Ratio Analysis

Question 1

How do you calculate earnings per share?

Answer 1

profit for year/ no. of ordinary shares in issue

Question 2

How do you calculate price/ earnings ratio?

Answer 2

Market value per share/ earnings per share

Question 3

How do you calculate current ratio?

Answer 3

Current assets/ current liabilities

Question 4

How do you calculate acid test ratio?

Answer 4

Current assets (excluding inventory)/ current liabilities

Question 5

How do you calculate return on capital employed?

Answer 5

Acquisition
Operating profit/ share capital + reserves (RE) + NC liabilities

Reporting date
Operating profit/ share capital + group RE + NCI + NC liabilities

Question 6

How do you calculate operating profit margin?

Answer 6

Operating profit/ sales revenue (*100)

Question 7

How do you calculate gross profit margin?

Answer 7

Gross profit/ sales revenue (*100)

Question 8

How do you calculate average inventories turnover period?

Answer 8

Average inventories held/ COS *365

Question 9

How do you calculate average settlement period for trade receivables?

Answer 9

Average trade receivables/ credit sales revenue *365

Question 10

How do you calculate average settlement period for trade payables?

Answer 10

Average trade payables/ credit purchases (COS if haven’t got) *365

Question 11

How do you calculate sales revenue to capital employed?

Answer 11

Sales revenue/ share capital + reserves (RE) (Group RE + NCI for reporting date) + NC liabilities

Question 12

How do you calculate gearing ratio?

Answer 12

Acq.
Long-term liabilities/ Share capital + reserves (RE) (*100)

RD
Long-term liabilities/ Share capital + group RE + NCI (*100)

Question 13

How do you calculate interest cover ratio?

Answer 13

Operating profit/ interest payable

Question 14

How do you calculate asset turnover?

Answer 14

Total sales/ net assets