finance ratios

Question 1

liquidity ratios

Answer 1

current ratio, acid test ratio

Question 2

current ratio =

Answer 2

current assets / current liabilities

Question 3

acid test ratio =

Answer 3

(current assets - stock) / current liabilities

Question 4

profitability ratios

Answer 4

gross profit margin, net profit margin, return on capital employed, return on equity

Question 5

gross profit margin =

Answer 5

gross profit / sales revenue x 100

Question 6

net profit margin =

Answer 6

net profit / sales revenue x 100

Question 7

return in capital employed =

Answer 7

operating profit / (total equity + non current liabilities) x 100

Question 8

return on equity =

Answer 8

operating profit / total equity x 100

Question 9

trade receivables (debtors)

Answer 9

money owed to the business

Question 10

trade payables (creditors)

Answer 10

money owed by the business

Question 11

receivable days

Answer 11

the average length of time taken by customers to pay amounts owed

Question 12

payables days

Answer 12

the average length of time taken by a business to pay the amount it owes

Question 13

gearing =

Answer 13

non current liabilities / (total equity + non current liabilities) x 100

Question 14

interest cover =

Answer 14

operating profit / interest payable

Question 15

receivables (debtor days) =

Answer 15

trade receivables (debtors) / sales revenue x 365

Question 16

payable (creditor days) =

Answer 16

trade payables(creditors) / cost of sales x 365

Question 17

asset turnover =

Answer 17

sales revenue / net assets

Question 18

trade receivable are…

Answer 18

your current assets

Question 19

stock turnover =

Answer 19

cost of sales / stock (inventories)

Question 20

dividend per share =

Answer 20

total dividends paid / number of shares in issue

Question 21

dividend yield =

Answer 21

dividend per share / share price

Question 22

dividend cover =

Answer 22

profit after tax / dividends

Question 23

earnings per share =

Answer 23

profit after tax / number of shares issued

Question 24

price earnings ratio =

Answer 24

share price / eps

Question 25

what are current liabilities?

Answer 25

short term debts that are due to be paid off in a year e.g short term loans, overdraft

Question 26

what are non current liabilities?

Answer 26

long term debts that will take over a year to pay back e.g long term loan

Question 27

evaluating receivable days

Answer 27

Evaluating receivable days - Shows average time customers take to pay - Each industry will have a norm - Look out for significant change Look out for - Comparisons v competitors - Balance sheet window dressing

Question 28

evaluating payable days

Answer 28

Evaluate payable days - A higher figure is better for cash flow - Ideally, payable days is higher than receivable days - A high figure may suggest liquidity problems Look out - Evidence from the current ratio or acid test ratio that business has problems paying creditors - Window dressing