C7 - Ratios Flashcards
Gross profit % formula and meaning
Gross profit / sales revenue X 100%
The gross profit as a percentage of sales
Expense/revenue % formula and meaning
Specified expense / revenue x 100%
A large expense can be expressed as a percentage of revenue
3 types of costs?
Fixed
Variable
Semi variable
Operating profit % formula and meaning
Operating profit / revenue x 100%
profit before finance costs and tax
Profit from operations is also known as net profit
Return on capital employed formula and meaning
Profit from operations / total equity + NCL x 100%
Or
Operating profit / NCA + NA x
100%
How much profit is generated by the capital employed
What is return on capital also known as??
Primary ratio
Return on shareholders funds formula and meaning?
Profit after tax / total equity X 100%
The return the company is making on their funds as ordinary shares and reserves
Working capital formula and meaning
Current assets - current liabilities
Used to finance day to day trading activities
Current ratio formula and meaning
Current assets / current liabilities (shown as a ratio)
How many assets a company has to pay short term liabilities
Acid / quick ratio formula and meaning
Current assets - inventories / current liabilities (shown as a ratio)
Gives a clear indication of the health of a company’s finance. Doesn’t include inventories as they are least liquid
Inventory holding period meaning and formula
Inventories / cos x 365 days
No. Days inventories held on average
Inventory turnover formula and meaning
COS / inventories = X times
Number of times a year the inventory is turned over
Trade receivables formula and meaning
Trade receivables / revenue x 365 days
How long TR take to pay for the goods sold to them on credit
Trade payables meaning and formula
Trade payables / cos x 365
How long it takes for the company to pay for goods on credit
Working capital cycle meaning and formula
Inventory days + trade receivable days - trade payable days
Measures the period of time between payment of goods received into inventory and the collection of cash from customers
Working capital cycle..
Is it better to have a higher figure or lower figure
Lower
Asset turnover meaning and formula
Revenue / NCA = X times
Or
Revenue / Total assets - current liabilities = X times
Measures efficiency of the use of assets in generating revenue.
Interest cover meaning and formula
Profit from operations / finance costs = X times
Considers the safety margin of profit over the finance costs of a company.
Gearing formula and meaning
Non current liabilities / total quity + non current liabilities x 100%
Or
Non current liabilities / total equity x 100%
How much of the company is financed by non current liabilities such as long term debts and debentures.
What is capital employed formula?
Total equity + non current liabilities
