Schedule III Ratios: Calculations, Supporting Workings and Common Errors
Ratios should be supported by transparent calculations rather than copied from a dashboard. Learn how to document inputs, maintain consistency and explain material changes.
AI Summary
Scope: Schedule III Division I companies; illustrative calculations for FY 2025-26. Verification date: 11 October 2026.
A ratio table needs a calculation file
Two accountants can calculate different results from the same financial statements if one uses closing balances and the other averages opening and closing balances. Neither result is reviewable unless the definition and inputs are clear. Prepare a ratio working that connects each amount to the approved financial statements.
Schedule III requires specified ratios, an explanation of their components and explanations for changes exceeding 25% compared with the preceding year. Use the applicable framework and consistent definitions; a generic dashboard ratio is not automatically the required disclosure.
Maintain a ratio register
For every ratio, record the name, purpose, formula, numerator, denominator, current year, previous year and reason for any changed definition. Useful supporting references include the borrowing note, revenue working, inventory schedule and current/non-current classification file.
The prescribed set includes current ratio, debt-equity ratio, debt service coverage, return on equity, inventory turnover, receivables turnover, payables turnover, net capital turnover, net profit ratio, return on capital employed and return on investment. Applicability and unavailable denominators need explanation rather than invented numbers.
Worked example: current ratio
Assume current assets are ₹48 lakh and current liabilities are ₹24 lakh. Using current assets divided by current liabilities, the current ratio is 2.00 times. Last year's comparable figures were ₹45 lakh and ₹30 lakh, giving 1.50 times. The increase is (2.00 − 1.50) ÷ 1.50 × 100 = 33.33%.
“The ratio increased due to changes in balances” is not a useful explanation. Suppose receivables fell following collections, cash increased and a short-term borrowing was repaid. Confirm those movements and describe the principal driver. A ratio can improve while the business faces other risks, so avoid interpreting one figure in isolation.
Worked example: receivables turnover
For a fictional working, use credit revenue of ₹180 lakh and average relevant trade receivables of ₹30 lakh. The turnover is 6.00 times. If the previous-year calculation used total revenue including cash sales, recalculate on a consistent basis or explain the difference. Check whether GST, allowances and non-trade balances have been treated consistently.
| Review issue | Practical control |
|---|---|
| Closing versus average balances | Record the chosen basis and apply it consistently |
| Mixed units | Convert every input to the same unit |
| Negative equity | Explain the result and its limited interpretation |
| Zero denominator | Use an appropriate explanatory presentation, not a fabricated zero ratio |
Review the numbers behind the movement
For changes requiring explanation, identify the actual movement in numerator and denominator. Consider exceptional transactions, new debt, capital introduced, inventory write-downs or a change in the business model. Obtain an explanation supported by the ledger and management information.
If a prior-year ratio is zero, the usual percentage-change formula is undefined. If it is negative, a mechanically calculated percentage can be misleading. Document how the change is explained and avoid treating an Excel error message as an acceptable financial-statement disclosure.
Final checklist
- Agree inputs with the approved balance sheet, P&L and notes.
- Check formula definitions and comparative consistency.
- Reperform calculations without premature rounding.
- Review significant movements and exceptional denominators.
- Check that explanations and units appear correctly in the exported financials.
A Schedule 3 financial builder can help organise ratio presentation, but the calculation basis still needs professional judgement. When reviewing assureOffice outputs, retain the supporting ratio file and compare the printed disclosure with the approved working rather than accepting a plausible-looking number.
Handle exceptional denominators openly
If the denominator is zero or negative, a mechanically calculated percentage may be misleading. Flag the ratio for an appropriate explanation rather than forcing the spreadsheet to return zero. Preserve the actual inputs and the chosen presentation so the reviewer can understand the limitation.
Use a movement working for a significant change: separate the numerator effect, denominator effect and any change in calculation basis. For example, a higher current ratio could result from repaying current debt rather than stronger collection. Describe the supported business cause, and avoid attributing a movement to growth merely because revenue also increased.
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