Chapter 13 - Performance measurement and control Flashcards
What are the four main profitability ratios?
- Gross profit margin
- Operating profit margin
- Return on capital employed
- Asset turnover
How do you calculate the Gross profit margin
(Gross profit) ÷ (Turnover) x 100
How do you calculate the Operating profit margin
(Operating profit) ÷ (Turnover) x 100
How do you calculate Return on capital employed
(Operating profit) ÷ (Capital Employed) x 100
or
Operating profit x asset turnover
How do you calculate capital employed
Total assets - current liabilities
or
Total equity + long term debt
How do you calculate Asset turnover
(Turnover) ÷ (Capital Employed)
What are the five liquidity ratios?
- Current ratio
- Quick ratio (acid test)
- Inventory days
- Receivables days
- Payables days
How do you calculate the current ratio?
(Current assets) ÷ (Current liabilities)
How do you calculate the quick ratio?
(Current assets- Inventory) ÷ (Current liabilities)
How do you calculate the Inventory days
(Inventory) ÷ (Cost of sales) x 365
How do you calculate the Receivables days
(Receivables) ÷ (Credit sales) x 365
How do you calculate the Payable’s days
(Payables) ÷ (Credit purchases) x 365
What are the three risk ratios?
- Financial gearing
- Interest cover
- Dividend cover
How do you calculate financial gearing?
(Debt) ÷ (Equity) x 100
or
(Debt) ÷ (Debt + Equity) x 100
How do you calculate Interest cover
(Operating profit) ÷ (Finance costs)
