Financial Ratios

What are Financial Ratios?

Calculated values that provide insights into a business's financial health by analyzing relationships between different financial statement items.

What is the Gross Profit Margin?

Formula: Gross Profit Margin (%) = (Gross Profit ÷ Revenue) × 100; Indicates the percentage of revenue that exceeds the cost of goods sold (COGS).

What is the Net Profit Margin?

Formula: Net Profit Margin (%) = (Net Profit ÷ Revenue) × 100; Indicates the percentage of revenue remaining after all expenses, taxes, and interest are deducted.

What is Return on Capital Employed (ROCE)?

Formula: ROCE (%) = (Operating Profit ÷ Capital Employed) × 100; Indicates how efficiently a company uses its capital to generate profit.

What is the Current Ratio?

Formula: Current Ratio = Current Assets ÷ Current Liabilities; Indicates the company's ability to cover short-term debts with its short-term assets, ideal range between 1.5 and 2.

What is the Acid Test Ratio (Quick Ratio)?

Formula: Acid Test Ratio = (Current Assets - Inventory) ÷ Current Liabilities; Indicates the ability to meet short-term liabilities without relying on the sale of inventory, ideal range around 1:1.

What is Inventory Turnover?

Formula: Inventory Turnover = Cost of Goods Sold ÷ Average Inventory; Indicates how many times inventory is sold and replaced over a period.

What is Receivables Turnover (Debtor Days)?

Formula: Receivables Turnover (days) = (Trade Receivables ÷ Revenue) × 365; Indicates the average number of days it takes for a company to collect payment after a sale.

What is Payables Turnover (Creditor Days)?

Formula: Payables Turnover (days) = (Trade Payables ÷ Cost of Sales) × 365; Indicates the average number of days a company takes to pay its suppliers.

What is the Gearing Ratio?

Formula: Gearing (%) = (Non-current Liabilities ÷ Capital Employed) × 100; Indicates the proportion of a company’s capital financed through debt, with high gearing being more risky.

What is the Dividend Yield?

Formula: Dividend Yield (%) = (Dividend per Share ÷ Market Price per Share) × 100; Indicates the return on investment for shareholders from dividends.

What is the Earnings Per Share (EPS)?

Formula: EPS = Net Profit ÷ Number of Ordinary Shares; Indicates the portion of a company’s profit allocated to each outstanding share of stock.

What is the Price-to-Earnings (P/E) Ratio?

Formula: P/E Ratio = Market Price per Share ÷ Earnings per Share; Indicates how much investors are willing to pay for each dollar of earnings.

What is the Dividend Cover Ratio?

Formula: Dividend Cover = Profit for the Year ÷ Annual Dividend; Indicates the number of times a company can pay its dividend out of net income.