ratios Flashcards

1
Q

ROCE ratio

A

operating profit / equity + non current liabilities (capital employed) x 100

measures profitability

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2
Q

current ratio

A

current assets / current liabilities

measures liquidity
ideally above 1

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3
Q

gearing ratio

A

non current liabilities / equity + non current liabilities (capital employed) x 100

measures dependency on borrowing
ideally 25-50%

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4
Q

payables ratio

A

payables / cost of sales x 365

measures efficiency - how quick they pay suppliers

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5
Q

recievables ratio

A

recievables / sales revenue x 365

measures efficiency - how good business are at chasing debts
lower = better

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6
Q

inventory turnover

A

costs of sales / cost of average stock

measures efficiency - how much stock sold each year

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7
Q

equity

A

share capital
retained profits

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8
Q

liquidity

A

the ability for them to cover their current liabilities

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9
Q

current assets examples

A

own less than a year
stock - inventory
cash
short term investments
trade and other recievables

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10
Q

non current assets examples

A

own more than a year
buildings
equipment, machinery

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11
Q

current liabilities

A

owe less than a year
trade credits
short term borrowings
current tax liabilities

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12
Q

non current liabilities

A

owe more than a year
long term loans
payables

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13
Q

benefits of financial ratios

A

measures against previous years
identify areas to improve
measures liquidity, profitability, efficiency

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14
Q

limitations of financial ratios

A

missing detailed information
doesnt include external pressures
out of date
depends on size and market when comparing for it to be useful

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