Finance Ratios

Question 1

Return on capital employed

Answer 1

Operating profit/ share capital+reserves+long-term liabilities x100%

Question 2

Return on shareholder funds

Answer 2

Profit for the year/ share capital+reserves x100%

Question 3

Gross profit margin

Answer 3

Gross profit/sales revenue x100%

Question 4

Operating profit margin

Answer 4

Operating profit/sales revenue x100%

Question 5

Inventory turnover period

Answer 5

Inventories/ cost of sales x365

Question 6

Settlement period for trade receivables

Answer 6

Trade receivables/credit sales revenue x365

Question 7

Settlement period for trade payables

Answer 7

Trade payables/credit purchases x365

Question 8

Current ratio

Answer 8

Current assets/current liabilities

Question 9

Acid test ratio

Answer 9

Current assets-inventories/current liabilities

Question 10

Gearing ratio

Answer 10

Non-current liabilities+bank overdraft/share capital+ reserves+ non-current liabilities+ bank overdraft x100%

Question 11

Interest cover ratio

Answer 11

Operating profit/ interest charges payable

Question 12

Earnings per share

Answer 12

Profit for the year/number of ordinary shares

Question 13

Dividend cover ratio

Answer 13

Profit for the year/total dividend