Ratios Flashcards
Formulas for profitability ratios?-2
Gross margin
Gross profit/ revenue X 100
Net margin
Profit B4 Tax/Revenue X 100
Liquidity Ratios Formulas-2
What are they for?
Current ratio: CA/CL
Quick Rati
CA-Inv/ CL
Key indicator GConcern
Shows ability to meet short term debt
Investor Ratios
- Gearing
- return on capital employed
Measures?
Changes indicate?
Gearing ratio:
Borrowing/.Share capital + reserves
Measures ext debt finance to internal equity finance
Return on capital employed:
Profit B4 tax/share capital + reserves+borrowing
Measures return those investments generate
Changes in these ratios indicate:
Change in financial structure/ overall performance
Identify material changes in statm financial position
Obtain overall picture of annual performance
Efficiency. Ratios
Formulas for:
Receivables payables
Inventory days
These ratios show…
Receivables/revenue X365
Shows how long takes to collect cash from customers
- worsening credit control
- need for allowances
Payables/Purchases X 365
Shows how long it takes to pay suppliers
Poor cash flow
GConcern - disclosure req’d
Inventory/Cos X 365
How many days inv held b4 being sold
Slow moving/obsolete inv
Could be over valued
