Ratio analysis

Question 1

What is gearing ratio?

Answer 1

(non current liabilities/ capital employed) x100

Question 2

What is ROCE?

Answer 2

(operating profit/ capital employed)x100

Question 3

What is current ratio?

Answer 3

current assets/ current liabilities

Question 4

What does gearing ratio show?

Answer 4

Where the money in a business is coming from

Question 5

What does ROCE show?

Answer 5

Measures the profitability of a business and should be as high as possible.

Question 6

What are the limitations of ratio analysis?

Answer 6

• Balance sheet is a snapshot of one day. If in a dynamic market then figures could change.
• What a business owns and owes could fluctuate.
• Depends on external factors such as a recession.

Question 7

What is acid test ratio?

Answer 7

Current assets- stock/current liabilities.