rATIOS DEF

Question 1

Profitability Def

Answer 1

Profitability refers to the earning capacity of the business during the accounting period.

Question 2

Gross profit def

Answer 2

gross profit ratio is a measure of the level of profit available, after subtracting the cost of sale expense to cover remaining expenses of a business.

Question 2

Profit Ratio Def

Answer 2

shows the percentage of profit that is contained in each dollar of sales.

Question 3

Expenses Ratio def

Answer 3

Expense ratio compares the sales to the total operating expenses, e.g. selling and distribution, general and administrative and financial expenses. From this ratio the owner of a business can see extent to which the operating expenses have affected the profit.

Question 4

Rate on Return on Assets Def

Answer 4

shows overall earning power of total assets before any payment to equity or debt providers

Question 5

Actions to improve profitability

Answer 5

locating cheaper supplies
increasing prices
cutting operating costs such as wages and utilities

Question 6

Liquidity ratio def

Answer 6

Liquiditly ratio assist in assessing the business ability to meet its financial commitments in the short term

Question 7

working/current capital ratio

Answer 7

working capital ratio shows short term det paying ability.

Question 8

quick asset def

Answer 8

quick asset ratio is a measure of the abbiltiy of a business to pay its short term debts using only its more liquid current assets

Question 8

ACTIONS TO IMPROVE LIQUIDITY

Answer 8

ADDITIONAL CAPITAL
non curreent asset sold for cash
using cheaper suppliers
increasing collections from debtors

Question 9

Leverage or gearing def

Answer 9

desrbies extent to which a business has funded its operation from borrowed funds rather than equity

Question 10

dEBT TO EQUITY DEF

Answer 10

Debt to equity ratio measures how the business has funded its assets comparing the total labilities to amount of contributed equity

Question 11

actions to improve leverage

Answer 11

paying off debt
contruting addtioanl capital
cutbacks on inventory purchases
delaying major capital investment

Question 12

quick assets results

Answer 12

ideal levle is higher than 1:1, whic means usiness should e able to pay immediate debts

Question 13

woking/current capital

Answer 13

ideal level is 2:1 , any higher than 2 and business is missing out on investment oppurtunities