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Question for Everybody?

CA.Sonia (professional) (517 Points)

31 January 2010

How to decide wht should be the numerator or denominator in Ratio analysis? For Ex-Int coverage Ratio=EBIT/INTEREST AND if reverse it wht will happen? 2.Return on Assets-Pat+int/Total aSsets? Thanks in advance

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2 Replies

Amir (Learner) (4016 Points)
Replied 31 January 2010

Dear Sonia, I couldn't get ur query.. Numerator or Denominator depends upon the Ratio which u r computing,i:e the analysis & it is not a choice... Plz clarify ur query??

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CA. Rajesh P. Ahir (In Service @ PSU) (687 Points)
Replied 01 February 2010

As i think you want to know the basic principle behind selection of Nem. and Den. in Ratio Analysis. In ratios we compare one data with the other in relation or terms of any of the two data. In doing so we need to take any one date to be prime (in relation or Comparision of Which) other data are compared.This brings the need to set one as Nem. and another as Den. Exap.. In Int coverage Ratio=EBIT/INTEREST this will show comparision based on earning and if reverse it will show comparision based on interest.