Interpretation of Financial Statements

Question 1

Gross Profit Margin

Answer 1

Gross Profit/Revenue x 100%

Sales - COS = Gross profit

Question 2

Operating profit margin

Answer 2

Operating Profit/Revenue

PBIT/Revenue x100%

One off costs - staff costs - depreciation

Question 3

Return on Capital Employed (ROCE)

Answer 3

Op Profit/PBIT/Capital Employed

Capital Employed = Money put into the business, internal or external - Equity + long term debt + lease liabilites.

How entity turns long term debt into profit.

Changes in funding structure?

Question 4

Net Asset Turnover

Answer 4

Sales Revenue/Capital Employed(net assets)

This is how well the entity is using their net assets to generate sales.

Question 5

Current Ratio

Answer 5

Current Assets/Current Liabilities:1

Do we have sufficient resources to cover our current liabilities

Question 6

Quick Ratio / Acid test

Answer 6

Current Assets - Inventory/Current Liabilities:1

Cover of liabilities - inventory.

Question 7

Inventory Turnover Period

Answer 7

Inventory/CoS x365days

or - CoS/Inventory = times pa

Time it takes to shift inventory

Question 8

Receivables collection period

Answer 8

Trade receivables/Credit Sales x365days

Normally give a 30 day credit limit.

Question 9

Payables payment period

Answer 9

Trade Payables/credit purchases x365days

How long it takes to pay suppliers.

Question 10

Gearing

Answer 10

Debt/Equity

Debt = Loans + Preference Share Cap

Equity = Ordinary share capital + reserves + NCI (group only)

Shows the degree of risk - high gearing = high external debt and high risk.

Question 11

Interest Cover

Answer 11

PBIT/Interest payable

Question 12

Dividend Yield

Answer 12

Dividend per share / Current share price

Dividends paid out this year

Question 13

Dividend Cover

Answer 13

PAT / Dividends