Financial Ratio Analysis - Profitability and Balance Sheets

Flashcards covering profitability ratios, balance sheet components, and Return on Capital Employed (ROCE) based on the lecture notes.

What are the three main profitability ratios mentioned in the lecture?

Gross profit margin, operating profit margin, and profit for the year margin.

How is Gross Profit Margin (GPM) calculated?

Gross profit / revenue x 100

How is Profit for the Year Margin calculated?

Profit for the year / revenue x 100

How is Return on Investment (ROI) calculated?

Operating profit / capital invested x 100

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

Operating profit / capital employed x 100

What does Return on Capital Employed (ROCE) measure?

How efficiently a business is using capital employed to generate profits.

What is included in 'capital employed'?

Share capital, reserves, and long-term loans.

What are 'non-current assets'?

Assets that a business expects to hold for more than one year, such as vehicles and machinery.

What are 'current assets'?

Assets that a business expects to convert to cash or use within one year, such as inventories, receivables, and cash.

What are 'non-current liabilities'?

Debts or obligations due in more than one year, such as bank loans and mortgages.

What are 'current liabilities'?

Debts or obligations due within one year, such as overdrafts and payables.