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IFAI > RATIOS > Flashcards

RATIOS Flashcards

1
Q

EFFICIENCY RATIOS

Total Asset Turnover?

A

Revenue / Total Assets x 100

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2
Q

EFFICIENCY RATIOS

Non-current Asset Turnover

A

Revenue / Non-current Assets x 100

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3
Q

EFFICIENCY RATIOS

Inventories Turnover

A

Cost of goods sold / Inventory x 100

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4
Q

EFFICIENCY RATIOS

inventory holding period (days)

A

Inventory x 365 / cost of goods sold x 100

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5
Q

EFFICIENCY RATIOS

Rate of collection of Trade receivables (days)

A

Trade receivables x 365 / credit sales (or revenue) x 100

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6
Q

EFFICIENCY RATIONS

Rate of payment of Trade Payables (days)

A

Trade payables x 365 / credit purchases (or cost of goods sold) x 100

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7
Q

EFFICIENCY RATIOS

working Capital cycle (days)

A

Inventory holding period (storage) + trade receivables collection period - trade payables payment period

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8
Q

EFFICIENCY RATIOS

Asset Turnover (times)

A

Revenue / Capital employed

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9
Q

LIQUIDITY RATIOS

current ratio (x:1)

A

current assets / current liabilities

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10
Q

LIQUIDITY RATIOS

Quick ratio x:1) (acid test ratio)

A

Current assets - inventories / current liabilites

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11
Q

FINANCIAL GEARING

Equity Gearing (%)

A

Borrowings (debt) + preference share capital / equity x 100

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12
Q

FINANCIAL GEARING

Total or capital Gearing (%)

A

Borrowings (debt) + preference share capital / capital employed x 100

Capital employed = equity +debt + preference share capital

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13
Q

FINANCIAL GEARING

Interest Gearing (%)

A

Debt interest + preference share dividends / operating profit + investment income x 100

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14
Q

FINANCIAL GEARING

interest cover (times)

A

operating profit + investment income / debt interest + preference share dividends

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15
Q

INVESTMENT VALUATION

Dividend payout ratio (DPR%)INVESTMENT VALUATION

A

Equity share dividends paid in the year / profit for the year x 100

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16
Q

INVESTMENT VALUATION

Dividend yield (%)

A

Equity share dividends per share / market price of an equity share x 100

17
Q

INVESTMENT VALUATION

Earnings per share (EPS)

A

Profit attributable to equity shareholders for the year / Weighted average number of outstanding equity shares during the year + diluted equity shares

18
Q

INVESTMENT VALUATION

P/E Ratio (times)

A

Market price of an equity share / Earnings per share (EPS)

19
Q

What do profitability ratios measure?

A

The capability of the company to generate profit compared to revenue, epenses, assets and shareholders equity.

20
Q

What do Efficiency ratios measure?

A

Measure how efficiently a company uses its assets to generate revenue and manages its liabilites

21
Q

What are liquidity ratios used for?

A

Used to control and monitor investment in working capital and montor long term solvency

22
Q

What do Gearing or Debt ratios measure?

A

the proportion of debt a company has relative to its equity. Measure of financial leverage.

SHows extent operations are funded by interst bearing lenders versus shareholders.

More debt than equity means highly geared

23
Q

what do investment or market value ratios measure?

A

compare relevant data that will estimate teh attractions of a potential or existing investment. Look at how ratios compare from one company to another.

24
Q

What are the profitability ratios?

A 
ROCE (Return on capital employed
ROA (Return on total assets)
ROE (Return on shareholders equity)
Operating profit margin
Gross profit margin
Net profit margin
25
Q

What are the Efficiency ratios?

A 
Asset turnover (times)
Total asset turnover (times)
Non currnst asset turnover (times)
Invetories torunover (times)
Inventory holding period (days)
Rate of collection of trade receivables (days)
Rate fo payment of trade payables (days)
Working capital cycle (days)
26
Q

What are the liquidity ratios?

A 
Current ratio 
Quick ratio (acid test)
27
Q

What are the Gearing ratios?

A

Equity gearing
Total or capital gearing
Interest gearing
Interat cover (Times)

28
Q

What are the Investment Valuation ratios?

A 
Divident payout ratio (DPR)
Divident cover (times)
Dividend yield
Earning per share (EPS)
Diluted EPS
P/E (times)
29
Q

What does Gross Margin refer to?

A

Gross margin refers to the margin that company charges above cost of goods sold. It indicates how much the company is earning, considering the required costs to produce its goods and services.

Gross Profit / Revenue x 100

30
Q

What is the operating profit margin?

A

The percentage of revenue remaining after accounting for operating expenses. Companies with higehr oeperating profit margins can pay for costs and interest.

operating profit (PBIT) / revenue x 100

31
Q

What are the underlying drivers behind the Gross profit margin ratio?

A

selling prices, product mix, purchase costs, production costs inventory valuations.

32
Q

what would a downward trend in the inventory days ratuio mean?

A

This means that inventory levels are being kept under control in relation to the level of sales. Must be careful not to let it fall too low as may result in inventory shortages when demand fluctuates. Need a comparale company in the sector to compare with as different industry to industry.
The days in inventory should be as low as possible without causing shortages.
Money tied up in inventory earns very little

33
Q

What should you look for in the current ratio result?

A

The current ratio reflects a company’s ability to generate enough cash to pay off all its debts once they become due. It’s used globally as a way to measure the overall financial health of a company. It is the ability of a complay to turn its assets into cash when they need t

A current ratio of less than 1 could indicate liquidity problems. There isa general target current ratio of 2:1
It depends on the industry and nature of the company.

The quick ratio excludes inventory whcin cant easily be turned into cash.

34
Q

How do you calculate PBIT (Profit before interest and tax?)

A

Revenue − Cost Of Goods Sold − Operating Expenses

35
Q

What does the interest cover gearing ratio show?

A

it indicates how many times greater profit before interst and tax is than annual interest payments. the higher this is the less risk is involved.

When using ratios to analyse a company it can be useful to refer to the acutal nubers in teh financail statements to see where increases may lie.

36
Q

What does the Gross Profit Margin indicate?

A

Gross profit refers to the margin that the comapny charges above teh cost of goods sold. It indicates how much the company is earning, considering the required costs to produce its goods and services

Underlying drivers are sellign price product miz, purchase costs production costs and inventory valuations.

Information in the market place may give context to results

IFAI (5 decks)

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