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.
Quick ratio
LIQUIDITY (x:1)
(current assets - inventories) / current liabilities
Financial managers use liquidity or working capital ratios to control and monitor investment in working capital and monitor long-term solvency.
Equity Gearing
FINANCIAL GEARING (%)
(borrowings (debt) + preference share capital / equity * 100
Measures the proportion of debt a company has relative to it equity. It is a measure of a company’s financial leverage and shows the extent to which its operations are funded by interest-bearing lenders versus shareholders. A firm with significantly more debt than equity is regarded as highly geared (or leveraged).
Total/Capital Gearing
FINANCIAL GEARING (%)
(borrowings (debt) + preference share capital) / capital employed * 100
[Note: capital employed = equity + debt + preference share capital]
Measures the proportion of debt a company has relative to it equity. It is a measure of a company’s financial leverage and shows the extent to which its operations are funded by interest-bearing lenders versus shareholders. A firm with significantly more debt than equity is regarded as highly geared (or leveraged).
Interest Gearing
FINANCIAL GEARING (%)
(debt interest + preference share dividends) / (operating profit + investment income) * 100
Measures the proportion of debt a company has relative to it equity. It is a measure of a company’s financial leverage and shows the extent to which its operations are funded by interest-bearing lenders versus shareholders. A firm with significantly more debt than equity is regarded as highly geared (or leveraged).
Interest Cover (times)
FINANCIAL GEARING (%) (times)
(operating profit + investment income) / (debt interest + preference share dividends)
Measures the proportion of debt a company has relative to it equity. It is a measure of a company’s financial leverage and shows the extent to which its operations are funded by interest-bearing lenders versus shareholders. A firm with significantly more debt than equity is regarded as highly geared (or leveraged).
Dividend Payout Ratio (DPR)
INVESTMENT VALUATION (%)
equity share dividend(s) paid in the year / profit for the year * 100
Investment valuation ratios compare relevant data that will estimate the attractiveness of a potential or existing investment. Investors assess the performance of a company’s shares by looking at how ratios compare from one company to another, as well as the other ratios.
Dividend Cover
INVESTMENT VALUATION (times)
profit for the year / equity share dividend(s) paid in the year
Investment valuation ratios compare relevant data that will estimate the attractiveness of a potential or existing investment. Investors assess the performance of a company’s shares by looking at how ratios compare from one company to another, as well as the other ratios.
Dividend Yield
INVESTMENT VALUATION (%)
equity share dividend(s) per share / market price of an equity share * 100
Investment valuation ratios compare relevant data that will estimate the attractiveness of a potential or existing investment. Investors assess the performance of a company’s shares by looking at how ratios compare from one company to another, as well as the other ratios.
Earnings per Share (EPS)
INVESTMENT VALUATION (p or £)
profit attributable to equity shareholders for the year / weighted average number of outstanding equity shares during the year
Investment valuation ratios compare relevant data that will estimate the attractiveness of a potential or existing investment. Investors assess the performance of a company’s shares by looking at how ratios compare from one company to another, as well as the other ratios.
Diluted EPS
INVESTMENT VALUATION (p or £)
adjusted profit attributable to equity shareholders for the year / (weighted average number of outstanding equity shares during the year + diluted equity shares)
Investment valuation ratios compare relevant data that will estimate the attractiveness of a potential or existing investment. Investors assess the performance of a company’s shares by looking at how ratios compare from one company to another, as well as the other ratios.
P/E Ratio
INVESTMENT VALUATION (times)
market price of an equity share / EPS
