Accounting equations

Question 1

Capital Gearing

Answer 1

Non-current liabilities/Issued share capital + Reserves +Non current liabilities x100

Question 2

Current ratio

Answer 2

Current assets/Current liabilities
Expressed as x:1

Question 3

Dividend cover

Answer 3

Profit after interest and tax
Ordinary share dividends paid

Question 4

Dividend yield

Answer 4

Dividend per share/ Market price per share x100

Question 5

Earnings per share

Answer 5

Earnings in pence (profit after tax in pence)
No. of issued ordinary shares

Question 6

Expenses in relation to revenue

Answer 6

Expenses/Revenue x100

Question 7

Gross profit margin

Answer 7

Gross profit/Revenue x100

Question 8

Interest cover

Answer 8

Profit before interest and tax
Interest payable

Question 9

Acid test ratio/Liquid capital ratio

Answer 9

Current assets - inventory
Current liabilities
Expressed as x:1

Question 10

Markup

Answer 10

Gross profit/Cost of sales x 100

Question 11

Price earnings

Answer 11

Current market price
Earnings per share

Question 12

Profit in relation to revenue

Answer 12

Profit for year (before tax)/Revenue x100

Question 13

Rate of inventory turnover

Answer 13

Cost of sales
Average inventory - normally the average of the opening and closing inventory

Question 14

Rate of inventory turnover (days)

Answer 14

Average inventory/Cost of sales x365

Question 15

Return on capital employed (sole trader)

Answer 15

Profit before interest/Capital employed x100
Capital employed is capital + non current liabilities

Question 16

Return on capital employed (limited company)

Answer 16

Profit from operations/Capital employed x100
Capital employed is equity + non current liabilities

Question 17

Trade payable days

Answer 17

Trade payables/Credit purchases x365

Question 18

Trade receivable days

Answer 18

Trade receivables/Credit sales x365