Flashcards in Chapter 13 - Performance measurement and control Deck (18)
What are the four main profitability ratios?
-Gross profit margin
-Operating profit margin
-Return on capital employed
How do you calculate the Gross profit margin
(Gross profit) ÷ (Turnover) x 100
How do you calculate the Operating profit margin
(Operating profit) ÷ (Turnover) x 100
How do you calculate Return on capital employed
(Operating profit) ÷ (Capital Employed) x 100
Operating profit x asset turnover
How do you calculate capital employed
Total assets - current liabilities
Total equity + long term debt
How do you calculate Asset turnover
(Turnover) ÷ (Capital Employed)
What are the five liquidity ratios?
-Quick ratio (acid test)
How do you calculate the current ratio?
(Current assets) ÷ (Current liabilities)
How do you calculate the quick ratio?
(Current assets- Inventory) ÷ (Current liabilities)
How do you calculate the Inventory days
(Inventory) ÷ (Cost of sales) x 365
How do you calculate the Receivables days
(Receivables) ÷ (Credit sales) x 365
How do you calculate the Payable's days
(Payables) ÷ (Credit purchases) x 365
What are the three risk ratios?
How do you calculate financial gearing?
(Debt) ÷ (Equity) x 100
(Debt) ÷ (Debt + Equity) x 100
How do you calculate Interest cover
(Operating profit) ÷ (Finance costs)
How do you calculate Dividend cover
(Net profit) ÷ (Dividend)
What does a high level of gearing mean?
That a company relies heavily on debt to finance its long term needs