Ratios Flashcards
Performance ratios/Profitability ratios
1- Gross profit ratio
= Gross profit / Net sales * 100
Higher is better
2- Net profit ratio
= Net profit / Net sales * 100
Higher is better
3- Return on capital employed
= PBIT / Avg. Capital employed * 100
PBIT = Profit before interest (after interest of overdraft) & tax
Higher is better
4- Return on equity (ROE)
= PAT - preference dividend / Avg. Equity * 100
Higher is better
5- Return on assets
= PBIT / Avg. Assets * 100
Higher is better
Liquidity / Short term solvency ratios
1- Current ratio
= Current assets / Current Liabilities
“Near 2:1” is normal / standard
2- Liquid ratio / acid test ratio / quick ratio
= current assets - inventory / current liabilities
“Near 1:1” is normal / standard
Working Capital ratio
1- inventory turnover ratio
= cost of sales / Avg. Inventory (times)
Higher is better
2- inventory period
= Avg. Period / cost of sales * 365 (days)
Lower is better
3- debtor turnover period
= Credit sales / Avg. Debtor (times)
Higher is better
4- debtors collection period
= Average debtor / Credit Sales * 365 (days)
Lower is better
5- Credit turnover ratio
= credit purchase / Avg. Creditors (times)
Higher is better
6- Creditors payment period
= Avg. Creditors / Credit purchase * 365 (days)
Lower is better
7- Assets turnover ratio
= Sales / Avg. Assets (times)
Higher is better
8- Working Capital cycle / Cash operating cycle
= Inventory period + debtor collection period - creditors period
Lower is better
