Ratios Flashcards
(23 cards)
Profit - What ratio tells us
The ability to earn profits
debt to equity
How much our business is externally funded
Debt to equity - how to analyse ratio
- As low as possible
- 100%+ = highly geared
- -100% = lowly geared
Debt to equity - possible actions
- Repay loans
- Increase equity
- reduce drawings
Quick asset - what the ratio tells us
Ability to pay debts within the next 3 months
Quick asset - how to analyse ratio
Between 100%-150% is good
Quick asset - possible actions
- Get finance from long term loan
- sell unimportant assets
- sell inventory for cash
Current/working capital - what ratio tells us
Ability to pay debts in the next 12 months
Current/working capital- how to analyse ratio
Between 100-200%
Current/working capital- possible actions
- get a long term loan
- review debtors
What is liquidity
The ability to pay debts
What is financial stability
How outlet sets have been financed internally/externally
What is profitability?
The ability to earn profits
Rate of returns on assets - possible actions
- increase efficiency in assets
- gross profit could be too low
Profit - How to analyse Ratio
- higher the better
- has to be positive
Profit - Possible actions
- reduce expenses
- increase gross profit ratio
Gross Profit - What ratio tells us
- Whether mark-up is sufficient
Gross Profit - How to analyse ratio
- higher the better
- should be positive
Gross Profit - Possible Actions
- Increase prices
- Cheaper suppliers
Expenses - What ratio tells us
How much expenses are compared to the dollar sale
Expenses - How to Analyse Ratio
- lower the better
Expenses - Possible Actions
- reduce operating expenses
Rate on Return of Asset - What ratio tells us
how much profit our assets are generating
