Define financial ratio analysis
method to understand financial status
Define financial ratio analysis
method to understand financial status
What are the purposes of doing financia l ratio analysis (CONT. doc vic pls upload slides)
- track and identify expenses
- compare figures
- make the right financial decisions
Give the 5 types of financial ratios
1.) Profitability ratio
2.) liquidity
3.) efficiency
4.) Shareholders
5.) Gearing
Give the formulas for profitability ratio
- Gross profit margin: Gross profit/Sales Revenue
- Net profit margin: Net income / Sales revenue
Define gross profit margin and its purpose
- determine how money is being spent
- production
- bc COSG
Define Net profit margin and its purpose
- determines where money is being spent
- all expenses
Define the purpose for liquidity ratio
- Can the company pay debts when they’re due
Give the formulas for liquidity ratio
- current assets/current liabilities
- acid test: (total current assets - stock)/current liabilities
Why is stock subtracted to total current assets in liquidity ratio
Because stocks might take time to convert into money
What is the purpose of the acid test
- to do a ‘quick ratio”
- when you need money quick
What is the ideal ratio for liquidity ratio
(could be applicable to others? check the logic)
- 1:1
Define the purpose of the efficiency ratio?
- how well the business manages financial resources
Give the formula for efficiency ratio
- stock turnover: Cost of Goods sold / average stock;
Define cash to cash cycle
- trace the flow of cash
- expenses and profits
What is the factor of cash-cash cycle
- speed of business
Give gearing ratio formula
long term liability/capital employed x 100
Guve the shareholder ratio formula (?)
- return on capital employed: Net profit before interest and tax/ capital invested x 100
This is to see how effective a company’s capital investments are
Allows the company to see if their capital management is profitable (which is why they use net profit prior to tax and interest)
Define debtor days
- average no. of days to collect debts from customers/debtors
- aka debt collection period
Give the formula for debtor days
(debtors / totsl sales rev) x 365 days
Define debtors
Those indebted to the firm (owes money)
Possible strategies to improve debtor days ratio
- discounts or incentives to encourage earlier debt collection
- imposition of penalties (might lose long-time loyal customers)
- stop transactions w/ overdue debtors
- legal means such as court action
Define creditor days
- average no of days for a firm to pay its creditors (e.g. suppliers)
Give the creditor days ratio
creditor days ratio (number of days) = creditors/cost of sales x 365
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Unit 1.1, 1.2, 1.358
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Unit 1.4 (the Business Environment Analysis)43
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Unit 1.625
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Unit 2.1 (Human Resource Management)39
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Unit 3.1: Sources of Finance60
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3.2: Costs and Revenues50
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3.4: Statement of financial position (final accounts)69
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Formulae4
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Unit 3.6: ratio analysis31
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Balance Sheet6
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2.1 HR (book)121
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3.7: (Finance) Cash Flow22
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3.8: Investment Appraisal8
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3.9 Budgeting12
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4.1: The role of Marketing49
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4.1 Introduction to marketing11
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4.2 Marketing Planning5
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4.4 Market Research14
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Operations6
