ratio analysis Flashcards
what are the liquidity ratios?
current ratios, gearing, (acid test)
What are the profitability ratios ?
ROCE, net profit margin, gross profit margin
financial efficiency ratios
stock turnover, receivables days, creditors days
what is the formula for calculating current ratio
current assets/current liabilities (expressed as a ratio e.g. 1.5:1)
What is the recommended ratio for the current ratio?
2:1
what is the formula for gearing ?
non current liabilities(loan capital) X100/ total equity + non current liabilities (expressed as a %)
What percentage for gearing is considered to be the boundary for high amounts of gearing?
50%<
what does high or low gearing mean?
high gearing= means a firm has borrowed a lot of money. Low gearing means that the firm has used alternative sources of finance
what does ROCE stand for?
return on capital employed
what is the formula for ROCE?
operating profit X100/ total equity + non current liabilities (expressed as a percentage)
what is the formula for stock turnover?
(number of times)
cost of goods sold/average inventory held (measures as a number of times)
what is the formula for stock turnover?
(amount of time( months or weeks or days))
average stock/cost of goods sold X100
(expressed as a number of days
what is the formula for receivables days?
receivables(debtors)/revenue X100 (expressed as a number of days)
what is the formula for payables days?
payables/cost of sales X365 (expressed as a number of days
what is a liquidity ratio a measure of?
a measure of whether a business can pay off its short term liabilities (debts)
