Interpretation of financial statements

Question 1

Return on capital employed

Answer 1

• (operating profit/capital employed)x100
• operating profit - profit before interest & tax
• capital employed - shareholders funds + long term loans
• the total amount of capital that have been used to acquire profits

Question 2

Gross profit margin

Answer 2

• (gross profit/revenue)x100

Question 3

Operating profit margin

Answer 3

• (operating profit/revenue)x100

Question 4

Asset Turnover

Answer 4

• (revenue/capital employed)

Question 5

Current Ratio

Answer 5

• Current Assets/ current liabilities

Question 6

Quick acid test ratio

Answer 6

• (Current Assets-inventory)/current liabilities

Question 7

Inventory Holding period

Answer 7

• (inventory/COS)x365

Question 8

Trade receivables collection period

Answer 8

• (trade receivables/credit sales)x365

Question 9

Trade payables payment period

Answer 9

• (trade payables/COS)x365

Question 10

Debt-equity ratio

Answer 10

• (long term loans/shareholder funds)x100

Question 11

Gearing ratio

Answer 11

• ((long term loan/(shareholder funds+long term loan)x100

Question 12

Interest cover

Answer 12

• (operating profit/interest payable)x100