Q5 Formulas

Question 1

Gross Profit Percentage

Answer 1

Gross Profit / Sales x 100 -> would want to be over 30%

Question 2

Mark Up

Answer 2

Gross Profit / Cost of Sales x 100 -> normally over 50%

Question 3

Net Profit Percentage (Net Margin)

Answer 3

Net Profit / Sales x 100 -> would want to be over 10%

Question 4

Return on Capital Employed (ROCE)

Answer 4

Net Profit + Interest / Capital Employed x 100

Question 5

Return on Equity (Shareholders) Funds (ROSE)

Answer 5

Net Profit - Pref. Dividend / Ord. Share Capital + P&L Balance 31/12 x 100 -> should be above return from risk free investments of 1% and above the cost of borrowing in balance sheet attatched to debentures

Question 6

Current Ratio (Working Capital)

Answer 6

Current Assets / Current Liabilities -> Norm is 2:1 but it depends on the industry

Question 7

Acid Test Ratio (Quick Ratio)

Answer 7

Current Assets - Closing Stock / Current Liabilities -> Norm is 1:1 but it depends on the industry

Question 8

Stock Turnover

Answer 8

cost of sales / Average Stock -> should be as high as possible but for example grocery retail it should be over 15-20 times

Question 9

Average Stock

Answer 9

Opening Stock + Closing Stock / 2

Question 10

Average period of credit allowed

Answer 10

Debtors / Credit sales x 12 -> Answer will be in months or days and should be as low as possible ~1mth/30d

Question 11

Average period of credit received

Answer 11

Creditors / Credit Purchases x 12 -> Answer will be in months or days and should be as high as possible, if pushed too high you will lose your discount and damage credit rating

Question 12

Debt to Capital Employed Ratio/%

Answer 12

Debentures + Pref. Share Capital / Capital Employed x 100 -> Percentage should be below 50% to be lowly geared

Question 13

Interest Cover

Answer 13

Net Profit + Interest / Interest -> The norm is about 3 times

Question 14

Earnings per Share

Answer 14

Net Profit - Pref. Dividend / Issued Ord. Shares -> the answer will be in cent and should be higher than the last year and MUST be calculated to 2 decimal places.

Question 15

Price Earnings Ratio

Answer 15

MP of one ordinary share / earnings per share -> The answer will be in years to 2 decimal places. It is the length of time In years that it will take an ordinary shareholder to recover her investment in one ordinary share. A rising P/E ratio indicates a more expensive share compared to last year i.e. it will take an ordinary shareholder longer to recover her investment in 1 ordinary share.

Question 16

Dividend Per Share

Answer 16

Total Dividend - Preference Dividend / Issued Ord. Shares -> The answer will be in cent per share and should be higher than last year. Calculated to 2 decimal places.

Question 17

Dividend Yield

Answer 17

Dividend Per Share / MP of ord. share x 100 -> The answer is a % and should be well above the return on risk free investments of 1%

Question 18

Dividend Cover

Answer 18

Earnings Per Share / Dividend Per Share -> The answer is in times and should be at least 2 times. A rising cover is an improving trend meaning the company is retaining more of the profit for expansion or the repayment of long term loans.

Question 19

Price Dividend Ratio

Answer 19

MP of one ord. share / Dividend per share -> same analysis as price earnings ratio

Question 20

Earnings Yield

Answer 20

Earnings Per Share / MP of one Ord. Share x 100