Week 6- Interpretation Of Financial Statements

Question 1

What comparisons is ratio analysis is used for?

Answer 1

1.past periods.
2.similar businesses during the same period.
3. Planned performance.

Question 2

Name 3 profitability ratios?

Answer 2

1. Return on Capital employed
2. Operating profit margin
3. Gross profit margin

Question 3

What is Return on Capital Employed

Answer 3

Operating profit / (Total Equity + Non-current liabilities) x 100

Question 4

What is operating profit margin?

Answer 4

Operating profit / sales x 100

Question 5

What is Gross profit margin?

Answer 5

Gross profit / sales x 100

Question 6

Name 3 efficiency ratios

Answer 6

1. Inventory holding period
2. Trade receivable days
3. Trade payable days

Question 7

What is the inventory holding period?

Answer 7

Inventory / cost of sales x 365

Question 8

What is trade receivable days?

Answer 8

Trade receivables / credit sales x 365 days

Question 9

What is trade payable days?

Answer 9

Trade payables / cost of sales X 365 days

Question 10

Name 2 liquidity ratios

Answer 10

1. Current ratio
2. Acid test ratio

Question 11

What is the current ratio?

Answer 11

Current assets / current liabilities

Question 12

What is the acid test ratio?

Answer 12

Current assets - inventory / current liabilities