ratios Flashcards
ROCE ratio
operating profit / equity + non current liabilities (capital employed) x 100
measures profitability
current ratio
current assets / current liabilities
measures liquidity
ideally above 1
gearing ratio
non current liabilities / equity + non current liabilities (capital employed) x 100
measures dependency on borrowing
ideally 25-50%
payables ratio
payables / cost of sales x 365
measures efficiency - how quick they pay suppliers
recievables ratio
recievables / sales revenue x 365
measures efficiency - how good business are at chasing debts
lower = better
inventory turnover
costs of sales / cost of average stock
measures efficiency - how much stock sold each year
equity
share capital
retained profits
liquidity
the ability for them to cover their current liabilities
current assets examples
own less than a year
stock - inventory
cash
short term investments
trade and other recievables
non current assets examples
own more than a year
buildings
equipment, machinery
current liabilities
owe less than a year
trade credits
short term borrowings
current tax liabilities
non current liabilities
owe more than a year
long term loans
payables
benefits of financial ratios
measures against previous years
identify areas to improve
measures liquidity, profitability, efficiency
limitations of financial ratios
missing detailed information
doesnt include external pressures
out of date
depends on size and market when comparing for it to be useful
