Ratios Flashcards
Return on capital employed
(Operating profit / total equity + NCL) x 100%
Return on shareholders funds
(Operating profit / total equity ) x 100%
*net assets = total equity
Gross profit percentage
( gross profit / revenue ) x 100%
Expense revenue percentage
(Expense / revenue ) x 100%
Operating profit percentage
( Profit from operations / revenue ) x 100%
Current ratio
Current assets / current liabilities
Ratio : 1
Quick ratio or acid ratio test
(Current assets - inventory) / current liabilities
Ratio : 1
Inventory turnover days
(Inventory / cost of sales ) x 365
How many days inventory is held
Inventory turnover
Cost of sales / closing inventory
x times over inventory changes
Receivables collection period
(Trade receivables / revenue ) x 365 days
Payables payment period
(Trade payables / cost of sales ) x 365 days
Working capital cycle (days)
Inventory days + receivable days - payable days
Asset turnover ( net assets)
Revenue / ( total assets - current liabilities ) = x times
Asset turnover (non current assets)
Revenue / non current liabilities = x times
Interest cover
Profit from operations/ finance cost = x times
How many times profit can cover interest rate
Gearing
Non current liabilities / ( equity + NCL ) x 100%
Balance of debt and equity
Points to consider
1) need two ratios and time periods to compare
2) compare budget and actual
3) why performance may have changed in year
4) consider each formula separately
5) scenario may have clues
6) improvements or deterioration in financial performance
