Financial Ratios - Rob

Question 1

Ratios are most meaningful for ?

Answer 1

Comparisons between companies & comparisons over time

Question 2

Operating Margin = ?

Answer 2

= Operating Profit ÷ Operating Revenue

Question 3

Operating Margin usage ?

Answer 3

Measure of profitability and cost control

Question 4

Operating profit similar to ?

Answer 4

EBIT

Question 5

EBIT means ?

Answer 5

Earnings Before Interests and Taxes

Question 6

Operating Margin order of magnitude for an airport ?

Answer 6

20% +

Question 7

Net Profit Margin = ?

Answer 7

Net Profit ÷ Operating Revenue

Question 8

Net Profit Margin usage ?

Answer 8

Measure of profitability

Question 9

Net profit is ?

Answer 9

profit after tax, interest and other gains/losses

Question 10

Airport profit margins order of magnitude ?

Answer 10

Around 20%

Question 11

ROCE means ?

Answer 11

Return on Capital Employed

Question 12

ROCE = ?

Answer 12

EBIT ÷ (Equity + Long-term Liabilities)

Question 13

ROCE usage ?

Answer 13

Measure of how well the airport uses its long-term capital

Question 14

EBIT = ?

Answer 14

Operating profit +/- non-operating gains/losses

Question 15

ROCE similar to ?

Answer 15

ROI (Return On Investment)

Question 16

ROE means ?

Answer 16

Return on Equity

Question 17

ROE = ?

Answer 17

Net Profit ÷ Equity

Question 18

ROE usage ?

Answer 18

Measure of how well the airport uses its owners’ capital

Question 19

High ROE means ?

Answer 19

High debt/equity

Question 20

ROA means ?

Answer 20

Return on Assets

Question 21

ROA = ?

Answer 21

Net Profit ÷ Total Assets

Question 22

ROA usage ?

Answer 22

Measures profitability relative to total asset base

Question 23

ROCE order of magnitude ?

Answer 23

Around 5%

Question 24

AT means ?

Answer 24

Asset Turnover

Question 25

AT = ?

Answer 25

Operating Revenue ÷ Total Assets

Question 26

The more times you convert assets into sales, the more ?

Answer 26

the more productively you are using your resources

Question 27

Current Ratio = ?

Answer 27

Current Assets ÷ Current Liabilities

Question 28

Current Ratio usage ?

Answer 28

Measure of liquidity – to what extent do assets that could be monetised in the short-term cover liabilities due

Question 29

Current ratio order of magnitude ?

Answer 29

Typically firms aim for between 1.5 and 2

Question 30

Quick Ratio = ?

Answer 30

Current Liquid Assets ÷ Current Liabilities

Question 31

Current liquid assets = ?

Answer 31

Cash and equivalent + marketable securities + accounts receivable

Question 32

Quick Ratio usage ?

Answer 32

Measure of liquidity taking into account that some current assets (e.g. stock) may not be immediately convertible into liquid form

Question 33

Quick Ratio order of magnitude ?

Answer 33

Typically firms aim for 1+

Question 34

Debt/Equity Ratio = ?

Answer 34

Long-term Debt ÷ Equity

Question 35

D/E usage ?

Answer 35

Shows how much of a company’s operations are funded by lenders

Question 36

D/E order of magnitude ?

Answer 36

Value of over 0.5 is seen to be high in most industries

Question 37

Problem with high D/E ?

Answer 37

Makes it more difficult/expensive for airlines to borrow money

Question 38

Interest Cover = ?

Answer 38

EBIT ÷ Net Interest Expenses

Question 39

Interest Cover usage ?

Answer 39

Can the airline afford its interest payments