Ratio Analysis

Question 1

Return on capital employment ratio

Answer 1

profit/ capital x 100

Question 2

Gross profit ratio (GPR)

Answer 2

gross profit/ total sales revived x 100

Question 3

Mark up ratio (MUR)

Answer 3

gross profit/ cost of good sold x 100

cost of good sold = (operating stock+purchases)-closing stock

Question 4

Net profit ratio (NPR)

Answer 4

net profit before tax/ total sales revenue x 100

Question 5

current assets ratio (CAR)

Answer 5

current assets/ current liabilities

issue if less than 1

Question 6

Acid test ratio (ATC)

Answer 6

current assets-stock/ current liabilities

Question 7

stock turnover ratio (STR)

Answer 7

cost of good sold/ average stock

average stock = opening stock +closing stock/ 2

greater the stock turnover ratio, the more efficient the firm

Question 8

average debtor collection period ratio (ADCPR)

Answer 8

average debtors/ total credit sales

average debtors = opening debtors-closing debtors/2

Question 9

average creditor payment period ratio

Answer 9

average creditor/ total credit purchases

upward trend suggests company having trouble finding cash

Question 10

fixed asset turnover ratio (FATR)

Answer 10

total sales revenue/ fixed assets at net book value

upward trend is a good thing - fixed assets being used more effectively

Question 11

gearing ratio (GR)

Answer 11

long term liabilities/ shareholders funds

high gearing: borrowing is high: acceptable if profits rising