9. Financial Performance Indicators Flashcards
What are the profitability ratios?
Margin on sales - gross profit margin and net profit margin
Return on capital employed (ROCE)
How do you calculate gross profit margin?
(Gross profit / sales) X100
How do you calculate net profit margin?
(Net profit (PBIT) / sales) X100
What May cause a falling GPM or NPM?
Increasing costs or reducing selling prices
What does the difference between GPM and NPM allow you to establish?
Whether there are changes in COS or operating costs
How do you calculate ROCE?
(Net profit (PBIT) / capital employed (TALCL)) X100
What does PBIT stand for?
Profit before interest and tax
What does ROCE measure?
How much profit is generated for every £ of assets employed, it indicates how efficiently the company uses its assets to generate profit.
What are the revenue ratios?
Average selling price
Sales per employee
Asset turnover
How do you calculate the average selling price?
Total revenue / number of units sold
What does the average selling price show?
The average selling price of units, it can be compared to competitors to see how competitively priced out products are
How do you calculate the sales per employee?
Sales / number of employees
What happens if the sales per employee falls?
Staff may not be working hard enough
How do you calculate asset turnover?
Sales / capital employed (TALCL)
What does asset turnover measure?
The efficiency of the use of assets
What are the cost ratios?
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
How do you calculate the cost of sales as a % of turnover?
(Cost of sales / sales) X100
What does a change in percentage indicate for cost of sales as a % of turnover?
Increasing = poor cost control Decreasing = ‘economies of scale’ as volume rises
How do oh calculate cost as a % of sales?
(Cost / sales) X100
How do you calculate average production cost per unit?
Total production costs / number of units produced
How do you calculate average material cost per unit?
Total purchase costs / number of units purchased
How do you calculate average labour rate per hour?
Total labour costs / number of hours paid
What are the liquidity ratios?
Current ratio Quick ratio Average receivables collection period Average payables period Average inventory holding period
How do you calculate current ratio?
Current assets / current liabilities
What does the current ratio measure?
Whether the short term liquid assets are adequate to cover short term liabilities
How do you calculate the quick ratio?
( current assets - inventory) / current liabilities
How do you calculate the average receivables collection period?
(Trade receivables / sales) X 365
How do you calculate the average payable period?
(Trade payables / purchases of COS ) X 365
How do you calculate the average inventory holding period?
(Closing inventory / COS) X 365
What are the labour productivity ratios?
Labour efficiency ratio (smarter)
Labour capacity ratio (longer)
Labour production volume ratio (more units)
How do you calculate the labour efficient ratio?
(Expected hours to make actual output / actual hours to make actual output) X100
How do you calculate the labour capacity ratios?
(Actual hours to make actual output / planned (budgeted) hours) X100
How do you calculate the labour production volume ratio?
(Expected hours to make actual output / planned (budgeted) hours) X100
