ratio analysis Flashcards
formulas
(liquidity) current ratio calculation
current assets/current liabilities
what is the recommended current ratio?
2:1
where to find the current ratio data?
the balance sheet
gearing calculation (%)
non current liabilities (loan capital)/total equity +non current liabilities
what is the recommended gearing percentage?
50% (25% is low)
where to find the gearing data?
the balance sheet
ROCE calculation (%)
operating profit before tax/total equity +non current liabilities (capital employed)
what is the recommended ROCE percentage?
at least 20% (good profitability)
where to find the ROCE data?
operating profit = the income statement, equity & non current liabilities = the balance sheet
stock (inventory turnover) calculation
cost of goods sold/average inventory held
what is the recommended figure for stock turnover?
the higher the figure the better
where to find the stock turnover data?
the income statement
debtors (receivable) days calculation
receivables (debtors)/revenue x365
what is the recommended figure for debtors days?
lower figure (less CF problems)
where to find the debtors days data?
the balance sheet (revenue = the income statement)
payables (creditors) days calculation
payables/cost of sales x365
what is the recommended figure for payables days?
the higher the figure the better (revenue = quick, costs = slow)
where to find the payables days data?
the balance sheet
