Ratios Flashcards by Kathryn M | Brainscape

Q

Profit - What ratio tells us

A

The ability to earn profits

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Q

debt to equity

A

How much our business is externally funded

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Q

Debt to equity - how to analyse ratio

A

As low as possible
100%+ = highly geared
-100% = lowly geared

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Q

Debt to equity - possible actions

A

Repay loans
Increase equity
reduce drawings

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Q

Quick asset - what the ratio tells us

A

Ability to pay debts within the next 3 months

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Q

Quick asset - how to analyse ratio

A

Between 100%-150% is good

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Q

Quick asset - possible actions

A

Get finance from long term loan
sell unimportant assets
sell inventory for cash

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Q

Current/working capital - what ratio tells us

A

Ability to pay debts in the next 12 months

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Q

Current/working capital- how to analyse ratio

A

Between 100-200%

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Q

Current/working capital- possible actions

A

get a long term loan

- review debtors

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Q

What is liquidity

A

The ability to pay debts

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Q

What is financial stability

A

How outlet sets have been financed internally/externally

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Q

What is profitability?

A

The ability to earn profits

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Q

Rate of returns on assets - possible actions

A

increase efficiency in assets

- gross profit could be too low

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Q

Profit - How to analyse Ratio

A

higher the better

- has to be positive

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Q

Profit - Possible actions

A

reduce expenses

- increase gross profit ratio

Q

Gross Profit - What ratio tells us

A

Whether mark-up is sufficient

Q

Gross Profit - How to analyse ratio

A

higher the better

- should be positive

Q

Gross Profit - Possible Actions

A

Increase prices

- Cheaper suppliers

Q

Expenses - What ratio tells us

A

How much expenses are compared to the dollar sale

Q

Expenses - How to Analyse Ratio

A

lower the better

Q

Expenses - Possible Actions

A

reduce operating expenses

Q

Rate on Return of Asset - What ratio tells us

A

how much profit our assets are generating