RATIOS

Question 1

EFFICIENCY RATIOS

Total Asset Turnover?

Answer 1

Revenue / Total Assets x 100

Question 2

EFFICIENCY RATIOS

Non-current Asset Turnover

Answer 2

Revenue / Non-current Assets x 100

Question 3

EFFICIENCY RATIOS

Inventories Turnover

Answer 3

Cost of goods sold / Inventory x 100

Question 4

EFFICIENCY RATIOS

inventory holding period (days)

Answer 4

Inventory x 365 / cost of goods sold x 100

Question 5

EFFICIENCY RATIOS

Rate of collection of Trade receivables (days)

Answer 5

Trade receivables x 365 / credit sales (or revenue) x 100

Question 6

EFFICIENCY RATIONS

Rate of payment of Trade Payables (days)

Answer 6

Trade payables x 365 / credit purchases (or cost of goods sold) x 100

Question 7

EFFICIENCY RATIOS

working Capital cycle (days)

Answer 7

Inventory holding period (storage) + trade receivables collection period - trade payables payment period

Question 8

EFFICIENCY RATIOS

Asset Turnover (times)

Answer 8

Revenue / Capital employed

Question 9

LIQUIDITY RATIOS

current ratio (x:1)

Answer 9

current assets / current liabilities

Question 10

LIQUIDITY RATIOS

Quick ratio x:1) (acid test ratio)

Answer 10

Current assets - inventories / current liabilites

Question 11

FINANCIAL GEARING

Equity Gearing (%)

Answer 11

Borrowings (debt) + preference share capital / equity x 100

Question 12

FINANCIAL GEARING

Total or capital Gearing (%)

Answer 12

Borrowings (debt) + preference share capital / capital employed x 100

Capital employed = equity +debt + preference share capital

Question 13

FINANCIAL GEARING

Interest Gearing (%)

Answer 13

Debt interest + preference share dividends / operating profit + investment income x 100

Question 14

FINANCIAL GEARING

interest cover (times)

Answer 14

operating profit + investment income / debt interest + preference share dividends

Question 15

INVESTMENT VALUATION

Dividend payout ratio (DPR%)INVESTMENT VALUATION

Answer 15

Equity share dividends paid in the year / profit for the year x 100

Question 16

INVESTMENT VALUATION

Dividend yield (%)

Answer 16

Equity share dividends per share / market price of an equity share x 100

Question 17

INVESTMENT VALUATION

Earnings per share (EPS)

Answer 17

Profit attributable to equity shareholders for the year / Weighted average number of outstanding equity shares during the year + diluted equity shares

Question 18

INVESTMENT VALUATION

P/E Ratio (times)

Answer 18

Market price of an equity share / Earnings per share (EPS)

Question 19

What do profitability ratios measure?

Answer 19

The capability of the company to generate profit compared to revenue, epenses, assets and shareholders equity.

Question 20

What do Efficiency ratios measure?

Answer 20

Measure how efficiently a company uses its assets to generate revenue and manages its liabilites

Question 21

What are liquidity ratios used for?

Answer 21

Used to control and monitor investment in working capital and montor long term solvency

Question 22

What do Gearing or Debt ratios measure?

Answer 22

the proportion of debt a company has relative to its equity. Measure of financial leverage.

SHows extent operations are funded by interst bearing lenders versus shareholders.

More debt than equity means highly geared

Question 23

what do investment or market value ratios measure?

Answer 23

compare relevant data that will estimate teh attractions of a potential or existing investment. Look at how ratios compare from one company to another.

Question 24

What are the profitability ratios?

Answer 24

ROCE (Return on capital employed
ROA (Return on total assets)
ROE (Return on shareholders equity)
Operating profit margin
Gross profit margin
Net profit margin

Question 25

What are the Efficiency ratios?

Answer 25

``` Asset turnover (times) Total asset turnover (times) Non currnst asset turnover (times) Invetories torunover (times) Inventory holding period (days) Rate of collection of trade receivables (days) Rate fo payment of trade payables (days) Working capital cycle (days) ```

Question 26

What are the liquidity ratios?

Answer 26

``` Current ratio Quick ratio (acid test) ```

Question 27

What are the Gearing ratios?

Answer 27

Equity gearing Total or capital gearing Interest gearing Interat cover (Times)

Question 28

What are the Investment Valuation ratios?

Answer 28

``` Divident payout ratio (DPR) Divident cover (times) Dividend yield Earning per share (EPS) Diluted EPS P/E (times) ```

Question 29

What does Gross Margin refer to?

Answer 29

Gross margin refers to the margin that company charges above cost of goods sold. It indicates how much the company is earning, considering the required costs to produce its goods and services. Gross Profit / Revenue x 100

Question 30

What is the operating profit margin?

Answer 30

The percentage of revenue remaining after accounting for operating expenses. Companies with higehr oeperating profit margins can pay for costs and interest. operating profit (PBIT) / revenue x 100

Question 31

What are the underlying drivers behind the Gross profit margin ratio?

Answer 31

selling prices, product mix, purchase costs, production costs inventory valuations.

Question 32

what would a downward trend in the inventory days ratuio mean?

Answer 32

This means that inventory levels are being kept under control in relation to the level of sales. Must be careful not to let it fall too low as may result in inventory shortages when demand fluctuates. Need a comparale company in the sector to compare with as different industry to industry. The days in inventory should be as low as possible without causing shortages. Money tied up in inventory earns very little

Question 33

What should you look for in the current ratio result?

Answer 33

The current ratio reflects a company's ability to generate enough cash to pay off all its debts once they become due. It's used globally as a way to measure the overall financial health of a company. It is the ability of a complay to turn its assets into cash when they need t A current ratio of less than 1 could indicate liquidity problems. There isa general target current ratio of 2:1 It depends on the industry and nature of the company. The quick ratio excludes inventory whcin cant easily be turned into cash.

Question 34

How do you calculate PBIT (Profit before interest and tax?)

Answer 34

Revenue − Cost Of Goods Sold − Operating Expenses

Question 35

What does the interest cover gearing ratio show?

Answer 35

it indicates how many times greater profit before interst and tax is than annual interest payments. the higher this is the less risk is involved. When using ratios to analyse a company it can be useful to refer to the acutal nubers in teh financail statements to see where increases may lie.

Question 36

What does the Gross Profit Margin indicate?

Answer 36

Gross profit refers to the margin that the comapny charges above teh cost of goods sold. It indicates how much the company is earning, considering the required costs to produce its goods and services Underlying drivers are sellign price product miz, purchase costs production costs and inventory valuations. Information in the market place may give context to results