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Finance And Economics > Financial Ratios > Flashcards

Financial Ratios Flashcards

1
Q

What essentially are financial ratios

A

Contextualising numbers

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2
Q

What does efficiency ratios do

A

Measures how well a business is being managed

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3
Q

List 3 efficiency ratios

A

Inventory conversion period
Payables conversion period
Receivables conversion period

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4
Q

What’s inventory conversion period tell you

A

how long does it take to sell stock after investing in it/how long are you holding stock for

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5
Q

What does payables conversion period tell you

A

how quickly do we pay our suppliers

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6
Q

What does Receivables conversion period tell you

A

How many days it takes us to receive money from a sale

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7
Q

Inventory conversion period formula

A

(average inventory/cost of sales) x 365 days

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8
Q

Receivables conversion period formula

A

(accounts receivables / sales) x 365 days

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9
Q

What do debt/leveraging ratios tell us

A

Measures firms ability to repay debt

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10
Q

Debt ratio formula

A

Total liabilities / total assets

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11
Q

What do liquidity ratios tell us

A
  • Measures a company’s ability to pay its bills in short term
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12
Q

Type of liquidity ratio

A

Current ratio

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13
Q

Examples of current assets include …

A

Cash, stock, debtors

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14
Q

Current ratio formula

A

Current assets / current liabilities

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15
Q

What do market ratios do

A

Measures investors response to owning shares in a company

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16
Q

Example of a market ratio

A

P/E ratio

17
Q

P/E ratio formula

A

market price per share / earnings per share

18
Q

What does high P/E ratio mean

A

indicates low earnings compared to market price, which is bad as you want high earnings
- So high P/E ratio could suggest overpriced market price
- Although could suggest high potential

19
Q

What do profitability ratios do

A

Measures companies ability to generate profit

20
Q

Examples of profitability ratios. 3

A

ROA
ROCE
ROE

21
Q

ROA formula

A

Earning / total assets

22
Q

ROCE formula

A

Earnings / (assets - current liabilities)

23
Q

ROE formula

A

Net income / shareholders equity

24
Q

Payables conversion period formula

A

(Accounts payable/ purchases) x 365 days

Finance And Economics (11 decks)

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