Question

Please take this list and write the formulas used for these ratios and what the ratio is telling us or used for Payout ratio Price-earnings (P-E) ratio Profitability ratios Profit margin Pro forma income Quality of earnings Ratio Ratio analysis Return on assets Return on common stockholders' equity (ROE) Solvency ratios Sustainable income Times interest earned Trading on the equity Trading securities Vertical analysis

Answer 1

S. No.	Ratio	Formula	What ratio is telling us/What it is used for
1	Payout Ratio	Dividend per share/Earning per share	Payout ratio indicates the income distributed to the shareholders out of total income.
2	Price-Earnings Ratio	Market price per share/Earnings per share	This ratio is used for valuing companies - whether overvalued or undervalued. PE-Ratio the higher, the better.
3	Profitability Ratios	Net Income / (Any Balance sheet/Income statement item like Net Assets/Sales/Shareholders' fund etc.)	These ratios are used to test the ability of the company to generate income relative to various balance sheet or income statement items such as Net assets, Equity, Net sales etc. There are various types of profitability ratios such as Return on Equity, Return on Assets, Gross Profit Margin etc.
4	Profit Margin	Net profit / Net Sales	It is a type of profitability ratio which measures the net profit as % of its revenue, i.e., what % of profit does the company generate relative to the revenue realised.
5	Pro forma Income	Net profit / Net Sales ( as per Pro forma Income Statement)	Pro Forma Income is the profit appearing in the pro forma (projected) income statement. It is used to estimate the projected profitability ratios.
6	Quality of earnings	Net cash flow from operating activities/Net Income	It reveals the % of income which is due to higher sales or lower costs.
Note : Ratio and Ratio analysis are not a type of ratio for which formula is used. These are generic terms. We have assumed that it is appearing in the question as a typo and ignored the same.
7	Return on Assets	Net profit / Total Average Assets	It is a type of profitability ratio which measures the ability of the company to generate profit relative to the amount of total average assets.
8	Return on Equity	Net profit / Shareholders' fund	It is a type of profitability ratio which measures the ability of the company to generate profit relative to the amount of shareholders' fund.
9	Solvency Ratio	(Net Profit after tax + Depreciation) / Total liabilities	It is a ratio which is used to measure the ability of a company to meet it's long term debt. Generally there many types of solvency ratios such as current ratio, quick ratio etc.
10	Sustainable Income	Sustainable Income (Net income adjusted for irregular items to arrive at income to be generated in future) / Net sales	Sustainable income refers to the income which is likely to be earned in the future. Generally there is no such thing as sustainable income ratio, however we generally calculate income as a % of sale and since a ratio has been asked in the question, we have given the formula as sustainable income / net sales.
11	Times Interest Earned Ratio	EBIT / Interest Expense	It measures the ability of the company to meet it's debt obligations on basis of its current income.
12	Trading on Equity (Also known as financial leverage)	Total Debt/Shareholders' Fund	Trading on equity refers to a situation where company uses long term debts to increase earnings on its common stock. It occurs while using both debt and equity.
13	Trading Secruities (Assumed to be Cash Ratio)	Market value of cash & marketable secruities / Current liabilities	It measures the ability of the company to meet it's current obligations with the liquid assets available with the company.
Note : There is no such thing as a trading securities ratio. The closest thing I could assume to resemble such a ratio is the Cash ratio which is basically marketable secruities / current liabilities
14	Vertical Analysis (Balance sheet)	Balance sheet item / Total assets(or liabilities)	Vertical analysis is a type of analysis wherein every item is shown as a % of the base figure. In balance sheet, such base is Total assets/liabilities and in case of income statement, base is Total sales.
	Vertical Analysis (Income Statement)	Income statement item / Total sales