Week 8-9 Interpreting The Financial Statements Flashcards
What does ratio analysis mean?
These can be used to highlight underlying trends not always immediately obvious from the figures themselves.
What are the types of ratio?
Profitability
Liquidity
Efficiency
As a ratio, what does profitability mean?
How successfully is the business trading?
As a ratio, what does liquidity mean?
How easy is it for the business to pay its way.
As a ratio, what does Efficiency mean?
How effectively are the short-term assets and liabilities of the business being managed.
How do you work out return on capital employment?
Operating profit (x100)| shareholders fund + long term loans
How to you gross profit margin?
Gross profit (x100)| sales
How do you work out operating profit margin?
Operating profit (x100)| sales
How do you work out expenses:sales
Expenses (x100)| sales
How do you work out use of assets?
Sales|capital employment
What does liquidity mean?
It is the measure of the ability of a business to pay its debts as they fall due.
What does working capital mean?
It is defined as the current asset less the current liabilities of a business.
How do you work out inventory days?
Inventories (x365) | cost of sales
How do you work out trade receivable days?
Trade receivables (x365) | credit sales
How do you work out trade payable days?
Trade payables (x365) | credit purchases
