financial ratios

Question 1

Return on Capital Employed (ROCE)

Answer 1

Operating Profit ÷ equity + non current liabilities
(Also: ROCE = Operating Profit Margin × Asset Turnover)

Question 2

Return on Equity (ROE) /Return on Shareholder funds

Answer 2

Profit After Tax less preference dividends ÷ Equity

Question 3

Gross Profit Margin

Answer 3

Gross Profit ÷ Revenue × 100

Question 4

Operating Profit Margin

Answer 4

Operating Profit ÷ Revenue × 100

Question 5

Current Ratio

Answer 5

Current Assets ÷ Current Liabilities

Question 6

Quick Ratio (Acid Test Ratio)

Answer 6

(Current Assets – Inventory) ÷ Current Liabilities

Question 7

Asset Turnover

Answer 7

Revenue ÷ Net Assets
(Net Assets = Total Assets – Current Liabilities)

Question 8

Non-Current Asset Usage

Answer 8

Revenue ÷ Non-Current Assets

Question 9

Inventory Holding Period (Days)

Answer 9

(Average Inventory ÷ Cost of Sales) × 365

Question 10

Trade Receivables Collection Period (Days)

Answer 10

(Average Trade Receivables ÷ Credit Sales/revenue) × 365

Question 11

Trade Payables Payment Period (Days)

Answer 11

(Average Trade Payables ÷ Credit Purchases or Cost of Sales) × 365

Question 12

Earnings Per Share (EPS)

Answer 12

Profit For the year ie after tax and interest ÷ Number of Ordinary Shares

Question 13

Price-Earnings (P/E) Ratio

Answer 13

Market Price per Share ÷ Earnings Per Share

Question 14

Dividend Cover

Answer 14

Profit for the Year ÷ Ordinary Dividends Paid

Question 15

Dividend Yield

Answer 15

(Dividend per Ordinary Share ÷ Market Price per Ordinary Share) × 100

Question 16

Capital Gearing Ratio

Answer 16

(ncl ÷ (ncl + Equity)) × 100

Question 17

Interest Cover

Answer 17

Operating Profit ÷ Interest Payable