Tutorial 5 - Financial Ratio Flashcards
What are ‘Current Assets’?
Assets that can be liquidated quickly, such as cash, bank deposits etc.
What are ‘Fixed Assets’?
Assets that can not be liquidated quickly, such as patents, land, buildings etc.
What are ‘total net assets’?
Total net assets = Fixed assets + Current assets
What are ‘Current liabilities’?
Short-term loans such as trade credit.
What are ‘Long-term liabilities’?
Long-term loans such as mortgages, bonds etc.
What is ‘Gross profit’ equal to?
Total revenue - Cost of goods sold (COGS)
What is operating profit margin equal to?
Operating profit margin = operating profit / sales
What does operating profit margin represent?
Where should this figure sit in relation to benchmarks?
It is a test of an organisations efficiency and profitability.
An organisations figure should be above the sector’s benchmark figure.
What does ROCE stand for?
ROCE stands for ‘return on capital employed’.
What does ROCE represent?
Where should this figure sit in relation to the sector’s benchmark?
It represents a test of the organisations efficiency, indicating their ability to generate returns on the capital it controls.
Ideally it should be above the Sector’s benchmark figure.
What is the formula for ‘ROCE’?
ROCE = Operating profit / Total net assets
What is the formula for ‘Current ratio’?
Current ratio = Current assets / Current liabilities
What does ‘Current ratio’ represent?
Where should this figure sit for a healthy ratio?
It is a test of an organisations liquidity, it indicates the ability of an organisation to meet its short term liabilities with its current assets.
It should sit at around 1.5.
What is the formula for ‘Quick test’?
Quick test = Quick assets / Current liabilities
What does ‘Quick test’ represent?
Represents an organisations liquidity again, by indicating the ability of an organisation to meet its short-term liabilities with its day-to-day liquid assets, such as cash.
