3.7.2 formulas
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12 Terms
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
