Financial statement analysis Flashcards
How do you calculate gross profit margin ?
Gross profit / sales revenue x 100
How do you calculate operating profit margin ?
Operating profit / sales revenue x 100
How do you calculate return on capital employed ?
Operating profit / (equity + non current liabilities) x 100
How do you calculate current ratio ?
Current assets / current liabilities
How do you calculate the acid test ratio ?
(current assets - inventory) / current liabilities
How do you calculate trade receivables settlement period ?
Trade receivables / sales revenue x 365
How do you calculate inventory holding period ?
Inventory / cost of sales x 365
How do you calculate trade payables settlement period ?
trade payables / cost of sales x 365
How do you calculate gearing ?
Non current liabilities / (equity + non current liabilities) x 100
How do you calculate interest cover ?
Operating profit / interest expense
Limitations of ratio analysis ?
Lack of standard ratio definition
Accounting policies may differ resulting in misinterpretation
