Lecture 8 Flashcards
What does profitability measure in a company?
Profitability assesses the company’s performance in relation to its asset base, providing insights into its efficiency in generating returns.
What does liquidity evaluate in a company?
Liquidity evaluates the short-term financial position, indicating how well the company can meet its imminent financial obligations.
What is the focus of efficiency analysis in a company?
Efficiency evaluates asset and liability management, focusing on inventory and payables turnover.
How does gearing indicate financial risk?
Gearing measures the proportion of borrowed funds to equity, highlighting the company’s exposure to financial risk.
What is the equation for Return on Capital Employed (ROCE)?
ROCE = ((Profit before interest and tax) / (Capital Employed)) *100
What is the equation for Gross Profit Margin (GPM)?
GPM = ((Gross Profit) / (Revenue)) *100
What is the equation for Net/Operating Profit Margin (NPM)?
NPM = ((Profit before interest and tax) / (Revenue))*100
What is the equation for Asset Turnover?
Asset Turnover = Revenue / Total assets
What is the equation for the current ratio?
Current ratio = Current assets / Current liabilities
What is the equation for the quick ratio?
Quick ratio = (Current assets - inventory) / Current liabilities
What is the equation for Receivables Period?
Receivables Period = (Average receivables / Credit Sales) * 365 days
What is the equation for Inventory Period?
Inventory Period = (Average inventories / Cost of sales) * 365 days
What is the equation for Payables Period?
Payables period = (Average payables / Cost of sales) * 365 days
What is the equation for Cash operating cycle?
Cash operating cycle = Inventory days + Receivables days - Payables days
What is the equation for Gearing Ratio?
Gearing Ratio = (Long-term debt / (Long term debt + equity)) * 100%
