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AAT Level 4 > Ratios > Flashcards

Ratios Flashcards

1
Q

Operating Profit

A

Revenue less operating expenses, day to day expenses, cost of goods sold

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2
Q

Operating Profit Margin

A

Operating Profit / Revenue x 100

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3
Q

Gross Profit

A

Gross profit / Revenue x 100

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4
Q

Expenses

A

Expense / Revenue x 100

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5
Q

Capital Employed

A

Total equity + non-current liabilities

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6
Q

ROCE

A

Operating profit / capital employed x 100

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7
Q

Return on shareholders funds ratio

A

Profit after tax / total equity x 100

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8
Q

current ratio

A

current asset / current liabilities

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9
Q

quick / acid ratio

A

current assets (less inventory) / current liabilities

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10
Q

inventory turnover

A

cost of sales / inventories

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11
Q

inventory holding period (days)

A

inventories / cost of sales x 365

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12
Q

trade payables (days)

A

payables / cost of sales x 365

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13
Q

trade receivables

A

receivables / revenue x 365

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14
Q

working capital cycle

A

inventory holding period + receivables - payables

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15
Q

asset turnover (net assets)

A

revenue / (total assets - current liablilites)

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16
Q

asset turnover (non-current assets)

A

revenue / non-current assets

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17
Q

interest cover

A

operating profit / finance cost

18
Q

gearing

A

total debt / total debt + equity x 100

19
Q

what does ROCE mean

A

how well the money invested is being used to generate profit

20
Q

what does shareholders funds ratio show

A

how well their investment in the company is performing

21
Q

what does the current ratio show

A

the number of times current liabilities are covered by current assets

22
Q

what does the quick ratio show

A

the liquidity of the business - the ability to pay current liabilities on time

23
Q

what does inventory turnover show

A

the amount of times in a year the inventory is full replaced

24
Q

what does asset turnover show

A

how well assets are generating sales - the number of times the value of assets has been generated in revenue

25
Q

what does interest cover show

A

an indication of the impact of debt - how many times the interest can be covered by the operating profits

26
Q

what does gearing show

A

how much of an organisation is funded by borrowing - the lower the better

27
Q

Reasons for higher interest cover

A
  • higher profits
  • lower interest payments or interest rates
  • may be easier or cheaper to obtain finance in future
28
Q

Reasons for longer payable days

A
  • paying suppliers later
  • may hav agreed credit terms
  • may have cash flow issues
  • be cautious has could get bad reputation with suppliers
29
Q

Reasons for better current ratio

A
  • more solvent
  • may have more current assets
  • may have less current liabilities
30
Q

Reasons for better ROCE

A
  • capital employed working more efficiently to generate profits
  • may have higher profits
  • may have lower equity
  • may have less non-current liabilities
31
Q

Reasons for increased operating profit

A
  • increased selling prices
  • decreased cost of sales
  • overheads / expenses may be better controlled
32
Q

Reasons for worse acid / quick test

A
  • More current liabilites in comparison to current assets
  • Increased current liabilities
  • possible solvency issues (could struggle paying short-term debts)
33
Q

Reasons for better gearing

A
  • more is financed by equity not debt
  • less non-current liabilities
  • higher equity
  • company is less financially risky
34
Q

Reasons for worse inventory turnover

A
  • turning over inventories less times in the year
  • may have higher levels of inventory held
  • inventory takes longer to sell
  • inventory could be poorly managed
35
Q

Cost of sales

A

Opening inventory + Production - Closing Inventory

36
Q

How to convert % into 1 in e.g. 2%

A

Convert % to decimal (0.02) then divide 1 by that
1/0.02 = 50 so will be 1 in 50

37
Q

Reasons for material variances

A

change in amount paid (price variance)
price difference will likely affect quality
quality affects wastage
can cause change in usage variance

38
Q

Reasons for labour variance

A

quality of materials affects speed of work
idle time - broken machine or poor communication between warehouse and production

39
Q

Reasons for overhead variance

A

if production level drops not enough overhead is absorbed
poor budgeting

40
Q

4 types of standard

A

ideal - assumes ideal conditions and not attainable

basic - based on historical information which can become out of date. good for long term information to identify trends

normal - expected cost under normal manufacturing conditions

target - more challenging for team as linked to target costing. target costing is where product cost must be kept below a set level to acheive the determined profit margin

AAT Level 4 (5 decks)

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