Accounting and Financial Ratios Flashcards
Return on Capital Employed (ROCE)
= Accounting Rate of Return (ARR)
PROFITABILITY %
operating profit / equity + non-current assets * 100
Profitability ratios measure the capability of the company to generate profit compared to revenue, expenses, assets and shareholders’ equity. They indicate the effectiveness of the capital and adequacy of profit earned.
Return on Total Assets (ROA)
PROFITABILITY %
net profit / total assets * 100
Profitability ratios measure the capability of the company to generate profit compared to revenue, expenses, assets and shareholders’ equity. They indicate the effectiveness of the capital and adequacy of profit earned.
Return on Shareholder Equity (ROE) %
PROFITABILITY %
Net profit (profit for the period) / equity * 100
Profitability ratios measure the capability of the company to generate profit compared to revenue, expenses, assets and shareholders’ equity. They indicate the effectiveness of the capital and adequacy of profit earned.
Operating Profit Margin
PROFITABILITY %
operating profit / revenue * 100
Profitability ratios measure the capability of the company to generate profit compared to revenue, expenses, assets and shareholders’ equity. They indicate the effectiveness of the capital and adequacy of profit earned.
Gross Profit Margin
PROFITABILITY %
gross profit / revenue * 100
Profitability ratios measure the capability of the company to generate profit compared to revenue, expenses, assets and shareholders’ equity. They indicate the effectiveness of the capital and adequacy of profit earned.
Net Profit Margin
PROFITABILITY %
net profit (profit for the period) / revenue * 100
Profitability ratios measure the capability of the company to generate profit compared to revenue, expenses, assets and shareholders’ equity. They indicate the effectiveness of the capital and adequacy of profit earned.
Asset turnover
EFFICIENCY (times)
revenue / capital employed
Efficiency ratios measure how efficiently a company uses its assets to generate revenue and manages its liabilities.
Total Asset Turnover
EFFICIENCY (times)
revenue / non-current assets
Efficiency ratios measure how efficiently a company uses its assets to generate revenue and manages its liabilities.
Inventories Turnover
EFFICIENCY (times)
COSG / inventory
Efficiency ratios measure how efficiently a company uses its assets to generate revenue and manages its liabilities.
Inventory Holding Period
EFFICIENCY (days)
inventory / COGS * 365
Efficiency ratios measure how efficiently a company uses its assets to generate revenue and manages its liabilities.
Rate of Collection of Trade Receivables
EFFICIENCY (days)
trade receivables / credit sales (or revenue) * 365
Efficiency ratios measure how efficiently a company uses its assets to generate revenue and manages its liabilities.
Rate of Collection of Trade Receivables
EFFICIENCY (days)
trade receivables / credit sales (or revenue) * 365
Efficiency ratios measure how efficiently a company uses its assets to generate revenue and manages its liabilities.
Rate of Payment of Trade Payables
EFFICIENCY (days)
trade payables / credit purchases (or COGS) * 365
Efficiency ratios measure how efficiently a company uses its assets to generate revenue and manages its liabilities.
Working Capital Cycle
EFFICIENCY (days)
inventory holding period + trade receivables collection period - trade payables payment period
Efficiency ratios measure how efficiently a company uses its assets to generate revenue and manages its liabilities.
Current ratio
LIQUIDITY (x:1)
current assets / current liabilities
Financial managers use liquidity or working capital ratios to control and monitor investment in working capital and monitor long-term solvency.
