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Accounting Ratios - nabeelanwer - 03-17-2007 05:30 PM

What does mean by the following ratios and what are thier formulas
1) Properitary Ratio
2) Equity Ratio
3) Fixed Assets Ratio

breifly comment on each plz.

- kamranACA - 03-18-2007 03:43 AM


Following are the fromulae you are interested in.

Debt Equity Ratio = Long term debts / Long Term Debt + Equity

Equity is equal to share capital+Reserves+Accumulated profit/surplus.

Fixed Assets Ratio = Total Fixed Assets / Equity (as defined above)

Proprietory ratio = Equity (as defined above) / Total Assets

Total assets include all assets appearing in balance sheet including non-current as well as current assets.

For practical reasons I also explain that

In Pakistan, as per prudential regulations of State Bank of Pakistan, SURPLUS ON REVALUATION OF PROPERTY, PLANT AND EQUIPMENT is to be considered the part of EQUITY, if the revaluation has been made by some independent approved valuer not more than 3 years before such calculation. If more than three years have elapsed, then banks will not accept including Revaluation Surplus as a part of equity.

In some cases, SPONSORS also provide Interest Free Long Term Sub-Ordinated Sponsors' Loans to the companies due to certain reasons. These loans, for banks' financing purposes are also included as a part of equity instead of Long term Debt.

If there appears any DEPOSIT FOR SHARES in the balance sheet, it would make part of the EQUITY for calculation of ratios.

Yes, equity is also called as SHAREHOLDERS FUND or NETWORTH so do not get confused.

Hope you would be benefited by above clarification.

Best regars,