Ratios

Question 1

Return on capital employed

Answer 1

(Operating profit / total equity + NCL) x 100%

Question 2

Return on shareholders funds

Answer 2

(Operating profit / total equity ) x 100%

*net assets = total equity

Question 3

Gross profit percentage

Answer 3

( gross profit / revenue ) x 100%

Question 4

Expense revenue percentage

Answer 4

(Expense / revenue ) x 100%

Question 5

Operating profit percentage

Answer 5

( Profit from operations / revenue ) x 100%

Question 6

Current ratio

Answer 6

Current assets / current liabilities

Ratio : 1

Question 7

Quick ratio or acid ratio test

Answer 7

(Current assets - inventory) / current liabilities

Ratio : 1

Question 8

Inventory turnover days

Answer 8

(Inventory / cost of sales ) x 365

How many days inventory is held

Question 9

Inventory turnover

Answer 9

Cost of sales / closing inventory

x times over inventory changes

Question 10

Receivables collection period

Answer 10

(Trade receivables / revenue ) x 365 days

Question 11

Payables payment period

Answer 11

(Trade payables / cost of sales ) x 365 days

Question 12

Working capital cycle (days)

Answer 12

Inventory days + receivable days - payable days

Question 13

Asset turnover ( net assets)

Answer 13

Revenue / ( total assets - current liabilities ) = x times

Question 14

Asset turnover (non current assets)

Answer 14

Revenue / non current liabilities = x times

Question 15

Interest cover

Answer 15

Profit from operations/ finance cost = x times

How many times profit can cover interest rate

Question 16

Gearing

Answer 16

Non current liabilities / ( equity + NCL ) x 100%

Balance of debt and equity

Question 17

Points to consider

Answer 17

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