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Gross profit margin
calculated by dividing the gross profit by the sales revenue, expressed as a percentage
Profit margin
Calculated by dividing the net profit before interest and tax by the sales revenue, expressed as a percentage
Profitability ratios
Assess the performance of a firm in terms of its profit-generating ability
Return on capital employed
Assesses the returns a firm is making from its capital employed
ROCE
profit before interest and tax / capital employed x 100
Capital employed
Non-current liabilities + equity
Liquidity ratios
Measure the ability of a firm to pay off its short-term debt obligations
Current ratio
A ratio that compares a firm's current assets to its current liabilities (by dividing)
Acid test ratio
(Current assets-stock)/current liabilities
Acid test (quick) ratio
Indicator of how well a firm is able to meet its short-term obligations
Cash flow
Money that flows in and out of a business over a given period of time
Cash inflows vs outflows
Money received by a business over a period of time vs money paid
Profit
The positive difference between sales revenue and total costs
Net cash flow
cash inflow - cash outflow
Cash flow forecast
The future predictions of a firm's cash inflows and outflows over a given period of time
Opening cash balance
The cash that a business starts with every month
Total cash inflows/outflows
A summation of all cash inflows/outflows during a particular month
Closing cash balance
The estimated cash available at the end of the month
Investment
The act of spending money on purchasing an asset with the expectation of future earnings
Investment appraisal
The quantitative techniques used in evaluating the viability or attractiveness of an investment proposal
Payback period
The length of time required for an investment project to pay back its initial cost outlay
Payback period formula
initial investment cost / annual cash flow from investment
Average rate of return
Measures the annual net return on an investment as a percentage of its capital cost
ARR formula
((total returns - capital cost) / years of usage) / capital cost) x 100
Ratio analysis
Financial analysis tool used in the interpretation and assessment of a firm’s financial statements. It determines certain trends and exposes various strengths and weaknesses
Liquidity
A measure of how quickly an asset can be converted into cash
Cash
A money that a business obtains through either the sale of its goods or services, borrowing from financial institutions, or investment by shareholders
Loss
The negative difference between sales revenue and total costs
Cash flow statement
It summarizes the amount of cash and cash equivalents entering and leaving a company
Working capital
The capital of a business which is used in its day-to-day trading operations, calculated as the current assets minus the current liabilities
Debt factoring
When a business sells its accounts receivables to a third party at a discount, enabling companies to immediately unlock cash tied up in unpaid invoices without having to wait the usual payment terms
Sale-and-leaseback
Assets can be sold to generate cash and these assets can then be hired back by the business for use in production
Hire purchase
A system by which one pays for a thing in regular instalments while having the use of it
Principal
the baseline sum in financial transactions—the initial amount invested or borrowed
Capital costs
 fixed, one-time expenses incurred on the purchase of land, buildings, construction, and equipment used in the production of goods or in the rendering of services
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