Week 3&4 - Accounting Ratio Analysis Equations Flashcards
What is Accounting
The process of identifying, measuring and communicating economic information, which is reliable, relevant and comparable, to make informed judgments and decisions by users of that information
Accounting equation
Capital = Assets- liabilities
Liquid capital ratio
((Current assets-inventory)/current liabilities)
How to work out mark up
(Gross profit/cost of sales) x 100
How to work out Return on capital employed
(Profit for year/capital employed) x 100
How to work out Inventory turnover
(Average inventory/cost of sales) x 365
How to work out trade receivables
(Trade receivables/credit sales) x 365
How to work out current ratio
Current assets : current liabilities
(Has to be in a ratio)
How to work out trade payable days
(Trade payable days/credit purchases)
How to work out gross profit margin
(Gross profit/sales) x 100
How to work out profit margins
(Profit for year/ sales )x 100
How to work out Net profit margin- the net profit as a % of sales?
Net profit (before tax) / turnover (sales) x 100
How to work out Gross profit margin- gross profit as a percentage of sales?
Net profit / turnover (sales) x 100
How to work out Return on capital employed (ROCE)-efficiency with which the firm generates profits from funds invested.
(Operating profit / capital employed) x 100
How to work out stock turnover rate (per year)-number of times a year a company sells and replaces its stock
(Cost of goods sold / average stock)
How to work out Stock turnover- Average number of days that stock is held(no of days we have it until sold)
365 / no. Of times a business sells and replaces stock (average stock)
How to work out Debtors (trade receivables) collection period- (how many days does it take our co. to collect its debts from debtors?)
(Debtors / sales turnover) x 365
How to work out Asset turnover ratio-(how many pounds worth of sales can generate from an assets base? (number of times per year).)
(Sales turnover / total assets employed)
How to work out acid test ratio (quick ratio)?
current assets – stock : current liabilities
(Has to be in a ratio)
How to work out current ratio? ( working capital ratio)
Current assets : current liabilities
How to work out gearing ratio
Non current liabilities (long term loans e.g bank loans, debentures) x100 / capital employed
How to work out earnings per share?
(Net profit after tax / no. Of ordinary shares )
How to work out price earning ratios (P/E)
Market price (in pence) / Earnings per share (in pence)
How to work out dividend yield
(Ordinary share dividend / market price (in pence)) x 100
