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Drafting and Interpreting Financial Statements > Chapter 8 > Flashcards

Chapter 8 Flashcards

1
Q

Profitability ratios? (6)

A

1 gross profit percentage
2 operating profit percentage
3 return on capital employed
4 return on shareholder funds
5 capital employed
6 expense/revenue percentage

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2
Q

Liquidity ratios? (2)

A

1 current ratio
2 acid test (quick) ratio

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3
Q

Efficiency ratios? (6)

A

1 working capital cycle
2 trade receivables collection period
3 trade payables collection period
4 assets turnover (non-current and net assets)
5 inventory holding period
6 inventory turnover

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4
Q

Financial position ratios? (2)

A

1 interest cover
2 gearing percentage

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5
Q

Gross profit percentage equation?

A

Gross profit x 100%
Revenue

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6
Q

Purpose of gross profit percentage ratio?

A

Shows how much profit made for every £1 of sales revenue earned

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7
Q

Operating profit percentage equation?

A

Operating profit x 100%
Revenue

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8
Q

What is the purpose of operating profit percentage ratio?

A

Takes into consideration overheads and expenses

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9
Q

Expense/revenue percentage equation?

A

Expense x 100%
Revenue

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10
Q

Purpose of expense/revenue ratio?

A

To show how effective the chosen expenses are

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11
Q

Return on capital employed equation?

A

Operating profit. x 100%
Capital employed

Capital employed = total equity + non-current liabilities

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12
Q

Purpose of ROCE ratio?

A

Looks at business’ performance compared to its size

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13
Q

Return on shareholder funds equation?

A

Profit after tax x 100%
Total equity

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14
Q

Purpose of return on shareholder funds ratio?

A

Useful for ordinary share holders

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15
Q

Current ratio equation?

A

Current assets
Current liabilities

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16
Q

Purpose of current ratio?

A

Shows how many times over the company can pay for it’s liabilities using its current assets

17
Q

Acid test ratio equation?

A

Current assets - inventories
Current liabilities

18
Q

Purpose of acid test ratio?

A

Same as current ratio but minus the inventories as there is a delay in being able to sell them off

19
Q

Inventory holdings days equation?

A

Inventory. x 365
Cost of sales

20
Q

Purpose of inventory holding days ratio?

A

Shows how effectively the company sells its products

21
Q

Inventory turnover equation?

A

Cost of sales
Inventory

22
Q

Purpose of inventory turnover ratio?

A

Shows the average number of times the company has sold its total inventory over the period

23
Q

Receivables collection days equation?

A

Receivables x 365
Revenue

24
Q

Purpose of receivables collection days ratio?

A

Shows how often customers pay the company on average

25
Q

Payables collection days equation?

A

Payables. x 365
Cost of sales

26
Q

Purpose of payables collection days ratio?

A

Shows how often the company pays its suppliers on average

27
Q

Working cycle capital equation?

A

Inventory days + receivables days - payable days

28
Q

Purpose of working capital cycle ratio?

A

Shows how well the company is managing its working capital and if it may run into cash shortages

29
Q

Net asset turnover ratio?

A

Revenue
Total assets - current liabilities

30
Q

Non-current assets turnover equation?

A

Revenue
Non-current assets

31
Q

Purpose of asset turnover ratio?

A

Shows how well the company generates revenue with its assets

32
Q

Gearing percentage equation?

A

Non-current liabilities
Total equity + non-current liabilities

33
Q

Purpose of gearing ratio?

A

Shows how much of the total value of the company is financed through debt

34
Q

Interest cover equation?

A

Profit from operations
Interest

35
Q

Purpose of interest cover ratio?

A

Shows how many times over the company can pay its interest charges out of its profits

Drafting and Interpreting Financial Statements (8 decks)

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