Financial Ratios (W10)

What is the gross profit ratio?

Gross Profit/ Revenue

What are the reasons for the changes in gross profit %?

• Selling prices rising faster/slower than direct costs of goods sold

• A changing sales mix from higher to lower margin goods or vice versa

• Rising/falling prices of materials/goods brought in

• Increased/decreased productivity of the workforce

• Supplier bulk discounts reducing input costs

What is the operating profit ratio?

Operating profit (profit before interest and tax) / sales

What is the profit before tax ratio?

Profit before tax/ sales

What is the profit after tax ratio?

Profit after tax/ sales

What is the return on capital employed (ROCE) ratio?

Operating profit/ Capital employed (equity + long term borrowings)

What is capital employed?

Equity + long term borrowings

What is the return on equity ratio?

Profit after interest and tax/ equity

What is the asset turnover ratio?

Sales/ capital employed (equity + long term borrowings)

What is the net asset turnover ratio?

Sales/ net asset (equity)

What is the non current asset turnover ratio?

Sales/ non current assets

What is the earnings per share ratio?

( Profit after tax - preference dividend) / number of ordinary shares issued

What is the P/E ratio?

Current market price per share/ EPS

• Higher P/E= higher confidence

• Lower P/E = lower confidence

What is the dividends per share ratio?

Ordinary dividend/ number of ordinary shares issued

What is the dividend cover ratio?

( Profit after tax - preference dividends) / ordinary dividend

What is the dividend yield ratio?

DPS/ current market price per share

what are the 2 short term liqudity ratios?

• Current ratio

• Quick ratio

What is the current ratio?

Current assets/ current liabilities

What is the quick ratio?

( Current assets - inventory- receivables)/ current liabilities

What are the 3 working capital ratios?

• Inventory days

• Receivable days

• Payables days

What is the inventory days?

(Inventory/COS) x 365

What is the receivables days?

(Receivables/sales) x 365

What is the payables days?

( Account payable/ COS) x 365

What is the cash conversion cycle ?

Inventory days + receivable days - payable days

What is the gearing ratio?

Long and short term borrowing/ equity

What is the debt ratio?

Total liabilities/ Total assets

What is the debt to equity ratio?

Long term borrowing/ equity

What is the interest cover ratio?

Profit before tax and interest expense/ interest expense