Expenses Ratios

a) Direct expenses Ratios : -
i) Raw material consumed * 100
Sales
ii) Wages * 100
Sales
iii) Production Expenses * 100
Sales

b) Indirect expenses Ratios : -
i) Administrative Expenses * 100
Sales
ii) Selling Expenses * 100
Sales
iii) Distribution Expenses * 100
Sales
iv) Finance Charge * 100
Sales

Notes : -
• In the above the term “term” is used for business engaged in sale of goods, for other enterprises the word “revenue” can be used.
• Gross profit = Sales – Cost of goods sold
• Operating profit = Sales – Cost of sales
= Profit after operating expenses but before Interest and tax.
• Operating Expenses = Administration Expenses + Selling and distribution expenses, Interest on short term loans etc.
• Return = Earning before Interest and Tax
= Operating profit
= Net profit + Non operating expenses – Non operating Income
• Capital employed = Share holders fund + Long term borrowings
= Fixed assets + Working capital
• If opening and closing balance is given then average capital employed can be substituted in case of capital employed which is
Opening capital employed + Closing capital employed
2

E) Debt service coverage ratios = Profit available for debt servicing
Loan Installments + Interest

Notes : -
• Profit available for debt servicing = Net profit after tax provision + Depreciation + Other non cash charges + Interest on debt.

Remarks : -
• Higher the debt servicing ratio is an indicator of better credit rating of the company.
• It is an indicator of the ability of a business enterprise to pay off current installments and interest out of profits.

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