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M92 - andy > Chapter 9 repeated > Flashcards

Chapter 9 repeated Flashcards

1
Q

Are financial ratios required at law?

A

No - you use them to understand more the direction of the company

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2
Q

If you like what is on top of the ratio more than the bottom what does that mean

A

You want it increasing year on year

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3
Q

If you like what is on bottom of the ratio more than the top what does that mean

A

I want to see it decreasing

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4
Q

What are the two sets of ratios

A

General ratios
Insurer ratios

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5
Q

What is a profitability ratio measured in

A

A percentage

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6
Q

What is a liquidity ratio measured in

A

A number

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7
Q

General ratio
What are the three profitability ratios

A

Gross profit
Net profit
ROCE

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8
Q

What is productivity ratios measured in

A

Days

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9
Q

What are activity ratios measured in

A

A number

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10
Q

Why are activity and productivity ratios confused

A

They measure the same thing but the opposite way round

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11
Q

General ratio
What is a gross profit ratio

A

Profitability ratio. Only for companies with stock

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12
Q

General ratio
What is a gross profit ratio formula

A

Gross Profit / Sales x 100

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13
Q

General ratio
What do the results of a gross profit ratio show

A

Decrease: Not good
Increase: Good - means can charge more. Better margin

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14
Q

General ratio
What is ROCE

A

Profitability ratio. Return on capital employed. Compares company to company

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15
Q

General ratio
What is ROCE formula

A

Profit before interest and tax/ share capital + reserves + borrowings x 100

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16
Q

General ratio
Do you want a high ROCE

A

Yes. It shows how well you are using shareholder money

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17
Q

General ratio
What does it show with a low ROCE

A

Not good. Could be wiped out in a recession.

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18
Q

General ratio
What is a liquidity ratio

A

Shows you’ve got enough current assets to meet short term liabilities

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19
Q

General ratio
With a liquidity current ratio what percentage does it need to be above.

A

Above 1 minimum. Otherwise short term debt is higher than short term assets. 2 is good. 1.5 okay.

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20
Q

General ratio
What is the liquidity current ratio formula

A

current assets / current liabilities

21
Q

General ratio
What is the liquidity quick ratio formula

A

current assets excl stock/ current liabilities

22
Q

General ratio
When would you use the liquidity quick ratio formula

A

when you’re concerned stock isn’t turning over

23
Q

General ratio
What would the number for the liquidity quick ratio usually be

A

Below 1 - means they have paid their creditors.

24
Q

General ratio
What is the stock turnover ratio formula

A

Activity ratio. Cost of sales/ stock

25
Q

General ratio
Why would you use the stock turnover ratio formula

A

Activity ratio. Show how quickly stock turnover over.
The lower = the better. e.g if selling every 7 days that is better than every 90 days

26
Q

General ratio
What is a gearing ratio

A

This shows where the company gets its money from.

27
Q

General ratio
What is a gearing ratio formula

A

long term borrowings / shareholders equity x 100

28
Q

General ratio
What is a gearing ratio formula expressed as

A

A percentage

29
Q

General ratio
What does it mean if a gearing ratio is high

A

Depends more on borrowing. if 110% = high geared company.

30
Q

General ratio
What does it mean if a gearing ratio is low

A

Lowed geared company. Which means you get more money from shareholders than banks.

31
Q

General ratio
Gearing ratios between 25 and 50 are what

A

They are typical/ normal

32
Q

General ratio
Gearing ratios are 110% what does that mean

A

High - highly geared

33
Q

General ratio
Gearing ratios are 10% what does that mean

A

Low - low geared

34
Q

Insurance ratios
What is the claims ratio

A

Claims incurred net of reinsurance / earned premium net of reinsurance x 100

35
Q

Insurance ratios
What is the expenses ratio

A

Administrative expenses/ earned premium net of reinsurance x 100

36
Q

Insurance ratios
What is the commission ratio

A

acquisition costs/ earned premium net of reinsurance x 100

37
Q

Insurance ratios
What is the combined ratio

A

claims + expenses + acquisition costs / earned premium net of reinsurance x 100
top is money out and bottom is money in

38
Q

Insurance ratio
What will be a good combined ratio

A

The lower the better. under 100 is a good start as it means you’ve made underwriting profit. Over 100% means you’ve made an u/w loss.

39
Q

Insurance ratios
What do you expect he commission ratio o be around

A

10 - 20%

40
Q

Insurance ratio
Can an insurer make money where the combined ratio is over 100%

A

Yes - it all depends on the investment income. If this is higher than the claims loss than still make money.

41
Q

General ratio
What is the net profit percentage ratio

A

Net profit/ sales x 100

42
Q

General ratio
What happens if the net profit percentage ratio deceases

A

BAD.

43
Q

General ratio. What is the net profit percentage ratio is between 5 - 10%

A

Good.

44
Q

Insurance ratio
What is the solvency ratio

A

net assets / earned premium net of reinsurance

45
Q

Insurance ratio
If the solvency ratio is high what does that mean

A

The stronger the company

46
Q

Insurance ratio
What is the gearing ratio

A

Long- term borrowings /shareholders equity x 100

47
Q

Insurance ratio
What is the standard range for gearing ratio

A

10 to 25%

48
Q

Insurance ratio
What is a low geared range for gearing ratio

A

less than 10% - good.

49
Q

Insurance ratio
What is a high geared range for gearing ratio

A

above 40% - cannot finance its own activities

M92 - andy (27 decks)

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