Financial Ratios Flashcards
(33 cards)
What are the three main profitability ratios?
Gross Profit Percentage Ratio, Net Profit Percentage Ratio, Return on Capital Employed (ROCE).
What is the formula for the Gross Profit Percentage Ratio?
Gross Profit % = Gross Profit / Sales (revenue)
What does the Net Profit Percentage Ratio measure?
It measures the net profit as a percentage of sales.
What is the formula for the Net Profit Percentage Ratio?
Net profit % = net profit / Sales (revenue)
What does the Return on Capital Employed (ROCE) indicate?
It indicates the efficiency and profitability of a company’s capital investments.
What is the formula for Return on Capital Employed (ROCE)?
ROCE % = gross profit / share capital + reserves + borrowings
What are productivity ratios?
Productivity ratios measure production efficiency by comparing business outputs to inputs.
What is the Current Ratio used for?
It measures a company’s ability to pay short-term obligations.
What is the formula for the Current Ratio?
Current ratio = current assets / current liabilities
What is the Quick Ratio?
It measures a company’s ability to meet short-term obligations with its most liquid assets.
What is the formula for the Quick Ratio?
Quick ratio = current assets excluding stock / current liabilities
What does the Stock Turnover Ratio indicate?
It indicates the average number of days that inventory is held.
What is the formula for the Stock Turnover Ratio?
Stock turnover ratio = cost of sales / average stock
What is the Debt Turnover Ratio used for?
It measures how often the amount of debtors is turned over each year.
What is the formula for the Debt Turnover Ratio?
DebtTurnoverRatio = sales / debtors
What does the Credit Turnover Ratio measure?
It measures the average number of days that payables are held.
What is the formula for the Credit Turnover Ratio?
credit turnover = purchases / creditors
What is the Gearing Ratio?
It measures the extent to which a company finances its activities from borrowings as opposed to shareholders’ equity.
What is the formula for the Gearing Ratio?
Gearing ratio = long-term borrowings / shareholders’ equity
What is the Solvency Ratio in the insurance industry?
It compares total eligible capital to the solvency capital requirement.
What is the formula for the Solvency Ratio?
Solvencyratio = total eligible capital / solvency capital requirement
Solvency ratio = net assets / earned premium net of reinsurance
What does the Combined Ratio measure?
It measures underwriting performance by combining the claims ratio, expense ratio, and commission ratio.
What is the formula for the Combined Ratio?
combined ratio = (claims + commission + expense) / earned premium net of reinsurance
What is the formula for the Claims Ratio?
claims ratio = claims incurred net of reinsurance / earned premium net of reinsurance
