Profitability Flashcards
1
Q
What is Ratio Analysis?
A
The use of a series of financial ratios to help assess the overall performance of an organisation.
2
Q
What is the formula for Gross profit?
A
Revenue
OR
Revenue
3
Q
What is Operating profit?
A
revenue
OR
Revenue
4
Q
What is ROCE formula?
A
Total assets-current liabilities
5
Q
Evaluation of ROCE
A
- Higher ROCE makes investment more attractive.
- Less reliable as leased equipment isn’t included in capital employed.
- Important that operating profit does not include exceptional items that may distort the figure.
- Can improve ROCE by increasing Op without increasing capital employed OR maintain Op but reduce the value of capital employed.
- Shows the return on the capital that has been invested in the business.
6
Q
Return on assets ROA formula?
A
Total assets
6
Q
Return on equity ROE formula?
A
Equity
