Τ1 = Working Capital / Total Assets. This variable measures the relation of liquid assets to the
total assets of a company. Working capital is measured by subtracting current liabilities from
current assets.
Τ2 = Retained Earnings / Total Assets. Retained earnings or earned surplus is the total amount
of earnings and / or losses of a company in its lifetime period. The ratio is also used to
measure the Leverage of an enterprise, which is the portion of assets financed through
retained earnings compared to debt financing.
Τ3 = Earnings Before Interest and Taxes / Total Assets. It measures the real productivity of a
firm independently of taxes and interest. This is an exceptionally suitable ratio for business
failure prediction.
Τ4 = Market Value of Equity / Book Value of Total Liabilities. It is measured based on the
market value of all stock shares on one hand and on the current value of short and long term
liabilities.
Τ5 = Sales/total assets. Capital turnover ratio measures the degree of utilisation of total assets
of an enterprise in connection with the realised sales.