Ratios Flashcards
(15 cards)
What 3 things do we use ratios to compare against?
Competitors, targets, last year
State formulae for GP Margin AND Gross Profit Mark-up.
GP/Rev x 100; GP/CoS x 100
State formulae for Profit in Relation to Rev AND Overheads in Relation to Rev
Profit from Op/Rev x 100; Overheads/Rev x 100
State formulae for ROCE
Profit from Op/(Equity + NCL) x 100
What should you compare the ROCE against?
bank and building society interest rates
State both formulae for Rate of Inventory Turnover. In what format are the answers presented?
Av Inventory/CoS x 365; Days
CoS/Av. Inventory. Times
How do you improve the rate of Inventory Turnover?
Increase sales… lower price, advertising, better quality
State formulae for TR Days AND TP Days
TR/Cr Sales x 365; TP/Cr Purchases x 365
State formulae for Current Ratio and Liquid Capital Ratio. In what format is the answer presented?
CA/CL; CA-Inventory / CL As a ratio e.g. 3:1
What is the forumla for the Gearing Ratio?
NCL / (NCL +Equity)
In what TWO situations would you describe a business as having HIGH gearing?
In what TWO situations would you describe a business as having HIGH gearing?
In what TWO situations would you describe a business as having LOW gearing?
under 50% OR under industry average
What are the benefits of having low gearing?
low borrowing = low debt = low risk = low interest
What are the benefits of having high gearing?
better return for investors as fewer to share dividend around
List the reasons for the difference between Cash and Profit.
Capital expenditure, Accruals concept, Non-cash transactions, Drawings, Loans, Shares
