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Accounting ratios > Accounting Ratios & CVP Analysis WBS EMBA > Flashcards

Accounting Ratios & CVP Analysis WBS EMBA Flashcards

1
Q

Name 5 types of accounting ratios

A 
Solvency ratios
Liquidity ratios
Investment ratios
Profitability ratios
Activity ratios
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2
Q

Explain what a SOLVENCY ratio is

A

The solvency ratio indicates whether a company’s cash flow is sufficient to meet its short-term and long-term liabilities.

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3
Q

Name 2 types of SOLVENCY ratios

A

Gearing ratio

Interest cover ratio

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4
Q

How to calculate the ‘gearing ratio’

A

debt / equity

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5
Q

How to calculate the ‘interest cover ratio’

A

PBIT /

interest

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6
Q

Explain what LIQUIDITY ratios are

A

Ratios that determine a company’s ability to pay off its short-term financial obligations.

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7
Q

Name 2 types of LIQUIDITY ratios

A

Current ratio

Acid test ratio (or liquid ratio or quick ratio)

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8
Q

How to calculate ‘current ratio’

A

current assets /

current liabilities

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9
Q

How to calculate ‘acid test ratio’

A 
current assets (excluding inventories) /
current liabilities
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10
Q

Explain what an INVESTMENT ratio is

A

A ratio that can be used by shareholders to assess the returns on their investment.

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11
Q

Name 4 INVESTMENT ratios

A

Earnings per share (EPS)
Price to earnings ratio (P/E ratio)
Dividend yield ratio
Dividend payout ratio

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12
Q

How to calculate ‘earnings per share’ (or EPS)

A

PAT /

number of shares

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13
Q

How to calculate ‘price to earnings ratio’ (or P/E)

A

market price per share /

earnings per share

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14
Q

How to calculate ‘dividend yield ratio’

A

dividend per share /
market price per share

x 100

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15
Q

How to calculate ‘dividend payout ratio’

A

dividends announced for the year /
PAT

x 100

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16
Q

Explain what PROFITABILITY ratios are

A

Ratios used to evaluate the profitability of the business

17
Q

Name 6 PROFITABILITY ratios

A 
Return on equity (ROE)
Operating profit margin
Gross profit margin
Expenses to sales
Return on capital employed (ROCE)
Asset turnover
18
Q

How to calculate ‘return on equity’ (ROE)

A

PAT x 100 /

equity

19
Q

How to calculate ‘return on capital employed’ (ROCE)

A

PBIT x 100 /
capital employed

where capital employed = total assets - current liabilities

20
Q

How to calculate ‘gross profit margin’

A

gross profit /
sales

x 100

21
Q

How to calculate ‘operating profit margin’

A

PBIT /
sales

x 100

22
Q

How to calculate ‘asset turnover’

A

sales /

total assets

23
Q

How to calculate ‘expenses to sales’

A

expenses /

sales

24
Q

Explain what ACTIVITY ratios are

A

Ratios used to measure the efficiency with which resources are used within the business.

25
Q

Name 5 ACTIVITY ratios

A 
Inventory days (or stock)
Debtor days (or accounts receivable days)
Creditor days (or accounts payable days)
Sales revenue to capital employed
Sales revenue per employee
26
Q

How to calculate ‘inventory days’ (or stock)

A

inventory x 365 /

cost of sales

27
Q

How to calculate ‘debtor days’ (or accounts receivable days)

A

debtors x 365 /

sales

28
Q

How to calculate ‘creditor days’ (or accounts payable days)

A

creditors x 365 /

cost of sales

29
Q

How to calculate ‘sales revenue to capital employed’

A

sales revenue /

share capital + reserves + non-current liabilities

30
Q

How to calculate ‘sales revenue per employee’

A

sales revenue /

number of employees

31
Q

Calculate ‘break even point’

A

Fixed costs /

Contribution

32
Q

Calculate ‘contribution per unit’

A

Sale price per unit - variable cost per unit

33
Q

Calculate ‘margin of safety’

A

(Expected sales - break even sales) /

Expected sales

34
Q

Calculate ‘operating leverage’

A

Contribution /

Net profit

35
Q

Calculate ‘contribution per £ sales’

A

Sales - variable costs /

Sales

Accounting ratios (1 decks)

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