Ratio Analysis

Question 1

Gross Profit Margin

Answer 1

Ratio looks at gross profit as a percentage of sales turnover

Question 2

Mark-Up

Answer 2

Ratio calculates gross profit as a percentage of the cost of sales

Question 3

Net Profit Margin

Answer 3

Ratio shows the net profit as a percentage of sales

Question 4

Current Ratio

Answer 4

Ratio shows a business the amount of current assets it owns in relation to the amount of current liabilities it owes

Question 4

Return On Capital Employed

Answer 4

Ratio shows the percentage return a business is achieving from the capital invested to generate the return

Question 5

Liquid Capital Ratio

Answer 5

Ratio gives a more accurate reflection of the true liquidity of a business as it removes the least liquid of all current assets from equation i.e, inventories

Question 6

Liquidity

Answer 6

Measures a firm’s ability to meet short-term cash payments

Question 7

Trade Receivable Days

Answer 7

Ratio measures, on average, how long it takes for debtors to pay and is expressed as a number of days

Question 8

Trade Payable Days

Answer 8

Ratio shows, on average, how long it takes a firm to pay for goods and services bought on credit and is expressed as a number of days

Question 9

Inventory Turnover

Answer 9

Ratio shows the average amount of time an item of stock is held by a business and is expressed as a number of days

Question 10

Current Ratio Formula

Answer 10

Current Assets/Current Liabilities

Question 11

Liquid Capital Ratio Formula

Answer 11

Current Assets - Inventory/Current Liabilities

Question 12

Trade Receivable Days Formula

Answer 12

Trade Receivable/Credit Sales * 365

Question 13

Trade Payable Days Formula

Answer 13

Trade Payables/Credit Purchases * 365

Question 14

Inventory Turnover Formula

Answer 14

Average Inventory/Cost Of Sales * 365