Ratio analysis Flashcards
Mark-up
(Gross Profit/COGS) x100%
Gross Profit Ratio/Margin
(Gross Profit/Sales) x100%
Net Profit Ratio/ Margin
(Net profit before tax/ Sales) x100%
Return on Capital Employed
(Profit before interest and tax/ average capital employed) x100%
(Sole pro: capital
Partnership: capital a/c bal. +current a/c bal
Limited Co. NCL+Shareholder’s fund (equity))
Working Capital/ Current Ratio
(CA/ CL) :1
Quick/ Liquid/ Acid test ratio
((CA-Inv)/ CL) :1
Inventory turnover (times)
COGS/ Avg. Inv
Avg. TR collection period
(Avg TR/ credit sales) x(365days or 12months)
Avg TP repayment period
(Avg TP/ credit purchases) x (365days or 12 months)
TR turnover (times)
(credit sales/ avg TR)
TP turnover (times)
(credit purchases/ avg TP)
Earning per share
(net profit after tax - preference dividend)/ number of ordinary shares issued
Total assets turnover (times)
sales/ total assets
Gearing ratio
[(NCL+preference share capital)/ (NCL+shareholders’ fund)] x100%
Dividend cover for ordinary shares (times)
(Net profit after tax - preference dividend)/ ordinary dividend paid
Price-earnings Ratio
current price per ordinary share/ earnings per share)
Higher mark-up/ gp ratio = ?
sales are more profitable
Higher NP ratio=?
greater ability of a business in generating net profits from its sales
Higher return on capital=?
more capable the business is of generating profits from its long-term funds
Increasing trade receivables turnover=?
the TR are being collected more quickly by the business. Liquidity improved as less cash is being tied up in TRs
Shorter TR collection period=?
faster the business is able to collect its TR
Increasing TP turnover=?
Ratio increase, TP are being paid more quickly by the business, liquidity improved
Shorter avg TP repayment period=?
faster the business settles its TP
Increasing inventory turnover=?
business is selling inventory more quickly. Liquidity improved as inv can be turned into cash at a faster rate
