Ratios Flashcards
Gross profit margin
Gross profit/revenue
Company’s financial health
How much gross profit every pound of revenue a company is earning
Lower= company under pricing
Operating profit margin
Operating profit/revenue
Profit a company makes after paying for costs of production-wages/raw materials
Higher=selling more than what’s left in inventory
Return on capital employed
Expenses before interest&tax/T.A-C.L
Level of profit generated compared to amount of capital invest
Higher-maintain operating profit but reduce the value of capital employed
Non-current asset turnover
Revenue/n-c assets
Efficiency with which n-c assets have been utilised in the business
Inventory turnover
Cost of good sold / inventory (x365)
Average length of time an item spends on premises before it is sold
Too little- Delay I’m supplying orders
Too much-costs money-storage insurance
Current ratios
Current assets/ current liability
Assesses relationship between assets and currents
More liability means in danger of going under because of inability to meet liabilities
Trade receivable turnover
Trade receivables/revenue (x365)
Time that t.r takes to pay
Higher-deliberate policy to improve customer relation(gives longer time-more chilled)
Trade payables
Trade payables/purchases (x365)
Average time a business takes to settle trade payables
Higher-indicate possible liquidity problems
-may find it difficult to obtain suppliers on credit
Dividend per share
Dividend for year/number of shares in issue
Dividend cover
Profits after tax/dividend
Number of times current dividend could be paid out of available profits
If dividend cover= 1 all profits are being paid to shareholders in dividends =
-no profit being retained in business
-may not be able to sustain in future yrs
Price per earnings for
Price per share / earnings per share
Relationship between earnings per share and price of the share
Gearing
Debt/(debt+) equity
