ratios

Question 1

What are Gearing ratios?

Answer 1

~Focuses on the long term financial stability of a business.
(Non current liabilities/ capital employed)X 100
This ratio is in a percentage.
Looks at the long term finance and where it comes from.
Over 50%- highly geared- very Risky
Under 50%- low geared - not as risky

Question 2

What are ratios used for?

Answer 2

Analysing relationships between financial data to assess the performance of a business against competitors and review data.

Question 3

What do probability ratios provide

Answer 3

An in-site to the business gross profit margin and operating profit margin

Question 4

Why check liquidity?

Answer 4

To manage finances.
Businesses can look good on the surface but be u healthy inside.
Also used to buy/ sell a business

Question 5

What is liquidity?

Answer 5

A measure of a businesses ability to survive short term. I.e. is ability to meet short term debts and day to day expenses

Question 6

What is the current ratio?

Answer 6

Current assets/ current liability.

Question 7

What is Liquid capital ratio? Also known as the acid test ratio.

Answer 7

Current assets inventory/ current liability

Question 8

Why is it important to a business to conduct financial/ liquidity check?

Answer 8

To see where to improve, expand or eel off a business.

To plan ahead.

Question 9

What is the acid test/ quick ratio?

Answer 9

Stock is excluded because it may be Perish or be obsolete or not be worth the starter value.
Compared cash a debt.
~Current assets/ current liability.
~ratio is always X:1
~if it is more than 2:1 then money is not efficiently used

Question 10

What are efficiency ratios?

Answer 10

They assess the internal management of a business. I.e. how efficient are the managers in controlling the current assets.

Question 11

What are trade receivable days?

Answer 11

The measure of how long on average for customers to pay the business for goods and services it has purchased of credit.
( trade receivables/ credit sales) x 365

Question 12

What are trade payable days?

Answer 12

The measure of how long t takes on avasage for the business to pay for its suppliers it has purchased in credit.
(Trade payables/ credit purchases) x365
Businesses who have a longer trade payable days ratio end to see a cash flow problem.

Question 13

What is inventory turnover?

Answer 13

Measure how e
Frequently a business turns over its stock/ inventory a year
(Average inventory/ cost if sales) x365