Test 1 Flashcards
Formula memorisation (18 cards)
What is perpetual inventory?
Cost of sales at any time
Perpetual inventory provides real-time updates on stock levels and cost of sales.
What is periodic inventory?
Cost of sales over a period of time
Periodic inventory assesses stock levels and cost of sales at specific intervals.
What is the solvency ratio formula?
Total assets / total liabilities
This ratio measures a company’s ability to meet its long-term debts.
How is gross profit percentage calculated?
Gross profit / Total sales x 100
This percentage indicates the efficiency of production and pricing.
How is net profit percentage calculated?
Net profit / Total sales x 100
This percentage reflects the overall profitability of a company.
What is the return on average owners equity?
Net Profit / Average owners equity x 100
This ratio shows how effectively equity is being used to generate profit.
What is the current ratio?
Current assets / current liabilities :1
This ratio assesses a company’s short-term liquidity.
What is the acid test ratio / quick ratio?
(Current assets - Inventory) / current liabilities
This ratio measures a company’s immediate liquidity without relying on inventory sales.
How is the average debtors collection period calculated?
Average trade debtors / Credit sales x 365
This period indicates how long it takes to collect payments from customers.
How is the average creditors settlement period calculated?
Average trade creditors / Credit purchases
This period reflects how long a company takes to pay its suppliers.
How is average inventory turnover calculated?
Cost of sales / Average inventory
This ratio shows how efficiently inventory is managed.
What is the debt to equity ratio?
Non current liabilities / Total equities
This ratio assesses the relative proportion of shareholders’ equity and debt used to finance a company’s assets.
What is the total gearing ratio?
Non current liabilities / capital employed
This ratio indicates the level of financial risk a company is taking.
How is earnings per share (EPS) calculated?
Net profit / Number of ordinary shares issued
EPS is a common indicator of a company’s profitability on a per-share basis.
What is the price/earnings (P/E) ratio?
Market price per ordinary share in issue / Earnings per share
This ratio evaluates the market’s expectations of a company’s future financial performance.
How is dividend yield calculated?
Annual ordinary dividend per share / Current share price x 100
This yield indicates the return on investment from dividends relative to the share price.
What is the dividend payout ratio?
Dividend per share / Earnings Per Share
This ratio shows the proportion of earnings paid out as dividends to shareholders.
What is the price to book value?
Market price per share / Book Value per share
This ratio compares a company’s market value to its book value, indicating market perception.
