AAT Level 4 Drafting And Interpreting Financial Statements FORMULAS

Gross profit margin

(Gross profit / revenue) X 100

Expense revenue %

(specified expense/revenue) X 100

Operating profit margin

(operating profit/revenue) X 100

Capital employed

Total equity + non-current liabilities

Return on capital employed

(operating profit/capital employed) X 100

Return on shareholders funds

(profit after tax/total equity) X 100

Total equity

Ordinary share capital + reserves (and revenue)

Current ratio (working capital ratio)

Current assets/ current liabilities = X:1

Acid test ratio (a.k.a. quick ratio, liquid capital ratio)

( (current assets - inventories)/ liabilities = X:1

Working Capital

Current assets minus current liabilities

Inventory holding period (days)

(Inventories/cost of sales) x 365 days

Inventory turnover

cost of sales/inventories = x times

Trade receivables collection period (days)

(trade receivables/revenue) x 365 days

Trade payable payment period (days)

(Trade payable/cost of sales) x 365 days

Working capital cycle (days)

Inventory holding period + trade, receivables collection period - trade payable payment period

Asset turnover (non-current assets)

Revenue/ non-current assets = X times

Asset turnover (net assets)

Revenue/ total assets - current liabilities

Interest cover

Operating profit/ finance costs (e.g. interest) = X times

Gearing

Total debt/ total debt + total equity

What does it mean if the gearing percentage is high?

The less secure the financing of the company will be, and therefore the future of the company