3.7.2 formulas

What is the inventory turnover formula?

cost of sales / average inventories held

What is the formula for receivable days?

(receivables / revenue) x 365

What is the formula for payables days?

(payables / cost of sales) x 365

What is the gearing ratio formula?

(non current liabilities / capital employed (total equity + non-current liabilities)) x 100

How many years worth of ratios are needed for a comparison?

2

What happens if the current / working capital ratio is above 2:1?

money in the business is not being used effectively 

What happens if the current / working capital ratio is below 1.5:1?

the business might not be able to cover all their bills due to over borrowing or over trading which could cause cash flow problems

What is the ideal current / working capital ratio?

above 1.5:1 and below 2:1

What is the formula for current / working capital ratio ?

current assets / current liabilities

What is ROCE expressed as?

a percentage

What is the formula for ROCE

(operating profit / capital employed (total equity + non-current liabilities)) x 100

What are net assets?

total assets - total liabilities