Unit 3 - Ratios Flashcards
How is Gross Profit calculated?
Sales - Cost of Goods Sold = Gross Profit
What is COGS?
Cost of Good Sold
How is COGS calculated for a trading organisation?
Inventory at Year Start
+ Product Bought During Year
- Residual Inventory at Year End
= COGS
How is COGS calculated for a manufacturing organisation?
Year Start Raw Material
+ Raw Material bought during year - Year End Raw Material
+ Year Start Work-in-Progress - Year End Work-in-Progress
+ Year Start Finished Goods - Year End Finished Goods.
= COGS
What does EBIT stand for?
Earnings Before Interest and Tax
What is another term for EBIT
Net Operating Income
How is EBIT calculated?
Gross Profit - Marketing Expenses - Administration Expenses - Depreciation - Other Operating Costs = EBIT
How is Profit before taxes from continuing operations calculated?
EBIT
- Results from investments in other companies
- Bank Loan interest
= Profit before taxes from continuing operations
How is Profit for financial year calculated?
Profit before taxes from continuing operations
-Tax payable
- Net income from discontinued operations
= Profit for financial year
What is Return On Sales?
EBIT as a percentage of sales
How is Return On Sales calculated?
ROS (in %) = (EBIT/Sales) * 100
What does the Asset Utilisation Ration show?
Revenues generated as a proportion of total assets used to generate said revenues
How is AUR calculated?
sales/capital employed
How is Capital Employed calculated?
Shareholders funds + long-term debt
What is ROCE
Return on Capital Employed.
What is ROS
Return on Sales
How is ROCE calculated?
ROCE (in %) = (EBIT/Capital Employed) * 100
or
ROCE (in %) = (EBIT/Sales) * (Sales/Capital Employed) * 100
Which is
ROCE = ROS * AUR
Is AUR an effectiveness or efficiency ratio?
Efficiency
Is ROCE an effectiveness or efficiency ratio?
Both
Is ROIS an effectiveness or efficiency ratio?
Effectiveness
What is an ORPI?
Output-Related Performance Index
What type of orgnanisation might use an ORPI?
NFP/Service Sector
What does the Current Ratio show?
Level of current assets relative to current liabilities.
How is Current Ration calculated?
Current Ratio = current assets / current liabilities.
What does the Quick Ratio show?
Level of current assets relative to current liabilities. ignoring inventory in current assets
How is the Quick Ratio calculated?
Quick Ratio = (current assets - inventory) / current liabilities.
What is Working Capital?
margin of safety between current assets and current liabilities
How is Working Capital calculated?
Working Capital = current assets - current liabilities
What does Leverage show?
Relative dependence on debt and equity
How is Leverage calculated?
Leverage = (short-term debt + long-term debt) / shareholders’ funds
What does Gearing show?
European version of debt/ equity ratio
How is Gearing calculated?
((short-term debt + long-term debt) /(short-term debt + long-term debt + shareholders’ funds)) * 100
What is Creditor Days?
How long it takes an org. to pay its creditors
How is Creditor Days calculated?
Creditor Days = (Creditors / COGS) * 365 days
What is Stock or Inventory Days
How long stock/inventory takes to become output product/service
How is Stock (or Inventory) Days calculated?
Stock Days = (Stock / COGS) * 365 days
What is Debtor Days?
How long it takes an org to get paid.
How is Debtor Days calculated?
(Debtors / Sales) * 365 days
What is ROE?
Return On Equity
What does ROE show?
Net profit for the year as a proportion of shareholders’ funds - shows the organisation’s performance taking equity into account.
How is ROE calculated?
ROE (in %) = (Net Profit for Financial Year / Shareholders’ Funds) * 100
What does the Payout Ratio show?
Percentage of after-tax profits paid to shareholders as dividends
How is Payout Ratio calculated?
Payout Ratio (in %) = (Dividends / Profit for Financial Year) * 100
What does Interest Cover show?
Interest Cover shows whether an organisation is producing enough operating profit to cover its interest payments.
How is Interest Cover calculated?
Interest Cover = EBIT / Interest Expense
What is the P/E Ratio?
Profit/Earnings Ratio. Shows the market price as a proportion of earnings per share.
How is P/E calculated?
P/E Ratio = Market Price / Earnings Per Share
