9. Financial Performance Indicators Flashcards

1
Q

What are the profitability ratios?

A

Margin on sales - gross profit margin and net profit margin

Return on capital employed (ROCE)

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2
Q

How do you calculate gross profit margin?

A

(Gross profit / sales) X100

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3
Q

How do you calculate net profit margin?

A

(Net profit (PBIT) / sales) X100

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4
Q

What May cause a falling GPM or NPM?

A

Increasing costs or reducing selling prices

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5
Q

What does the difference between GPM and NPM allow you to establish?

A

Whether there are changes in COS or operating costs

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6
Q

How do you calculate ROCE?

A

(Net profit (PBIT) / capital employed (TALCL)) X100

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7
Q

What does PBIT stand for?

A

Profit before interest and tax

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8
Q

What does ROCE measure?

A

How much profit is generated for every £ of assets employed, it indicates how efficiently the company uses its assets to generate profit.

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9
Q

What are the revenue ratios?

A

Average selling price
Sales per employee
Asset turnover

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10
Q

How do you calculate the average selling price?

A

Total revenue / number of units sold

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11
Q

What does the average selling price show?

A

The average selling price of units, it can be compared to competitors to see how competitively priced out products are

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12
Q

How do you calculate the sales per employee?

A

Sales / number of employees

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13
Q

What happens if the sales per employee falls?

A

Staff may not be working hard enough

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14
Q

How do you calculate asset turnover?

A

Sales / capital employed (TALCL)

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15
Q

What does asset turnover measure?

A

The efficiency of the use of assets

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16
Q

What are the cost ratios?

A
Cost of sales as a % of turnover
Cost as a % of sales
Average production cost per unit 
Average material cost per unit 
Average labour rate per hour
17
Q

How do you calculate the cost of sales as a % of turnover?

A

(Cost of sales / sales) X100

18
Q

What does a change in percentage indicate for cost of sales as a % of turnover?

A
Increasing = poor cost control
Decreasing = ‘economies of scale’ as volume rises
19
Q

How do oh calculate cost as a % of sales?

A

(Cost / sales) X100

20
Q

How do you calculate average production cost per unit?

A

Total production costs / number of units produced

21
Q

How do you calculate average material cost per unit?

A

Total purchase costs / number of units purchased

22
Q

How do you calculate average labour rate per hour?

A

Total labour costs / number of hours paid

23
Q

What are the liquidity ratios?

A
Current ratio
Quick ratio
Average receivables collection period
Average payables period
Average inventory holding period
24
Q

How do you calculate current ratio?

A

Current assets / current liabilities

25
What does the current ratio measure?
Whether the short term liquid assets are adequate to cover short term liabilities
26
How do you calculate the quick ratio?
( current assets - inventory) / current liabilities
27
How do you calculate the average receivables collection period?
(Trade receivables / sales) X 365
28
How do you calculate the average payable period?
(Trade payables / purchases of COS ) X 365
29
How do you calculate the average inventory holding period?
(Closing inventory / COS) X 365
30
What are the labour productivity ratios?
Labour efficiency ratio (smarter) Labour capacity ratio (longer) Labour production volume ratio (more units)
31
How do you calculate the labour efficient ratio?
(Expected hours to make actual output / actual hours to make actual output) X100
32
How do you calculate the labour capacity ratios?
(Actual hours to make actual output / planned (budgeted) hours) X100
33
How do you calculate the labour production volume ratio?
(Expected hours to make actual output / planned (budgeted) hours) X100