\\,Interest\\,\\&amp;amp; \\,Tax}}{{Fixed\\,Interest\\,Ch\\arg es}}\" alt=\"Accounting Ratios Class 12 Notes Accountancy\" width=\"286\" height=\"37\" \/><\/span><\/span><\/p>\n<p>1. Since interest is a charge on profit, net profit taken to calculate this ratio is before interest &amp; tax.<\/p>\n<p>2. Objective &amp; Significance-Objective is to ascertain the amount of profit available to cover the interest charge. It determines ease with which a company can pay interest expense on outstanding debt.<\/p>\n<p>3. Parties interested in this ratio are debenture holders and lenders of long term credit.<\/p>\n<p>4. High Ratio is better for lenders as it indicates higher safety margin.<\/p>\n<p>Activity Ratios\/Turnover Ration\/Performance Ratios<\/p>\n<p>These ratios measure the efficiency of asset management and measure the effectiveness with which an enterprise uses resources at its disposal. These show rotation of concerned item within an accounting period. Important Turnover ratios are :<\/p>\n<p>1. Stock Turnover Ratio\/Inventory Turnover Ratio<\/p>\n<p>2. Debtor Turnover Ratio\/Trade Receivables Turnover Ratio<\/p>\n<p>3. Creditors Turnover Ratio\/Trade Payables Turnover Ratio<\/p>\n<p>4. Working Capital Turnover Ratio<\/p>\n<p>1. Inventory Turnover Ratio : It is also called as Stock turnover ratio. This ratio is a relationship between the Cost of goods sold i.e, Cost of Revenue form Operations during a particular period of time and the Cost of average inventory during a particular period.<\/p>\n<p>It is expressed in number of times.<\/p>\n<p>Interest\/Stock turnover Ratio =\u00a0<span class=\"cke_widget_wrapper cke_widget_inline cke_widget_selected\"><span class=\"math-tex cke_widget_element\"><img loading=\"lazy\" decoding=\"async\" class=\"alignnone\" src=\"https:\/\/elpiscart.com\/cgi-bin\/mathtex.cgi?\\frac{{{\\mathop{\\rm Cos}\\nolimits} t\\,of\\,Goods\\,sold\\,{\\mathop{\\rm Cos}\\nolimits} t\\,of\\,{\\mathop{\\rm Re}\\nolimits} venue\\,From\\,Operations}}{{Average\\,Inventory}}\" alt=\"Accounting Ratios Class 12 Notes Accountancy\" width=\"390\" height=\"37\" \/><\/span><\/span><\/p>\n<p>1. Cost of Goods Sold = Opening Stock + Net Purchases + Direct Expenses \u2013 Closing Stock<\/p>\n<p>OR<\/p>\n<p>= Sales\/Revenue from Operations \u2013 Gross Profit<\/p>\n<p>2. Cost of Revenue from Operations = Cost of Material Consumed + Net Purchases of Stock in Trade + Changes in inventories of Finished Goods, Work in Progress and Stock-in-Trade + Direct Expenses<\/p>\n<p>3. Cost of Material Consumed = Raw Material Purchased + Changes in inventory of Raw Material<\/p>\n<p>4. Changes in inventory = Opening Inventory \u2013 Closing Inventory<\/p>\n<p>5.\u00a0<span class=\"cke_widget_wrapper cke_widget_inline cke_widget_selected\"><span class=\"math-tex cke_widget_element\"><img loading=\"lazy\" decoding=\"async\" class=\"alignnone\" src=\"https:\/\/elpiscart.com\/cgi-bin\/mathtex.cgi?\\frac{{Average\\,Inventory}}{{Stock}}\\, = \\,\\frac{{Opening\\,Inventory + Clo\\sin g\\,Inventory}}{2}\" alt=\"Accounting Ratios Class 12 Notes Accountancy\" width=\"474\" height=\"34\" \/><\/span><\/span><\/p>\n<p>This ratio indicates whether investment in stock is within proper limit or not.<\/p>\n<p>This shows how quickly inventory is sold. Generally higher ratio is considered better but very high ratio shows over trading and low ratio means stock is piled up or over investment in stock.<\/p>\n<p>2. Debtors Turnover Ratio\/Trade Receivables Turnover Ratio:<\/p>\n<p>It shows the relationship between Net Credit Sales i.e., Net Credit Revenues from Operations and Average Debtors\/Average Trade Receivables (Debtors + Bills Receivables).<\/p>\n<p>This ratio is expressed in TIMES.<\/p>\n<p>Trade Receivable\/Debtors turnover Ratio = <span class=\"cke_widget_wrapper cke_widget_inline cke_widget_selected\"><span class=\"math-tex cke_widget_element\"><img loading=\"lazy\" decoding=\"async\" class=\"alignnone\" src=\"https:\/\/elpiscart.com\/cgi-bin\/mathtex.cgi?\\frac{{Net\\,Credit\\,States\\,\/\\,{\\mathop{\\rm Cos}\\nolimits} t\\,of\\,{\\mathop{\\rm Re}\\nolimits} venue\\,from\\,Operations}}{{Average\\,Debtor\\,\/\\,Average\\,Trade\\,{\\mathop{\\rm Re}\\nolimits} ceivables\\,}}\" alt=\"Accounting Ratios Class 12 Notes Accountancy\" width=\"394\" height=\"39\" \/><\/span><\/span><\/p>\n<p>1.\u00a0Net Credit Sales = Total Sales \u2013 Sales Return i.e., Returns inwards \u2013 Cash Sales<\/p>\n<p>2.\u00a0Average Trade Receivable =<span class=\"cke_widget_wrapper cke_widget_inline cke_widget_selected\"><span class=\"math-tex cke_widget_element\"><img loading=\"lazy\" decoding=\"async\" class=\"alignnone\" src=\"https:\/\/elpiscart.com\/cgi-bin\/mathtex.cgi?\\frac{{(Opening\\,Trade\\,{\\mathop{\\rm Re}\\nolimits} ceivable + Clo\\sin g\\,Trade\\,{\\mathop{\\rm Re}\\nolimits} ceivables)}}{{2\\,}}\" alt=\"Accounting Ratios Class 12 Notes Accountancy\" width=\"423\" height=\"37\" \/><\/span><\/span><\/p>\n<p>3. Receivable are taken before deducting any Provision for Doubtful Debts.<\/p>\n<p>4.\u00a0If details regarding cash and credit sales are not given then all the sales are taken on credit basis.<\/p>\n<p>5.\u00a0If details regarding opening and closing values of trade receivable are not given then closing trade receivables are used for calculation of this ratio.<\/p>\n<p>This ratio indicated the number of times the trade receivables are turned in relation to credit sales over a year.<\/p>\n<p>This shows how quickly cash is realized from trade receivables. Generally higher is the ratio, the more efficient is the management of the trade receivables.<\/p>\n<p>3. Creditors Turnover Ratio\/Trade Payable Turnover Ratio:<\/p>\n<p>It shown the relationship between\u00a0Net Credit Purchases and Average Creditors\/Average Trade Payables (Creditors + Bills Payable).<\/p>\n<p>This ratio is expressed in\u00a0TIMES.<\/p>\n<p>Trade Payable\/Creditors turnover Ratio = <img loading=\"lazy\" decoding=\"async\" class=\"alignnone\" src=\"https:\/\/media-mycbseguide.s3.amazonaws.com\/images\/static\/revise\/12\/acc\/p204\/image012.png\" alt=\"Accounting Ratios Class 12 Notes Accountancy\" width=\"291\" height=\"46\" \/><\/p>\n<p>1.\u00a0Net Credit Purchases = Total Purchases \u2013 Purchases Return\/Returns Outwards Cash Purchases<\/p>\n<p>2.\u00a0Average Trade Receivable =<\/p>\n<p><img loading=\"lazy\" decoding=\"async\" class=\"alignnone\" src=\"https:\/\/media-mycbseguide.s3.amazonaws.com\/images\/static\/revise\/12\/acc\/p204\/image013.png\" alt=\"Accounting Ratios Class 12 Notes Accountancy\" width=\"379\" height=\"42\" \/><\/p>\n<p>3.\u00a0If details regarding cash and credit purchases are not given then all the purchases are taken on credit basis.<\/p>\n<p>4.\u00a0If details regarding opening and closing values of trade payables are not given then closing trade payables are used for calculation of this ratio.<\/p>\n<p>This ratio indicated the number of times the Trade Payables are turned over in relation to credit purchases over a year.<\/p>\n<p>This shows how quickly cash is paid to Trade Payables. Generally lower ratio indicates that more credits are available for a longer period.<\/p>\n<p>4. Working Capital Turnover Ratio : It establishes the relationship between<\/p>\n<p>Net Working Capital and Revenue from Operations i.e., Net Sales.<\/p>\n<p>Working Capital Turnover Ratio =<span class=\"cke_widget_wrapper cke_widget_inline cke_widget_selected\"><span class=\"math-tex cke_widget_element\"><img loading=\"lazy\" decoding=\"async\" class=\"alignnone\" src=\"https:\/\/elpiscart.com\/cgi-bin\/mathtex.cgi?\\frac{{{\\mathop{\\rm Re}\\nolimits} venue\\,from\\,Operations\\,\/\\,Net\\,Sales}}{{Net\\,Working\\,Capital}}\" alt=\"Accounting Ratios Class 12 Notes Accountancy\" width=\"279\" height=\"38\" \/><\/span><\/span><\/p>\n<p>1.\u00a0Net Working Capital = Current Assets excluding Fictitious assets \u2013 Current liabilities.<\/p>\n<p>2.\u00a0This ratio can also be calculated on the basis of the Cost of Revenue from Operations i.e., Cost of Goods Sold.<\/p>\n<p>3.\u00a0This Ratio is calculated in Times.<\/p>\n<p>This ratio indicated the number of times the working capital has been turned over in relation to revenue form operations over a year.<\/p>\n<p>Generally a higher ratio indicates efficient use of working capital.<\/p>\n<p>Profitability Ratio:<\/p>\n<p>These ratios are used to assess the profitability or earning capacity of the business.<\/p>\n<p>These ratios are very important as profitability is the measurement of the overall performance and efficiency of the management.<\/p>\n<p>The important Profitability ratios are:<\/p>\n<p>1.\u00a0Gross Profit Ratio<\/p>\n<p>2.\u00a0Operating Ratio<\/p>\n<p>3.\u00a0Operating Profit Ratio<\/p>\n<p>4.\u00a0Net Profit Ratio<\/p>\n<p>5.\u00a0Return on Investment or Return on Capital Employed.<\/p>\n<p>All Profitability ratios are shown in percentage form.<\/p>\n<p>1. Gross Profit Ratio : It shows the relationship between Gross Profits and Net Sales i.e., Net Revenue from Operation.<\/p>\n<p>Gross Profit Ratio =\u00a0<span class=\"cke_widget_wrapper cke_widget_inline cke_widget_selected\"><span class=\"math-tex cke_widget_element\"><img loading=\"lazy\" decoding=\"async\" class=\"alignnone\" src=\"https:\/\/elpiscart.com\/cgi-bin\/mathtex.cgi?\\frac{{Grass\\,\\Pr ofit}}{{Net\\,Sales\\,\/\\,Net\\,{\\mathop{\\rm Re}\\nolimits} venue\\,From\\,Operations}} \\times 100 = - - \\% \\,\" alt=\"Accounting Ratios Class 12 Notes Accountancy\" width=\"429\" height=\"38\" \/><\/span><\/span><\/p>\n<p>This Ratio indicates the margin of gross profits available on Revenue from Operations. Generally a higher ratio indicates better profitability.<\/p>\n<p>2.Operating Ratio: It shows the relationship between Operating Cost and Net Sales i.e., Net Revenue from Operations.<\/p>\n<p>Operating Ratio =<span class=\"cke_widget_wrapper cke_widget_inline cke_widget_selected\"><span class=\"math-tex cke_widget_element\"><img loading=\"lazy\" decoding=\"async\" class=\"alignnone\" src=\"https:\/\/elpiscart.com\/cgi-bin\/mathtex.cgi?\\frac{{Grass\\,\\Pr ofit}}{{Net\\,Sales\\,\/\\,Net\\,{\\mathop{\\rm Re}\\nolimits} venue\\,From\\,Operations}} \\times 100 = - - \\% \\,\" alt=\"Accounting Ratios Class 12 Notes Accountancy\" width=\"429\" height=\"38\" \/><\/span><\/span><\/p>\n<p>Operating Cost = Cost of Revenue from Operations + Operating Expenses<\/p>\n<p>Operating Expenses = Office and Administration Expenses +Selling and Distribution Expenses + Depreciation+ Bad debts + Discount on Debtors + Interest on Short term loans.<\/p>\n<p><strong>OR<\/strong><\/p>\n<p>Operating Cost = Cost of Material Consumed +Net Purchases of Stock in Trade + Changes in Inventories of Finished Goods, Work in Progress and Stock-in-Trade + Direct Expenses = Employees Benefit Expenses + Other Expenses such as Office Administration Expenses + Selling and Distribution Expenses + Depreciation + Bad debts + Discount on Debtors + Interest on short term loans.<\/p>\n<p>This ratio indicates the percentage of Operating costs to Revenue form Operations<\/p>\n<p>Generally a lower Ratio indicates better cost management and profitability.<\/p>\n<p>3. Operating Profit Ratio : It shows the relationship between Operating Profit and Net Sales i.e., Net Revenue form Operations.<\/p>\n<p>Operating profit Ratio =\u00a0<span class=\"cke_widget_wrapper cke_widget_inline cke_widget_selected\"><span class=\"math-tex cke_widget_element\"><img loading=\"lazy\" decoding=\"async\" class=\"alignnone\" src=\"https:\/\/elpiscart.com\/cgi-bin\/mathtex.cgi?\\frac{{Grass\\,\\Pr ofit}}{{Net\\,Sales\\,\/\\,Net\\,{\\mathop{\\rm Re}\\nolimits} venue\\,From\\,Operations}} \\times 100 = - - \\% \\,\" alt=\"Accounting Ratios Class 12 Notes Accountancy\" width=\"429\" height=\"38\" \/><\/span><\/span><\/p>\n<p>Operating Profit = Net Revenue from Operations \u2013 Operating Cost<\/p>\n<p><strong>OR<\/strong><\/p>\n<p>Operating Profit = Gross Profit \u2013 Operating Expenses<\/p>\n<p><strong>OR<\/strong><\/p>\n<p>Operating Profit = Net Profit + Non Operating Expenses \u2013 Non-Operating Income<br \/>\nImportant Points<\/p>\n<p>1.\u00a0This ratio indicates the margin of operating profits available on Revenue form Operations to cover non operating expenses such as indirect Expenses and Financial Expenses.<\/p>\n<p>2.\u00a0Generally a higher ratio indicates better profitability.<\/p>\n<p>3.\u00a0Operating Ratio + Operating Profit Ratio =1<\/p>\n<p>4. Net Profit Ratio : It shows the relationship between Net Profits and Net Sales i.e., Net Revenue from Operations.<\/p>\n<p>Net profit Ratio =\u00a0<span class=\"cke_widget_wrapper cke_widget_inline cke_widget_selected\"><span class=\"math-tex cke_widget_element\"><img loading=\"lazy\" decoding=\"async\" class=\"alignnone\" src=\"https:\/\/elpiscart.com\/cgi-bin\/mathtex.cgi?\\frac{{Grass\\,\\Pr ofit}}{{Net\\,Sales\\,\/\\,Net\\,{\\mathop{\\rm Re}\\nolimits} venue\\,From\\,Operations}} \\times 100 = - - \\% \\,\" alt=\"Accounting Ratios Class 12 Notes Accountancy\" width=\"429\" height=\"38\" \/><\/span><\/span><\/p>\n<p>Net Profit = Net Revenue from Operations \u2013 Operating Cost \u2013 Non Operating expenses + Non Operating Income<\/p>\n<p><strong>OR<\/strong><\/p>\n<p>Net Profit = Gross Profit \u2013 Operating Expenses \u2013 Non Operating Expenses + Non Operating Income<\/p>\n<p><strong>OR<\/strong><\/p>\n<p>Net Profit = Operating Profit \u2013 Non Operating Expenses + Non Operating Income<br \/>\nImportant Points<\/p>\n<p>1. This ratio indicates the percentage of net profits in relation to Revenue from Operations.<\/p>\n<p>2. Generally a higher ratio indicate better profitability.<\/p>\n<p>5. Return on Investment or Return on Capital Employed:<\/p>\n<p>It shows the relationship between Net profit before interest, Tax and Divided and Capital Employed of the business.<\/p>\n<p>Retrun on Investment (ROI) = <span class=\"cke_widget_wrapper cke_widget_inline cke_widget_selected\"><span class=\"math-tex cke_widget_element\"><img loading=\"lazy\" decoding=\"async\" class=\"alignnone\" src=\"https:\/\/elpiscart.com\/cgi-bin\/mathtex.cgi?\\frac{{Grass\\,\\Pr ofit}}{{Net\\,Sales\\,\/\\,Net\\,{\\mathop{\\rm Re}\\nolimits} venue\\,From\\,Operations}} \\times 100 = - - \\% \\,\" alt=\"Accounting Ratios Class 12 Notes Accountancy\" width=\"429\" height=\"38\" \/><\/span><\/span><\/p>\n<p>By Liability Approach:<\/p>\n<p>Capital Employed = Share Capital + Reserves and Surplus \u2013 Non Trading Investments + Non Current Liabilities<\/p>\n<p><strong>OR<\/strong><\/p>\n<p>Capital Employed = Shareholders\u2019 Funds + Non Current Liabilities<br \/>\nBy Assets Approach<\/p>\n<p>Capital Employed = fixed Assets (Tangible and Intangible) + Non Current Investment (Excluding Non Trading Investment) + Long Term Loans and Advances + Current Assets \u2013 Current Liabilities.<\/p>\n<p><strong>OR<\/strong><\/p>\n<p>Capital Employed = Fixed Assets (Tangible and Intangible) + Non Current Investment (Excluding Non Trading Investment) + Long Term Loans and Advances + Working Capital<\/p>\n<p><strong>OR<\/strong><\/p>\n<p>Capital Employed = Non Current Assets + Working Capital<br \/>\nCapital Employed = Total Assets \u2013 Current Liabilities.<br \/>\nImportant Points<\/p>\n<p>1.\u00a0This Ratio indicates the percentage of Net profits before interest, tax and dividend in relation to Capital Employed of the business.<\/p>\n<p>2.\u00a0This Ratio is Considered as best measurement of the overall performance of the enterprise.<\/p>\n<p>3.\u00a0Generally a higher ratio indicates better profitability.<\/p>\n<p>4.\u00a0As we are not including Non Trading Investments as part of Capital Employed therefore Income from Non Trading Investments will not be taken into account for calculation of Net Profits.<\/p>\n<p>5.\u00a0If profits after tax are given in the question then we will find profits before tax with the help of the following formula:<\/p>\n<p>Profits before Tax = <span class=\"cke_widget_wrapper cke_widget_inline cke_widget_selected\"><span class=\"math-tex cke_widget_element\"><img loading=\"lazy\" decoding=\"async\" class=\"alignnone\" src=\"https:\/\/elpiscart.com\/cgi-bin\/mathtex.cgi?\\frac{{\\Pr ofits\\,after\\,Tax}}{{(100 - Tax\\,Rates}} \\times 100\" alt=\"Accounting Ratios Class 12 Notes Accountancy\" width=\"180\" height=\"38\" \/><\/span><\/span><strong>\u00a0\u00a0<\/strong><\/p>\n<h2><span class=\"ez-toc-section\" id=\"CBSE_Class-12_Revision_Notes_and_Key_Points\"><\/span><strong>CBSE Class-12 Revision Notes and Key Points<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p>Accounting Ratios class 12 Notes Accountancy. CBSE quick revision note for class-12 Chemistry Physics Math\u2019s, Accountancy and other subject are very helpful to revise the whole syllabus during exam days. The revision notes covers all important formulas and concepts given in the chapter. Even if you wish to have an overview of a chapter, quick revision notes are here to do if for you. These notes will certainly save your time during stressful exam days.<\/p>\n<ul>\n<li><a href=\"http:\/\/mycbseguide.com\/downloads\/cbse-class-12-physics\/1251\/cbse-revision-notes\/7\/\">Physics<\/a><\/li>\n<li><a href=\"http:\/\/mycbseguide.com\/downloads\/cbse-class-12-chemistry\/1267\/cbse-revision-notes\/7\/\">Chemistry<\/a><\/li>\n<li><a href=\"http:\/\/mycbseguide.com\/downloads\/cbse-class-12-mathematics\/1284\/cbse-revision-notes\/7\/\">Mathematics<\/a><\/li>\n<li><a href=\"http:\/\/mycbseguide.com\/downloads\/cbse-class-12-biology\/1298\/cbse-revision-notes\/7\/\">Biology<\/a><\/li>\n<li><a href=\"http:\/\/mycbseguide.com\/downloads\/cbse-class-12-accountancy\/1315\/cbse-revision-notes\/7\/\">Accountancy<\/a><\/li>\n<li><a href=\"http:\/\/mycbseguide.com\/downloads\/cbse-class-12-economics\/1327\/cbse-revision-notes\/7\/\">Economics<\/a><\/li>\n<li><a href=\"http:\/\/mycbseguide.com\/downloads\/cbse-class-12-business-studies\/1727\/cbse-revision-notes\/7\/\">Business Studies<\/a><\/li>\n<li><a href=\"http:\/\/mycbseguide.com\/downloads\/cbse-class-12-computer-science\/1851\/cbse-revision-notes\/7\/\">Computer Science<\/a><\/li>\n<li><a href=\"http:\/\/mycbseguide.com\/downloads\/cbse-class-12-informatics-practices\/1873\/cbse-revision-notes\/7\/\">Informatics Practices<\/a><\/li>\n<li><a href=\"http:\/\/mycbseguide.com\/downloads\/cbse-class-12-english-core\/1855\/cbse-revision-notes\/7\/\">English Core<\/a><\/li>\n<li><a href=\"http:\/\/mycbseguide.com\/downloads\/cbse-class-12-history\/1869\/cbse-revision-notes\/7\/\">History<\/a><\/li>\n<li><a href=\"http:\/\/mycbseguide.com\/downloads\/cbse-class-12-physical-education\/1877\/cbse-revision-notes\/7\/\">Physical Education<\/a><\/li>\n<\/ul>\n<p>To download Accounting Ratios class 12 Notes Accountancy, sample paper for class 12 Physics, Chemistry, Biology, History, Political Science, Economics, Geography, Computer Science, Home Science, Accountancy, Business Studies, and Home Science; do check myCBSEguide app or website. myCBSEguide provides sample papers with solution, test papers for chapter-wise practice, NCERT Accounting Ratios, NCERT Exemplar Accounting Ratios\u00a0, quick revision notes for ready reference, CBSE guess papers and CBSE important question papers. Sample Paper all are made available through\u00a0<a href=\"https:\/\/play.google.com\/store\/apps\/details?id=in.techchefs.MyCBSEGuide&amp;referrer=utm_source%3Dmycbse_bottom%26utm_medium%3Dtext%26utm_campaign%3Dmycbseads\"><strong>the best app for CBSE students<\/strong><\/a>\u00a0and myCBSEguide website.<\/p>\n<ul>\n<li class=\"entry-title\"><a href=\"https:\/\/mycbseguide.com\/blog\/accounting-partnership-firms-fundamentals-class-12-notes-accountancy\/\">Accounting for partnership firms fundamentals class 12 Notes Accountancy<\/a><\/li>\n<li class=\"entry-title\"><a href=\"https:\/\/mycbseguide.com\/blog\/goodwill-nature-valuation-class-12-notes-accountancy\/\">Goodwill Nature And Valuation class 12 Notes Accountancy<\/a><\/li>\n<li class=\"entry-title\"><a href=\"https:\/\/mycbseguide.com\/blog\/reconstitution-partnership-class-12-notes-accountancy\/\">Reconstitution of Partnership class 12 Notes Accountancy<\/a><\/li>\n<li class=\"entry-title\"><a href=\"https:\/\/mycbseguide.com\/blog\/admission-partner-class-12-notes-accountancy\/\">Admission of A Partner class 12 Notes Accountancy<\/a><\/li>\n<li class=\"entry-title\"><a href=\"https:\/\/mycbseguide.com\/blog\/retirement-death-partner-class-12-notes-accountancy\/\">Retirement or Death of a partner class 12 Notes Accountancy<\/a><\/li>\n<li class=\"entry-title\"><a href=\"https:\/\/mycbseguide.com\/blog\/dissolution-partnership-firm-class-12-notes-accountancy\/\">Dissolution Of a Partnership Firm class 12 Notes Accountancy<\/a><\/li>\n<li class=\"entry-title\"><a href=\"https:\/\/mycbseguide.com\/blog\/accounting-share-capital-class-12-notes-accountancy\/\">Accounting For Share Capital class 12 Notes Accountancy<\/a><\/li>\n<li class=\"entry-title\"><a href=\"https:\/\/mycbseguide.com\/blog\/accounting-debentures-class-12-notes-accountancy\/\">Accounting For Debentures class 12 Notes Accountancy<\/a><\/li>\n<li class=\"entry-title\"><a href=\"https:\/\/mycbseguide.com\/blog\/company-accounts-redemption-debentures-class-12-notes-accountancy\/\">Company Accounts \u2013 Redemption of Debentures class 12 Notes Accountancy<\/a><\/li>\n<li class=\"entry-title\"><a href=\"https:\/\/mycbseguide.com\/blog\/financial-statements-company-class-12-notes-accountancy\/\">Financial Statements Of A Company class 12 Notes Accountancy<\/a><\/li>\n<li class=\"entry-title\"><a href=\"https:\/\/mycbseguide.com\/blog\/financial-statement-analysis-class-12-notes-accountancy\/\">Financial statement analysis class 12 Notes Accountancy<\/a><\/li>\n<li class=\"entry-title\"><a href=\"https:\/\/mycbseguide.com\/blog\/tools-financial-statement-analysis-class-12-notes-accountancy\/\">Tools for financial statement analysis class 12 Notes Accountancy<\/a><\/li>\n<li class=\"entry-title\"><a href=\"https:\/\/mycbseguide.com\/blog\/cash-flow-statement-class-12-notes-accountancy\/\">Cash flow statement class 12 Notes Accountancy<\/a><\/li>\n<\/ul>\n","protected":false},"excerpt":{"rendered":"<p>Accounting Ratios class 12 Notes Accountancy in PDF are available for free download in myCBSEguide mobile app. The best app for CBSE students now provides accounting for partnership firm\u2019s fundamentals class 12 Notes latest chapter wise notes for quick preparation of CBSE board exams and school-based annual examinations. Class 12 Accountancy notes on chapter 14 &#8230; <a title=\"Accounting Ratios Class 12 Notes Accountancy\" class=\"read-more\" href=\"https:\/\/mycbseguide.com\/blog\/accounting-ratios-class-12-notes-accountancy\/\" aria-label=\"More on Accounting Ratios Class 12 Notes Accountancy\">Read more<\/a><\/p>\n","protected":false},"author":2,"featured_media":9785,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[48,456],"tags":[620,646,457,150,426,240],"class_list":["post-9536","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-cbse-class-12","category-revision-notes","tag-accountancy-notes","tag-accounting-ratios","tag-cbse-notes","tag-cbse-notes-and-key-points","tag-quick-revision","tag-quick-revision-notes"],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v26.0 - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\n<title>Accounting Ratios Class 12 Notes Accountancy | myCBSEguide<\/title>\n<meta name=\"description\" content=\"Accounting Ratios class 12 Notes Accountancy chapter 14 in PDF format for free download. 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