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