formual 1

Question 1

What is the formula for Current ratio?

Answer 1

Current ratio = Current assets / Current liabilities

This ratio measures a company’s ability to pay short-term obligations.

Question 2

How is Gearing (%) calculated?

Answer 2

Gearing (%) = (Non-current liabilities / (Total equity + non-current liabilities)) * 100

Gearing indicates the proportion of debt in the company’s capital structure.

Question 3

What does ‘total equity + non-current liabilities’ represent?

Answer 3

Capital employed

Capital employed is a measure of the total capital used for the acquisition of profits.

Question 4

What is the formula for Payables days?

Answer 4

Payables days = (Payables / Cost of sales) * 365

This metric indicates the average number of days a company takes to pay its suppliers.

Question 5

What does Receivables days measure?

Answer 5

The average number of days a company takes to collect payments from its customers

This is important for assessing cash flow management.

Question 6

What is the formula for Receivables days?

Answer 6

Receivables days = (Receivables / Revenue) * 365

This calculation helps evaluate the effectiveness of a company’s credit policies.

Question 7

What is Inventory turnover?

Answer 7

Inventory turnover = Cost of sales / Average inventories held

This ratio indicates how many times a company has sold and replaced its inventory over a period.

Question 8

How is ARR (%) calculated?

Answer 8

Average rate of return (%) = (Average annual return (£) / Initial cost of project (£)) * 100

This metric is used to evaluate the profitability of an investment.