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Business A2 Finance > Ratio Analysis > Flashcards

Flashcards in Ratio Analysis Deck (14):
1

What are the five types of ratio?

1)Shareholder
2)Liquidity
3)Gearing
4)Profitability
5)Efficiency

2

When is a ratio most useful?

-When planning expansion objectives
-used in comparing/bench marking to other business in the same market
-used by shareholders to help decide whether to invest

3

What are the limitations of ratio analysis?

-if recordings aren't accurate or they're window dressed it may affect accuracy of objectives
-not timely (historic)
-may be hard to access accounts of rivals e.g ASDA

4

What is gearing?

It looks at the level of investment in the business that has come from long term loans

5

What does it mean when a business gets over 50% of its investment from gearing?

This business is considered to be highly geared and may want to think about the impact of borrowing more

6

What's the Calculation for gearing?

Non current liabilities x100 divided by total equity + non current liabilities

7

What is ratio analysis defined as?

A method of assessing a firms financial situation by comparing two sets of linked data

8

What does the ROCE employed ratio show?

The operating profit as a percentage of capital employed

9

What does solvency mean?

A measure of a firms ability to pay debts on time

10

What does it mean when a firms insolvent?

it can meet its financial commitments

11

What is a ratio?

A financial tool which is applied to financial information to analyse data in detail

12

What does current ratio measure?

The ability of a business to meet its short term liabilities

13

How do you calculate current ratio?

Current assists divided by current liabilities

14

How do you calculate acid test ratio?

Current assets - inventories DIVIDED by current liabilities