Financial Ratios and Cash Flow Statements

Flashcards covering profitability ratios, gearing ratios, investor ratios, and cash flow statements based on lecture notes.

What is the formula for Return on Capital Employed (ROCE)?

Operating Profit / Capital Employed * 100; Capital Employed = Total Assets - Total Liabilities

What does ROCE measure?

Measures a business's performance and expresses the relationship between operating profit and long-term capital invested.

What is the formula for Gross Profit Margin?

Gross Profit / Sales * 100%

What does Gross Profit Margin measure?

Measures profitability in buying and selling goods before operating expenses.

What is the formula for the Operating Profit Margin?

Operating Profit / Sales * 100

What does comparing GPM and OPM show?

Shows that expenses can be high; a higher margin is better, but less than 5% means the company is in a highly competitive sector.

What is Gearing?

Ratio of external (debt) to internal (equity) long-term finance; a measure of risk.

What is the formula for Gearing Ratio?

Long-Term Debt / Total Capital Employed

What is the formula for the Debt Ratio?

Total Debts / Total Assets * 100

What does a Debt Ratio greater than 100% mean?

A debt ratio greater than 100% means a company has more debts than assets.

What is the formula for Interest Cover?

PBIT / Interest

What does Interest Cover indicate?

Indicates how well the interest bill can be afforded; high levels suggest lenders' repayments are safe.

What is the formula for Earnings Per Share (EPS)?

Shareholders' Profit (PAT) / Number of Shares in Issue

What does dividend cover measure?

How good and reliable is the dividend cover?

What is the statement of cash flow?

Statement showing cash flow from operating, investing, and financial activities.

What items are included in calculating Net Cash Flow from Operating Activities?

Operating Profit , Depreciation, Inventory, Trade Receivables , Trade Payables , Interest Paid , Tax Paid , Dividends Paid than overall cash fl\ow from operating activities

What items are included in calculating Net Cash Flow from Investing activities?

Purchase of Fixed Assets and net cash flow from investing actvities

What items are included in calculating Net Cash Flow from Financing Activities?

Issues of Ordinary Shares - Repayment of Debentures and net cash flow financing activities

What are the 3 different areas included in the statement of cash flow

Cash flow from operating activities, cash from investing activities and cash from financial activities

What is the saying to remember what is in net cash flow from operating activities ?

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