21 Interpretation of financial statements Flashcards
How do you calculate gross profit?
Gross profit/revenue x 100
What are some potential reasons for movement in gross profit?
Selling prices, sales mix, purchase cost, production cost
How do you calculate operating profit?
Operating profit/revenue x 100
What are some potential reasons for movement in operating profit?
Gross profit
Expenses admin/distribution
How do you calculate asset turnover?
Revenue/capital employed
What are some potential reasons for movement in asset turnover?
Increase/decrease in revenue
Increase/decrease in non-current assets
Increase/decrease in working capital
How do you calculate return on capital employed?
Profit from operations/capital employed x 100
How do you calculate capital employed?
Equity+Non current assets
How are some potential reasons for movement in return for capital employed?
Efficiency: moment in asset turnover
Profitability: movement in operating profit
Combination of both
How do you calculate current ratio?
Current assets/current liabilities
How do you calculate for quick ratio?
Current asset - inventory / current liabilities
What are some reasons for movement in current/quick ratio?
Increase/decrease in cash balance
Increase/decrease in inventory
Increase/decrease in receivables
Increase/decrease in payables
How do you calculate inventory turnover?
Cost of sales/inventory
How do you interpret inventory turnover?
Number of times inventory is turned over in the period
Higher turnover = higher efficiency
How do you calculate inventory holding period?
Inventory/cost of sales x 365 days
How do you interpret inventory holding period?
Average number of days for which inventory is held
Lower days = higher effifency
What are some reasons for movement in inventory holding period?
Improved/worse inventory control
Obsolete inventory
Increased level of inventory to stimulate sales
How do you calculate receivable collection period?
Receivables / revenue x 365 days
What are some reasons for movement in receivables collection period?
Improved/worse credit control
Irrecoverable debts
Increased credit terms to stimulate sales
How do you calculate payables payment period?
Payables/credit purchases x 365 days
What is the working capita; cycle?
Inventory days + receivables days - payable days
How do you calculate gearing?
Debt / debt + equity x 100%
What is the alternative gearing formula?
Debt/equity
How do you calculate interest cover?
Profit before interest/finance costs
