strengths & weaknesses finical ratio analysis 3.7.2

Balance sheet

Fincial statment that shows assists,liabilities and equity

Assets = liabilities + equity

Total equity

represents the amount of money that would be returned to a company's shareholders if all of the assets were liquidated and all of the company's debt was paid off in the case of liquidation.

Current assets

expected to be converted into cash or used up in a year

-cash

-inventory

-trade receivables

Current liabilities

These need to be paid within one year, for example paying a supplier for stock

Non-current assets

These are items used in the business for normal trading for example a van, a coffee machine in a cafe

Not expected to be converted into cash or used up in a year

Non-current liabilities

These debts need to be paid in a period longer than a year, for example a loan or a mortgage on premises

Net assets

Calculated by Total Assets minus Total Liabilities

Total equity

Assets - liabilities

ROCE

is a financial ratio that is used to measure the profitability of a company and the efficiency with which it uses its capital.

ROCE ratio formula

operating profit/total equity + non current liabilities x100

Current Ratio

-The current ratio is used by finance professionals to understand a company’s financial health at any given moment.

-This ratio works by comparing a company’s current assets to current liabilities

Current Ratio formula

current ratio forumla = current assets/current liabilities

Gearing ratio explained

Focus on the capital structure of the business

Proportion of finance that is provided by debt relative to the finance provided by equity

Gearing ratio formula

Non current liabilities/ total equity + non current liabilities X 100

Payable days formula

Payables /cost of sales x 365

Payable days

Average number of days it takes for a business to pay its vendors over a certain amount of time

Receivables days

Amount that customers owe a business for the goods or servivces provided

Inventory turnover

Measures ho efficacy a company uses its inventory by diving the cost of goods sold by the average inventory value

Inventory turover formula

Cost of sales / average inventories held