Ratios Flashcards
Return on capital employed
What can make this move significantly
Profit before interest and tax / TALCL (total assets less current liabs)
Change in returns
Age of plant
Revaluations of non current assets
New loans/overdraft
Gross profit margin
Potential causes
(Gross profit / Revenue) * 100
REVENUE
Sales price changes?
Sales mix changes?
New product launched?
Effect of currency translation?
COS
Raw mat price changes
FX changes
Labor changes
Econ of scale gained?
Operating cost percentage
(Operating costs / revenue) * 100
Operating profit margin
(Profit before interest and tax / revenue) * 100
Current ratio
If high?
If low?
Potential causes?
Current assets / current liabilities
High: poor use of shareholder funds
Low: liquidity problems
Inventory, receivables or payables misstated
Manipulation ie. repayment of liabs just prior to YE
Quick ratio
(Current assets - inventory) / current liabilities
Gearing
Potential causes (4)
Is high or low good according to general consensus
(Net debt / equity) * 100
Where net debt is all borrowings less cash owed
DECREASE by upward reval. Of NCA
INCREASE by large impairments
INCREASE by new finance
INCREASE by large cash purchase
Generally higher is more risky - check with industry average
Interest cover
Profit before interest payable / interest payable
Net asset turnover
Revenue / TALCL
Inventory period
If high?
If low?
(Inventories / COS) * 365
High: potential obsolescence problems
Low: run risk of running out of inventory
Trade receivable period
Change in ratio may indicate (4)
(Trade receivables / revenue) * 365
Change may indicate:
Bad debt/collection problems
Change in customer base
Change in customer terms
Revenue cut off issues
Trade payable period
If high?
What is it good to compare this to
(Trade payables/ credit purchases or COS) * 365
High: may indicate liquidity problems, rush of supplier ceasing supply, enforcing liquidation
Supplier credit periods
