Chapter 1: Financial management function (Ratios) Flashcards
(14 cards)
Return on Capital
Employed (ROCE)
PBIT / TALCL x 100
Measures efficiency in
generating profits from all
capital employed (by both lenders + shareholders)
Return on
Shareholder Funds
Earnings / Shareholder Funds
Measures efficiency in generating earnings for shareholders from capital they have contributed
Gross Profit Margin
Gross Profit / Revenue x 100
Measures our ability to sell goods for more than they cost to make
Net Profit (Operating Profit) Margin
PBIT / Revenue x 100
Measures our ability to make an overall profit on goods sold
Asset turnover
Revenue / TALCL x 100
Measure how efficiently a company uses its assets
to generate sales
Total Shareholder Return
(Divi + change in price) / Price at start of year
Measures the total return on investment (based on income and capital growth) for shareholders
Divi = Div paid / total shares
Dividend Yield
Dividends per share / Share Price
If you purchased a share today, what % income return would you expect on your investment?
Earnings per share
(EPS)
PAT / Number of shares
The amount of earnings the company has generated for the shareholders on each share they hold.
P/E Ratio (Share Price/EPS)
Share Price / EPS
What is the market’s view of our future growth? A high P/E ratio suggests high predicted growth
Debt:Equity Ratio
Long term debt / Equity
What proportion of assets are funded by lenders vs shareholders (use market values if available)
Gearing
Long term debt / (Equity + long term debt)
What proportion of assets are funded by lenders vs shareholders (use market values if available)
Interest Cover
PBIT / Interest payable
How many times could the annual interest bill be paid with profits before interest and tax
Operational Gearing
Contribution / PBIT or Fixed Costs / Total Costs
To what extent are our costs fixed vs. variable?
Return on shareholders’ funds
Earnings / Shareholders’ funds
%
