Ratios Flashcards
How do you calculate ROCE
Operating profit / Capital employed (total equity + non current liabilities )x 100
How do you calculate the gross profit margin
Gross profit / revenue x 100
How do you calculate the operating profit margin
Operating profit / sales revenue x 100
How do you calculate the current ratio
current assets / current liabilities
How do you calculate the gearing ratio
Long term liabilities / capital employed x 100
How do you calculate stock turnover
Cost of sales / average stock held
How do you calculate receivables
Trade debtors / sales revenue x 365
How do you calculate payables
Trade payables / cost of sales x 365
What does ROCE show
Tells us what the profits the business has made on the resources avaliable
What is capital employed
A measure of the total resources that a business has available to it. Can also refer to the value of all the assets used by a company to generate earnings
How can a business improve its ROCE
- increase operating profit without increasing capital employed
- maintain operating profit but reduce the value of capital employed
What does gross profit show
Shows how much profit after costs are deducted a business makes for every pound earned. (A GP of 43% means that for every pound made they keep 43p of it.
What does operating profit show
Profit that is left after all costs of a business have been taken from its sales revenue.
What does current ratio show
Main liquidity ratio helps assess whether a business has sufficient cash or equivalent current assets to be able to pay its debts as they are due
What does a current ratio of between 1.0-3.0 show
This is good as it suffuse the business has enough cash to be able to pay its debts but not too much finance tied up in current assets which could be reinvested or distributed to shareholders