14 - Ratio Analysis Flashcards
What does the gross profit margin ratio show?
Gross profit as a % of sales turnover
What does the mark-up ratio show?
Gross profit as a % of the cost of sales
What does the net profit margin ratio show?
Net profit as a % of sales
What does the ROCE ratio show?
% return a business is achieving from capital invested
What does the current ratio show?
Amount of current assets a business owns in relation to the current liabilities it owes
What does the liquid capital ratio show?
More accurate reflection of a business’s true liquidity
What does the trade receivable days ratio show?
The average of how long it takes for debtors to pay in days
What does the trade payable days ratio show?
The average of how long it takes a firm to pay for goods/services bought on credit in days
What does the inventory turnover ratio show?
Average time an item of stock is held by a firm in days
What are the 4 disadvantages of ratio analysis?
Calculated on past data
Financial records may be manipulated
No qualitative factors considered
Interfirm comparisons can be difficult due to differences
