Module 9 Ratio Analysis

Question 1

4 ratio categories

Answer 1

• Profitability ratios
• Liquidity ratios
• Management ratios
• Risk ratios

Question 2

Gross margin

Answer 2

Gross margin % = Gross profit / Turnover

Question 3

Mark-up

Answer 3

Mark-up % = Gross profit / Cost of Sales

Question 4

Net Profit Margin

Answer 4

Net Profit Margin = PBIT / Turnover

Question 5

Return on Capital Employed

Answer 5

ROCE = PBIT / Capital Employed

• Capital employed is ‘total assets less current liabilites’

Question 6

Asset Turnover

Answer 6

Asset turnover = Turnover / Capital Employed

• Capital employed is ‘total assets less current liabilities’

Question 7

Alternative method for Return on Capital Employed

Answer 7

ROCE = Net profit margin x Asset turnover

Question 8

Current Ratio

Answer 8

Current Ratio = Current Assets / Current Liabilities

Question 9

Quick Ratio (Acid Test)

Answer 9

Quick Ratio = (Current Assets - Stock) / Current Liabilities

Question 10

Debtor Days

Answer 10

Debtor days = (Trade debtors / Credit Sales) x 365

Question 11

Creditor Days

Answer 11

Creditor days = (Trade creditors / Credit Purchases) x 365

• Purchases = Cost of Sale - Opening stock + Closing Stock
• If purchases can not be calculated use CoS but this can not be compared to purchases ratios

Question 12

Stock Turnover

Answer 12

Stock Tunrover = Cost of Sale / Stock

Question 13

Stock Days

Answer 13

Stock Days = (Stock / Cost of Sales) x 365

Question 14

Gearing

Answer 14

Gearing = Debt Capital / Shareholder funds

or

Gearing = Debt Capital / Capital Employed

Question 15

Intrest Cover

Answer 15

Intrest cover = PBIT / Intrest Charges