In this guide · 9 sections
- Schedule III ratio calculator: the example company's trial balance
- Step 1: the building blocks
- Step 2: the financial ratios — Schedule III calculation for both years
- Step 3: the 25% variance test
- Step 4: sample explanations for the flagged ratios
- Ratio analysis for Schedule III in Excel: the formulas
- Before the ratio note goes into the accounts
- FAQs
- Sources
- This is a worked calculation: one illustrative trading company, its trial balance figures for three balance sheet dates, and all eleven Schedule III ratios computed for both years with the numerator and denominator shown.
- For the previous year's averages you need the balance sheet two years back (31 March 2024 for FY 2024-25). Collect it before you start.
- The 25% test is the relative change in the ratio, (CY − PY) ÷ PY; work it on unrounded figures. In the example four ratios cross it — debt-equity, return on equity, net profit ratio and ROCE.
- Some inputs are not in the trial balance: principal repaid on term loans (debt service) and the market value of investments with dates of cash flows (return on investment).
- The article ends with an Excel layout and formulas you can copy: one input block, eleven ratio formulas, a variance column and an "Explain" flag.
Try SignReady: The eleven Schedule III ratios for both years, computed from the trial balance.
Start freeThere is no official Schedule III ratio calculator — the Schedule names the eleven ratios and asks for the numerator, the denominator and a reason for any change above 25%, and leaves the arithmetic to you. This article does that arithmetic once, completely, for one illustrative company: the trial balance figures, each ratio worked out for both years, the 25% test, sample explanations, and the Excel formulas to reuse. For what each ratio means and the bases in ICAI's Guidance Note, read Schedule III ratios and the 25% variance first; for the wider disclosure framework, see the Schedule III guide.
Schedule III ratio calculator: the example company's trial balance
A private trading company preparing Division I statements for FY 2025-26, ₹ in lakhs. All sales and purchases are on credit, so revenue from operations is used as credit sales and purchases as credit purchases. Three balance sheet dates are needed because the previous year's averages use the 31 March 2024 balances.
| Balance sheet (from the TB) | 31 Mar 2024 | 31 Mar 2025 | 31 Mar 2026 |
|---|---|---|---|
| Share capital | 50.00 | 50.00 | 50.00 |
| Reserves and surplus | 112.00 | 150.00 | 183.60 |
| Long-term borrowings (term loans, non-current part) | 20.00 | 10.00 | 48.00 |
| Deferred tax liability (net) | 2.00 | 2.50 | 3.00 |
| Short-term borrowings (cash credit + current maturities) | 50.00 (40 + 10) | 45.00 (35 + 10) | 92.00 (70 + 22) |
| Trade payables | 85.00 | 95.00 | 140.00 |
| Other current liabilities | 10.00 | 12.00 | 14.00 |
| Short-term provisions | 5.00 | 6.00 | 7.00 |
| Total | 334.00 | 370.50 | 537.60 |
| Property, plant and equipment | 80.00 | 85.00 | 155.00 |
| Intangible assets | 2.00 | 1.50 | 1.00 |
| Non-current investments (mutual fund, at cost) | – | 20.00 | 20.00 |
| Inventories | 120.00 | 140.00 | 200.00 |
| Trade receivables | 110.00 | 105.00 | 150.00 |
| Cash and cash equivalents | 16.00 | 12.00 | 2.60 |
| Other current assets | 6.00 | 7.00 | 9.00 |
| Total | 334.00 | 370.50 | 537.60 |
| Profit and loss (from the TB) | FY 2024-25 | FY 2025-26 |
|---|---|---|
| Revenue from operations (sales, net of returns) | 1,000.00 | 1,200.00 |
| Other income | 3.00 | 4.00 |
| Purchases (net of returns) | 760.00 | 980.00 |
| Cost of goods sold (opening stock + purchases − closing stock) | 740.00 | 920.00 |
| Employee benefits expense | 80.00 | 92.00 |
| Other expenses | 110.00 | 115.00 |
| Depreciation and amortisation | 15.00 | 20.00 |
| Finance costs | 7.00 | 12.00 |
| Profit before tax | 51.00 | 45.00 |
| Tax expense (current + deferred) | 13.00 | 11.40 |
| Profit after tax | 38.00 | 33.60 |
Three inputs come from outside the trial balance: principal repaid on term loans (₹10 lakh in each year — the cash credit is revolving and is not treated as a repayment); the market value of the mutual fund units (₹20.70 lakh at 31 March 2025 and ₹22.40 lakh at 31 March 2026, from the fund statements — the books carry them at cost); and the date of investment (₹20 lakh invested on 1 October 2024). The current-year term loan figures follow the split between non-current and current maturities of long-term borrowings: an old loan with ₹10 lakh left, all due within a year, and a new ₹60 lakh loan with ₹12 lakh due within a year.
Step 1: the building blocks
Work these out once; most ratios reuse them. Current assets and current liabilities depend on getting the current and non-current classification right first — a misplaced current maturity changes two ratios at once — the current ratio and net capital turnover.
| Building block | How | 31 Mar 2024 | 31 Mar 2025 | 31 Mar 2026 |
|---|---|---|---|---|
| Current assets | Inventories + receivables + cash + other current assets | 252.00 | 264.00 | 361.60 |
| Current liabilities | Short-term borrowings + payables + other CL + short-term provisions | 150.00 | 158.00 | 253.00 |
| Working capital | Current assets − current liabilities | 102.00 | 106.00 | 108.60 |
| Total debt | Long-term + short-term borrowings | 70.00 | 55.00 | 140.00 |
| Shareholders' equity | Share capital + reserves and surplus | 162.00 | 200.00 | 233.60 |
| Tangible net worth | Equity − intangible assets | 160.00 | 198.50 | 232.60 |
| Capital employed | Tangible net worth + total debt + DTL | – | 256.00 | 375.60 |
From the profit and loss: EBIT = profit before tax + finance costs = 58.00 (FY 2024-25) and 57.00 (FY 2025-26). Earnings available for debt service = profit before tax + depreciation and amortisation + finance costs = 73.00 and 77.00. Debt service = finance costs + principal repaid = 17.00 and 22.00.
SignReady computes the eleven Schedule III ratios with their formulas from your trial balances, this year and last year, with the variance % and a column for the reason where the change is more than 25%. First 3 finalisations free.
Step 2: the financial ratios — Schedule III calculation for both years
The bases follow ICAI's Guidance Note on Division I (Annexure B), with averages as (opening + closing) ÷ 2 and capital employed at the year end. Ratios are shown to two decimals; the variance in the next step is worked on the unrounded figures.
| Ratio | FY 2025-26 working | FY 2025-26 | FY 2024-25 working | FY 2024-25 |
|---|---|---|---|---|
| (a) Current ratio | 361.60 ÷ 253.00 | 1.43 | 264.00 ÷ 158.00 | 1.67 |
| (b) Debt-equity ratio | 140.00 ÷ 233.60 | 0.60 | 55.00 ÷ 200.00 | 0.28 |
| (c) Debt service coverage ratio | 77.00 ÷ 22.00 | 3.50 | 73.00 ÷ 17.00 | 4.29 |
| (d) Return on equity | 33.60 ÷ 216.80 (avg of 200.00 and 233.60) | 15.50% | 38.00 ÷ 181.00 (avg of 162.00 and 200.00) | 20.99% |
| (e) Inventory turnover | COGS 920.00 ÷ 170.00 (avg of 140 and 200) | 5.41 | 740.00 ÷ 130.00 (avg of 120 and 140) | 5.69 |
| (f) Trade receivables turnover | 1,200.00 ÷ 127.50 (avg of 105 and 150) | 9.41 | 1,000.00 ÷ 107.50 (avg of 110 and 105) | 9.30 |
| (g) Trade payables turnover | 980.00 ÷ 117.50 (avg of 95 and 140) | 8.34 | 760.00 ÷ 90.00 (avg of 85 and 95) | 8.44 |
| (h) Net capital turnover | 1,200.00 ÷ 107.30 (avg of 106.00 and 108.60) | 11.18 | 1,000.00 ÷ 104.00 (avg of 102.00 and 106.00) | 9.62 |
| (i) Net profit ratio | 33.60 ÷ 1,200.00 | 2.80% | 38.00 ÷ 1,000.00 | 3.80% |
| (j) Return on capital employed | 57.00 ÷ 375.60 | 15.18% | 58.00 ÷ 256.00 | 22.66% |
| (k) Return on investment | (22.40 − 20.70 − 0) ÷ (20.70 + 0) | 8.21% | (20.70 − 0 − 20.00) ÷ (0 + 182/365 × 20.00) | 7.02% |
Return on investment uses the Guidance Note's time-weighted formula: (closing market value − opening market value − net cash invested) ÷ (opening market value + each cash flow × the fraction of the year left after it). In FY 2024-25 the ₹20 lakh was invested for 182 of 365 days, so only 182/365 of it (₹9.97 lakh) goes into the denominator; a simple 0.70 ÷ 20.00 = 3.50% would understate the return. Where a company has no investments, the ratio is "not applicable" — say so in the note.
Step 3: the 25% variance test
Variance = (FY 2025-26 ratio − FY 2024-25 ratio) ÷ FY 2024-25 ratio. A change of more than 25% either way needs an explanation in the note.
| Ratio | FY 2025-26 | FY 2024-25 | Variance | Explanation needed? |
|---|---|---|---|---|
| Current ratio | 1.43 | 1.67 | −14.5% | No |
| Debt-equity ratio | 0.60 | 0.28 | +117.9% | Yes |
| Debt service coverage ratio | 3.50 | 4.29 | −18.5% | No |
| Return on equity | 15.50% | 20.99% | −26.2% | Yes |
| Inventory turnover | 5.41 | 5.69 | −4.9% | No |
| Trade receivables turnover | 9.41 | 9.30 | +1.2% | No |
| Trade payables turnover | 8.34 | 8.44 | −1.2% | No |
| Net capital turnover | 11.18 | 9.62 | +16.3% | No |
| Net profit ratio | 2.80% | 3.80% | −26.3% | Yes |
| Return on capital employed | 15.18% | 22.66% | −33.0% | Yes |
| Return on investment | 8.21% | 7.02% | +17.0% | No |
Two things to notice. Debt-equity recomputed from the rounded 0.28 and 0.60 gives +114%, not +117.9% — work the variance on unrounded ratios and state it to one decimal. And the net profit ratio fell by only one percentage point, yet the relative change is 26.3%: the test is never in percentage points. Return on equity at −26.2% is close to the line; in close cases, recheck the inputs before deciding no explanation is needed.
Step 4: sample explanations for the flagged ratios
An explanation gives the business reason and agrees with the other notes. For the example company:
| Ratio | Explanation for the note |
|---|---|
| Debt-equity ratio | Increased because the company took a term loan of ₹60 lakh to fund the expansion of its warehouse and fleet, and drew more on its cash credit limit to carry higher stock; equity grew only by the year's retained profit. |
| Return on equity | Decreased because profit after tax fell by 11.6% while average equity rose by 19.8% from retained profits. Profit fell as the gross margin narrowed from 26.0% to 23.3% under price competition, and finance costs and depreciation rose on the new loan and assets. |
| Net profit ratio | Decreased because, although sales grew by 20%, the gross margin narrowed from 26.0% to 23.3% and finance costs (₹7 lakh to ₹12 lakh) and depreciation (₹15 lakh to ₹20 lakh) increased with the expansion. |
| Return on capital employed | Decreased because capital employed rose by 46.7% with the new term loan and the assets bought with it, while earnings before interest and tax were flat (₹58 lakh to ₹57 lakh); the new assets were added late in the year. |
Check each figure quoted in an explanation against the statements: here PAT 38.00 to 33.60 is −11.6%, average equity 181.00 to 216.80 is +19.8%, and capital employed 256.00 to 375.60 is +46.7%. The reasons should also match what you learned in your analytical review — the same movements explain both.
Ratio analysis for Schedule III in Excel: the formulas
Put the inputs in one block — column C for 31 March 2024, D for FY 2024-25 / 31 March 2025, E for FY 2025-26 / 31 March 2026 — and write each ratio formula once in column E. Copied one column left, every reference shifts by itself to give the previous year.
| Row | Input | C | D | E |
|---|---|---|---|---|
| 5 | Current assets | 252.00 | 264.00 | 361.60 |
| 6 | Current liabilities | 150.00 | 158.00 | 253.00 |
| 7 | Total debt | 70.00 | 55.00 | 140.00 |
| 8 | Shareholders' equity | 162.00 | 200.00 | 233.60 |
| 9 | Intangible assets | 2.00 | 1.50 | 1.00 |
| 10 | Deferred tax liability | 2.00 | 2.50 | 3.00 |
| 11 | Inventories | 120.00 | 140.00 | 200.00 |
| 12 | Trade receivables | 110.00 | 105.00 | 150.00 |
| 13 | Trade payables | 85.00 | 95.00 | 140.00 |
| 14 | Net (credit) sales | 1,000.00 | 1,200.00 | |
| 15 | Net credit purchases | 760.00 | 980.00 | |
| 16 | Cost of goods sold | 740.00 | 920.00 | |
| 17 | Profit before tax | 51.00 | 45.00 | |
| 18 | Finance costs | 7.00 | 12.00 | |
| 19 | Depreciation and amortisation | 15.00 | 20.00 | |
| 20 | Profit after tax | 38.00 | 33.60 | |
| 21 | Principal repaid on term loans | 10.00 | 10.00 | |
| 22 | Market value of investments | 0.00 | 20.70 | 22.40 |
| 23 | Net cash invested in the year | 20.00 | 0.00 | |
| 24 | Weight of that cash flow | =182/365 | 0 |
| Row | Ratio | Formula in E (copy to D) |
|---|---|---|
| 28 | Current ratio | =E5/E6 |
| 29 | Debt-equity ratio | =E7/E8 |
| 30 | Debt service coverage ratio | =(E17+E19+E18)/(E18+E21) |
| 31 | Return on equity | =E20/AVERAGE(D8:E8) |
| 32 | Inventory turnover | =E16/AVERAGE(D11:E11) |
| 33 | Trade receivables turnover | =E14/AVERAGE(D12:E12) |
| 34 | Trade payables turnover | =E15/AVERAGE(D13:E13) |
| 35 | Net capital turnover | =E14/AVERAGE(D5-D6,E5-E6) |
| 36 | Net profit ratio | =E20/E14 |
| 37 | Return on capital employed | =(E17+E18)/(E8-E9+E7+E10) |
| 38 | Return on investment | =(E22-D22-E23)/(D22+E24*E23) |
Then, in row 28 and copied down: column F, variance =IFERROR((E28-D28)/ABS(D28),"n/m"); column G, flag =IF(ISNUMBER(F28),IF(ABS(F28)>25%,"Explain",""),"Explain"); column H, the reason, typed in. ABS in the denominator keeps the sign of the change correct when last year's ratio was negative (a loss year), and "n/m" with an "Explain" flag catches a nil previous-year ratio, such as debt-equity when the company had no borrowings. Format rows 31, 36, 37 and 38 as percentages. If you keep the statements in the same workbook (see Schedule III format in Excel), link rows 5 to 20 to the statement totals rather than typing them, so a late adjustment flows into the ratios.
Before the ratio note goes into the accounts
- Same basis both years. If you change a basis (for example, from closing to average balances), recompute the previous year on the new basis.
- Previous year after regrouping. Take the comparatives as they appear in this year's statements, not last year's signed set, if anything was regrouped.
- Numerator and denominator stated. The note must describe the items in each — the "working" columns above, in words, do this.
- Inputs outside the TB evidenced. Keep the loan statements for principal repaid and the fund statements for market values on file.
- Final figures. Recompute after the last audit adjustment; a change to closing stock alone moves eight of the eleven ratios, through current assets, profit and equity.
Try SignReady: Variance % and a reason column for changes above 25%. First 3 finalisations free.
Start freeFrequently asked questions
How do I calculate the Schedule III ratios for the previous year?
Use the previous year's figures as they appear in this year's statements, and for the ratios that use averages (return on equity, the three turnover ratios and net capital turnover) take the opening balances from the balance sheet two years back — for FY 2024-25, the balances at 31 March 2024.
Is the 25% variance in Schedule III ratios measured in percentage points?
No. It is the relative change: (current-year ratio − previous-year ratio) ÷ previous-year ratio. A net profit ratio falling from 3.80% to 2.80% is a 26.3% fall, so it needs an explanation even though it moved by one percentage point.
Is principal repayment of cash credit included in debt service coverage ratio?
Debt service in ICAI's Guidance Note is interest and lease payments plus principal repayments. A revolving cash credit or overdraft is usually not treated as a scheduled repayment; take the instalments of term loans repaid during the year and state the basis in the note.
How is return on investment calculated for Schedule III?
ICAI's Guidance Note says the time-weighted rate of return on market values should be followed: (closing market value − opening market value − net cash invested) ÷ (opening market value + each cash flow weighted for the part of the year it was invested). Market values come from the fund or broker statements, not the books.
Can I use closing balances instead of averages for Schedule III ratios?
For the inventory, trade receivables and trade payables turnover ratios, yes: where opening balances are not available, the Guidance Note allows the ratio to be calculated on closing balances. For return on equity and net capital turnover the Guidance Note gives only the average basis, so get the earlier balance sheet where you can. State the basis in the note and use the same basis for both years.
Sources
- Companies Act, 2013 — Schedule III, Division I, Part I, Additional Regulatory Information, item (xii) Ratios (India Code, as amended)
- Schedule III amendment — G.S.R. 207(E), 24 March 2021 (Gazette)
- ICAI — Guidance Note on Division I – Non Ind AS Schedule III (Revised January 2022), para 8.9.12 and Annexure B (Analytical Ratios)
Upload the client's Tally trial balances to SignReady: you get the Schedule III statements and notes in editable Excel with previous-year figures, including the eleven ratios with variance % and a reason column for changes above 25%. FinalCheck then flags arithmetic and cross-reference differences. First 3 finalisations free.
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Version history: 20 Oct 2026 — first published.
