Finance ratios

Question 1

Return on capital employed

Answer 1

Operating profit
/
Equity + non-current liabilities [debt]
x100

Question 2

Return on total assets

Answer 2

Operating profit
/
Total assets
x100

Question 3

Return on shareholders’ equity

Answer 3

Net profit (profit for the period)
/
Equity
× 100

Question 4

Operating profit margin

Answer 4

Operating profit
/
Revenue
× 100

Question 5

Gross profit margin

Answer 5

Gross profit
/
Revenue
x 100

Question 6

Net profit margin

Answer 6

Net profit (profit for the period)
/
Revenue
x 100

Question 7

Asset turnover

Answer 7

Revenue
/
total assets

Question 8

Total asset turnover

Answer 8

Revenue
/
Total assets

Question 9

Non-current asset turnover

Answer 9

Revenue
/
Non-current assets

Question 10

Inventories turnover

Answer 10

Cost of goods sold
/
Inventory

Question 11

Inventories holding period

Answer 11

Inventory
/
Cost of goods sold
× 365

Question 12

Rate of collection of trade receivables

Answer 12

Trade receivables
/
Revenue (credit sales)
× 365

Question 13

Rate of payment of trade payables

Answer 13

Trade payables
/
Cost of goods sold (credit purchases)
x 365

Question 14

Working capital cycle

Answer 14

Inventory holding period
+
receivables collection period
-
payables payment period

Question 15

Current ratio

Answer 15

Current assets
/
Current liabilities

Question 16

Quick ratio

Answer 16

Current assets - inventories
/
Current liabilities

Question 17

Equity gearing

Answer 17

Borrowings (debt) + preference share capital
/
Equity
× 100

Question 18

Total or capital gearing

Answer 18

Borrowings (debt) + preference share capital
/
Capital employed (equity + debt + preference share capital)
× 100

Question 19

Interest cover

Answer 19

Operating profit
/
Debt interest + preference share dividends

Question 20

Dividend pay-out ratio

Answer 20

Equity share dividend(s) paid in the year
/
Net profit for the year
× 100

Question 21

Dividend cover

Answer 21

Profit for the year
/
Equity share dividend(s) paid in the year

Question 22

Dividend yield

Answer 22

Equity share dividend(s) per share
/
Market price of an equity share
× 100

Question 23

Earnings per share

Answer 23

Profit attributable to equity shareholders for the year
/
Weighted average number of outstanding equity shares during the year

Question 24

Diluted EPS

Answer 24

Adjusted profit attributable to equity shareholders for the year
/
Weighted average number of outstanding equity shares during the year + diluted equity shares

Question 25

P/E ratio

Answer 25

Market price of an equity share
/
Earnings per share (EPS)

Question 26

6 profitability ‘ratios’

Answer 26

Return on capital employed

Return on total assets

Return on (shareholders’) equity

Operating profit margin

Gross profit margin

Net profit margin

Question 27

8 asset efficiency ‘ratios’

Answer 27

Asset turnover

Total asset turnover

Non-current asset turnover

Inventories turnover

Inventories holding period

Rate of collection of trade receivables

Rate of payment of trade payables

Working capital cycle

Question 28

2 liquidity ratios

Answer 28

Current ratio

Quick ratio

Question 29

4 financial gearing ‘ratios’

Answer 29

Equity gearing

Total or capital gearing

Interest gearing

Interest cover

Question 30

6 investment valuation ‘ratios’

Answer 30

Dividend payout ratio

Dividend cover

Dividend yield

Earnings per share

Diluted EPS

P/E ratio

Question 31

When is ratio measured in %

Answer 31

If x 100

Question 32

What is ratio measured in ratio

Answer 32

If ratio is in ratio name

Question 33

Which ratios measured in pence or £

Answer 33

EPS & diluted EPS

Question 34

Which ratios measured in days

Answer 34

If x 365

Question 35

When ratios measured in ‘times’

Answer 35

if X / Y

Question 36

What is generally a good equity gearing

Answer 36

100%

Question 37

What is generally a good total/capital gearing

Answer 37

50%