In everyday life, we often encounter various comparisons. For example, the ratio of the number of children and parents, men and women, apples and bananas, and so on. However, did Mudalovers know that there is a basic theory for these things?
We have certainly heard the term ratio. This term is often associated with comparisons of two or more different things. In various applications, the descriptions and examples below not only help us understand the meaning of ratios and how they work, but also their calculation and application.
Initially, we can understand the meaning of ratio by looking at its use to show how large the quantity of one thing is when compared to another. In a comparison, two quantities are compared in the same way as division. Even so, the meaning of this ratio can apparently be studied in more depth.
Understanding Ratio
The first question we need to find the answer to is “what does ratio actually mean?” The answer will be explored in this discussion!
1. Understanding Ratio in Mathematics
In mathematical matters, the meaning of ratio is seen as a comparison of two or more numbers that shows their size and relationship to each other. The two quantities that are compared by dividing use numbers called the antecedent (which is divided) and consequent (which divides).
For example, we survey 20 people in a group and find out that 13 of them prefer cake to ice cream while the remaining seven people prefer ice cream to cake. The ratio used in this case is 13:7, which means 13 is the antecedent and 7 is the consequent.
Moreover, the ratio can be formatted as two types of comparison, namely part to part and part to whole. For part-to-part comparisons, two or more individual figures in the ratio become parts of one whole. For example, the ratio of the number of dogs and cats as types of animals in a veterinary clinic.
Meanwhile, the part-to-whole ratio measures the sum of one individual number relative to the total of the numbers that comprise that individual. For example, the ratio of the number of dogs compared to all animals in the veterinary clinic.
2. Understanding Ratios in Everyday Life
Ratios are often used in everyday life because they can help simplify many of our interactions by putting numbers into perspective. Ratios allow us to measure and express quantities by making them easier to understand.
Examples of ratios in our daily lives:
- The sedan was traveling at a speed of 60 miles per hour, or 60 miles in 1 hour.
- We have a 1 in 28,000,000 chance of winning the lottery. Of every possible scenario, only 1 in 28,000,000 of them results in us winning the lottery.
- There are enough cookies for each of the 78 students to have two, or 2 cookies per 78 students.
- Children outnumber adults 3:1, or there are three times as many children as adults.
3. Understanding Ratios in Accounting
Apart from the types of ratios that are generally discussed from a mathematical perspective, we will also discuss ratios from an accounting perspective. Basically, from this perspective, ratios still have the same nature, namely comparing two things. However, ratios in accounting include various ratios that are often used by accountants as indicators of profitability, liquidity and financial potential in a company.
This indicator is usually calculated over a certain period of time. Often, the ratio is calculated on an annual or quarterly basis. Moreover, each industry will require a different type of ratio depending on its importance. For example, inventory turnover ratios will be very important to retailers, while hardly important to boutique counselors.
Read Also : What is Cost Accounting? Definition According to Experts, Functions and Types
Formulas in Writing Ratios
There are several different ways to express ratios. Even so, one of the most common ways is to use a colon as a comparison of two or more different things. For example, the difference between the number of 7 pink sticky notes and 4 yellow sticky notes is 7:4.
The use of a colon in a mathematical context is preferred because it can be directly understood as a comparison of two or more quantities. For example, when preparing a mixture that calls for 1 part oil, 1 part vinegar, and 10 parts water, we can express the ratio of oil to vinegar to water as 1:1:10.
Apart from colons, many people also prefer to use pronunciations to express ratios. Based on the example above, the expression is 7 to 4. Consider the context of the comparison when deciding the best way to write the ratio, yes, Mudalovers!.
1. Ratio Calculation
To calculate the ratio of two quantities, we can use the following steps. Let us understand through an example. For example, if 15 cups of flour and 20 cups of sugar are needed to make fluffy pancakes, let’s calculate the ratio of flour to sugar used in the recipe.
- Step 1: Find the quantity of the two objects whose ratio we want to determine. In this case, they are 15 and 20.
- Step 2: Write in fraction form a/b. So, we write it as 15/20.
- Step 3: Simplify the fraction further, if possible. The simplified fraction will give the final ratio. Here, 15/20 can be simplified to 3/4 by dividing them by 5..
- Step 4: Hence, the flour to sugar ratio can be expressed as 3:4.
2. Simplify the Ratio
Based on the calculations above, apparently the ratio needs to be divided! Why and how?
No matter how the ratio is written, it is important to simplify it to the smallest whole number possible, as is the case with any fraction. This can be done by finding the greatest common factor between the numbers and dividing accordingly.
With a ratio comparing 12 to 16, for example, we can find that 12 and 16 can be divided by 4. This simplifies our ratio to 3 to 4, aka the quotient we get when we divide 12 and 16 by 4. Our ratio can also be written as:
- 3:4
- 3/4
- 3 to 4
- 0.75 (decimal is sometimes allowed, although rarely used)
Understanding Equivalent Ratio
Equivalent ratios are the same as equivalent fractions. If the antecedent (first term) and consequent (second term) of a given ratio are multiplied or divided by the same number other than zero, it results in an equivalent ratio.
For example, when the antecedent and consequent of the ratio 1:3 are multiplied by 3, we get, (1 × 3) : (3 × 3) or 3: 9. Here, 1:3 and 3:9 are equivalent ratios. Similarly, when both terms of the ratio 20:10 are divided by 10, the result is 2:1. Here, 20:10 and 2:1 are equivalent ratios. An infinite number of equivalent ratios of any given ratio can be found by multiplying the antecedent and consequent by a positive integer.
Ratio Table
We already know the formats and formulas for calculating and writing ratios well. However, it turns out there is still discussion about the ratio table, Mudalovers. What’s that?
A ratio table is a list that contains the equivalent ratios of certain ratios in a structured manner. The ratio table will provide the relationship between the 1:4 ratio and its four equivalent ratios. For your information, equivalent ratios are related to each other by multiplying numbers. Equivalent comparisons are obtained by multiplying or dividing two terms of a comparison by the same number.
For example, we take the ratio 1:4 and find four equivalent ratios by multiplying both terms of the ratio by 2, 3, 6, and 9. As a result, we get 2:8, 3:12, 6:24, and 9:36.
Practice Calculating Ratios
This could be the part Mudalovers likes most about learning something, namely practicing. We really like practicing something new, don’t we? Below, there are several examples of ratios that can be used for practice!
- There are 6 apples in a bowl of 8. What is the ratio of apples to total fruit? (answer: 6:8, simplified to 3:4)
- If the two fruits that are not apples are oranges, what is the ratio of apples to oranges? (answer: 6:2, simplified to 3:1)
- Dr. Pasture, a veterinarian in the countryside, only treats 2 types of animals, namely cats and dogs. Last week, he cared for 12 cats and 16 dogs. What is the ratio of cats to dogs in his care? (answer: 12:16, simplified to 3:4. For every 3 cats treated, there are 4 dogs also cared for)
- What is the ratio of cats to the total number of animals in his care? (answer: 12 + 16 = 28, total number of animals treated. The ratio of cats to the total is 12:28, simplified to 3:7. For every 7 animals treated, 3 of them are cats)
Can you do it before seeing the answer? Mudalovers, we will also practice calculating ratios in other ways! For this reason, try to pay attention to the demographic information about marching bands below:
Gender
- 120 boys
- 180 girls
Instrument type
- 160 woodwinds
- 84 percussion
- 56 brass
Class
- 127 new students
- 63 second year students
- 55 junior
- 55 senior
Now, try to answer the following questions. Don’t forget to simplify it if necessary!
- What is the ratio of boys to girls? (answer: 2:3)
- What is the ratio of freshmen to the total number of band members? (answer: 127:300)
- What is the ratio of percussion to woodwind and brass? (answer: 84:160:56, simplified to 21:40:14)
- What is the ratio of freshmen to seniors and sophomores? (answer: 127:55:63. Note: 127 is a prime number and cannot be reduced by this ratio)
- If 25 students leave the woodwind section to join the percussion section, what is the ratio of the number of woodwind players to percussionists? (answer: 160 woodwinds – 25 woodwinds = 135 woodwinds. 84 percussionists + 25 percussionists = 109 percussionists. The ratio of the number of players in woodwind music to percussion is 135:109)
Read Also : What is an Accounting Information System? Definition, Goals and Functions
About Accounting Ratios
You want to know about accounting ratios instead of just math? Don’t worry, Mudalovers, we’ll get to that too!
Financial reports are the basis for accounting ratios that represent many of the core essences of a business. They paint a picture of where a company has come from, how they are performing currently, and where they are going in the future. The ratio may seem simple at first, but it is very nuanced and can be difficult to calculate.
Below, we will learn about several types of ratios that are commonly used in Indonesia and abroad. Let’s watch it together!
General Accounting Ratios
1 – Liquidity Ratio
This first type of accounting ratio formula is used to ensure the company’s liquidity position. Liquidity ratios are used to determine a company’s payment capacity for its short-term obligations. A high liquidity ratio indicates that the company’s cash position is good. Here are the types and formulas!
- Current Ratio
Current Ratio = Current Assets/Liabilities or Current Liabilities - Quick ratio
Quick Ratio = Quick Assets/Current Liabilities - Cash Ratio
Cash Ratio = (Liquid Money+Securities)/Current Liabilities
#2 – Profitability Ratios
This type of accounting ratio formula shows the company’s efficiency in generating profits. It shows the earning capacity of the business and its comparison with the capital employed.
- Gross Profit Ratio
Gross Profit Ratio = (Gross Profit/Net Income from Operations) - Operating Ratio
Operating Ratio = ((Cost of Goods Sold+Operating Expenses)/Net Income from Operations)X100 - Net Profit Ratio
Net Profit Ratio = (Net Profit After Tax/Net Income)X100 - Return on capital used
Break-even point = (Profit Before Interest and Tax/Capital Employed)X100 - Earnings per Share
Earnings Per Share = Profit Available to Equity Shareholders/Weighted Average Shares Outstanding
#3 – Leverage Ratio
This type of accounting ratio is often known as a solvency ratio, Mudalovers. This is because it determines the company’s ability to pay its debts. Investors are interested in this ratio because it helps to know how capable the company is of meeting its dues.
- Debt to Equity Ratio
Debt to Equity Ratio = Total Debt/Total Equity - Debt Ratio
Debt Ratio = Total Liabilities/Total Assets - Ownership Ratio
Ownership Ratio = Funds Owned by Shareholders/Total Assets owned - Interest Coverage Ratio
Interest Coverage Ratio = Profit Before Tax and Interest/Interest Expense
4 – Activity/Efficiency Ratio
The activity ratio, also known as the efficiency ratio, is used by analysts to measure the company’s current or short-term performance. This ratio is calculated using the figures in the company’s current assets or liabilities.
- Working Capital Turnover Ratio
Working Capital Turnover Ratio = Net Sales / Net Working Capital - Inventory Turnover Ratio
Inventory Turnover Ratio = Cost of Goods Sold (COGS)/Average Inventory - Asset Turnover Ratio
Asset Turnover Ratio = Net Income/Assets - Debtor turnover ratio
Debtor Turnover Ratio = Credit Sales/Average Debtors
Read Also : An Example of Trading Company Accounting Cycle Material
Conclusion
How, Mudalovers, is it fun, isn’t it, learning the ins and outs of understanding ratios from the basics? Ratio is indeed an important thing and is widely used as a comparison in various aspects of life.
If Mudalovers wants to learn more about the meaning of ratios, mathematics and accounting, you can get the articles at mudabicara.com.