Ratios

Question 1

Return on capital employee (roce)

Answer 1

PBIT (profit before interest and tax)/CAPITAL EMPLOYED (Total assets less current liabilities)

Question 2

Operating profit margin

Answer 2

PBIT/REVENUE

Question 3

Gross profit margin

Answer 3

Gross profit/revenue

Question 4

Asset turnover

Answer 4

Revenue/capital employed

Question 5

Return on equity (ROE)

Answer 5

PAT (PROFIT After tax) and preference dividends/equity shareholder funds

Question 6

Current ratio

Answer 6

Current assets/current liabilities

Standard test of liquidity

Question 7

Quick ratio (acid ratio)

Answer 7

(Current assets - inventories)/current liabilities

Question 8

Inventory days

Answer 8

(Inventories/cost of sales)x365

Question 9

Inventory turnover

Answer 9

Cost of sales/inventories

Lengthy Inventory time indicates slow down of trading

Question 10

Receivables collection period

Answer 10

(Trade receivables/credit sales)x365

Question 11

Payables payment period

Answer 11

(Trade payables/credit purchases) x 365

Question 12

Gearing

Answer 12

Debt/debt+equity

Amount debt in a company’s long term capital structure provide a long term measure of liquidity

Question 13

Interest cover

Answer 13

PBIT/interest charges

Number of times a company can afford to cover it’s interest cost from profit

Question 14

Return on investment ROI

Answer 14

(Controllable divisional profit/divisional capital employed)x100

Question 15

Residual income RI

Answer 15

Controllable profit - (controllable investment x cost of capital)