Ratios

Question 1

Return on capital employment (roce)

Answer 1

Net profit before tax and tax (operating profits)x100
———————————
Capital employeed

Profitability
Higher the percentage the better

Question 2

Operating profit margin

Answer 2

Operating profit x 100
———————————
Sales revenue

Profitability

Higher the percentage the better

Question 3

Gross profit margin

Answer 3

Gross profit x 100
—————————
Sales revenue

Profitability

Higher the percentage the better

Question 4

Inventory turn over

Answer 4

Cost of sales
——————-
Average inventory

Efficiency

Higher the number the better

Question 5

Trade receivable collection period

Answer 5

Trade receivables x 365
———————————
Credit sales revenue

Efficiency

Lower the value the better

Question 6

Trade payable days

Answer 6

Trade payables x 365
——————————
Trade payables / cost of sales

Efficiency

Higher the value the better

Question 7

Current ratio

Answer 7

Current assets
———————
Current liabilities

Liquidity

Higher the value the better

Question 8

Acid test

Answer 8

Current assets - inventory
————————————
Current liabilities

Liquidity

Higher the value the better

Question 9

Capital gearing

Answer 9

Debt financing
——————— X 100
Debt financing - equity financing

Investment

Higher the value the worse