ratio annylsis

Question 1

working capital

Answer 1

current assets - current liabiltiies

Question 2

working capital ratio or current ratio

Answer 2

current assets/ current liabilties

Question 3

what are the liquidity ratios

Answer 3

current ratio or working capital ratiowhat d

Question 4

what is capital owned

Answer 4

the ammount owned by a business to the owner of that business on a certain date

Question 5

capital employed

Answer 5

capital + NCL or
assets = capital + liabilties

Question 6

return on capital employed

Answer 6

ROCE= netproft/ captial employed x 100-

Question 7

what involves the profitability ratios

Answer 7

return on capital employed
gorss profit margin
net profit margin

Question 8

how to improve the return on capital employed

Answer 8

increase seling price of goods
pull out unneccsary funds
buy cheaper goods

Question 9

how is ROCE worsended

Answer 9

not passing on the incrrasing cost to consumers
selling at cheaper price
increasing trade discount
increased running costs

Question 10

gross profit margin

Answer 10

gross profit/revenue x 100

Question 11

measures to improve gross profit margin

Answer 11

increase selling costs
buy cheaper goods
not uphold too much inventory
reduce other costs

Question 12

what does the gross profit margin ratio show

Answer 12

how effectively business has controlled its cost of goods

annylizes profitability of sales made by the business

Question 13

why would there be a fall in gross profit margin

Answer 13

hgiher supplier cost
increased compititon from rivals
increase in additinal costs
not passing on increased costs to comsuemrs

Question 14

netprofit margin

Answer 14

netprofit/revenue x 100

Question 15

what does net profit margin show

Answer 15

how effectively the business constrols its expenses

dependant on income and expenses

Question 16

ways to improve net profit margin

Answer 16

minmize wastes –> staff trianing for effeicent workers

decrease overheads
employing fewer staff to minimize wages - smaller premises

reduce running expenses

Question 17

how does net profit margin worsen

Answer 17

inceasing expenditure
selling at cheaper price
incresing trade discounts

Question 18

what is working capital

Answer 18

capital used in day to day running of business

Question 19

liquiduity ratios measure?

Answer 19

ability of the business to meet its liabilties when due

Question 20

acid test ratio or quick ratio or liquid ratio

Answer 20

current assets - closing inventory / current laibilties

Question 21

what is the diserable ratio for acid test

Answer 21

1:1
if higher than 1 –> shoqs current assets not being effeceintly managed

lower than 1 –>shows business could be in trouble ff all TP ask for immediate payment

Question 22

what is the desirwsble ratio for current ratio

Answer 22

desirable ratio is between
1.5:1 and 2:1

lower than 1.5–> business has not enough tp oay liabilties

higher than 2 –> business not investing its exess assets

Question 23

ways to improvr current ratio

Answer 23

owner should reduce drawing
introduce more capital
obtain more loans

Question 24

rate of inventory tuenover
if in days x 365

Answer 24

cost of sales/avg inventory

Question 25

what does rate in inventory turnvoer measure

Answer 25

no of times business sells its inventory and replace it in a year

Question 26

why rate of invetory turnover low

Answer 26

business ineffeciency
low sales
bad quality
falling demand in makrket
reduction in business actovity

Question 27

how to improve
rate of inventory

Answer 27

sell more goods

Question 28

trade receivable turnover

Answer 28

trade recievables/credit sales x 365

Question 29

what does tradde receivable tuenvoer show

Answer 29

avg time businesss TR take to pay thier debt

Question 30

how to imporove TR turnvoer

worse aswell

Answer 30

chaege interets on ammounts owing
offer cash discounts for early paymemt
refuse to sell goods to those who have outstanding debts

not follow debt collection

Question 31

trade payables turnvoer

Answer 31

trade payebles/ credit purchases x 365

Question 32

what does TP turnover meausure

Answer 32

avg time business takes to pay its trade payables

Question 33

negative effects of delaying payamnetns to suppliers

Answer 33

business loses cash discount
supplier refuse to sell r on credit
realtionshp with supplier damanged
charged interest due to late payment

Question 34

mark up

Answer 34

gP/cost of sales x100

Question 35

margin

Answer 35

gross profit/revenue x 100