financial ratios Flashcards
Current Ratio
Objective; Liquidity
Formula; Current Assets/Current Liabilities
Above the benchmark is; Good
Gearing Ratio
Objective; Solvency
Formula; Liabilities/Owners’ Equity
Above the benchmark is; Bad, besides in high risk greater reward industries. (e.g. Commodity & Construction)
Gross Profit Ratio
Objective; Profitability
Formula; Gross Profit/Sales
Above the benchmark is; Good
Net Profit Ratio
Objective; Profitability
Formula; Net Profit/ Sales
Above the benchmark is; Good
Return on Equity Ratio
Objective; Profitability
Formula; Net Profit/Owners’ Equity
Above the benchmark is; Good
Expense Ratio
Objective; Efficiency
Formula; Expenses/Sales
Above the benchmark is; Bad
Accounts Receivable Turnover Ratio
Objective; Efficiency
Formula; (Sales/Accounts Receivable) ÷ 365 days
Above the benchmark is; Good
Balance Sheet Formula
Assets = Liabilities + Owners’ Equity
Cost of Goods Sold (COGS) Formula
COGS = Opening stock + Purchases - Closing stock
Gross Profit Formula
Gross Profit = Sales - COGS
Gross Profit = Sales - (Opening Stock + Purchases - Closing Stock)
Net Profit Formula
Net Profit = Gross Profit - Expenses
Net Profit = [Sales - (Opening Stock + Purchases - Closing Stock)] - Expenses
