Business Ratios and Analysis

Flashcards for key vocabulary related to business ratios and financial statement analysis.

Trade payables

Short term expenses incurred by businesses; how much we owe our suppliers.

Trade receivables

How much our customers owe the business.

Gross profit

Revenue - Cost of sales

Net profit/loss

Gross profit + Income - Expenses

Cost of sales

Opening inventory + Purchases - Closing inventory

Total revenue

Selling price x Quantity sold

Uses of statements of profit or loss

To measure and compare the performance of a business over time; actual profit data can be compared with budgeted profit levels.

Working capital

Current assets - Current liabilities

Reserves

Shareholders' equity - share capital.

Net realisable value

The amount for which existing inventory can be sold - cost of selling it.

Annual depreciation

(Original cost of assets - Expected residual value) / Expected useful life of assets (years)

Current ratio

Current assets / Current liabilities

Acid test ratio

Liquid assets ( Current assets - Inventories ) / Current liabilities

Gross profit margin ratio

(Gross profit / Revenue) x 100

Operating profit margin

(Operating profit / Revenue) x 100

Return on capital employed ratio

(Operating profit / Capital employed) x 100

Capital employed

Non Current Liabilities + Shareholders equity

Rate of inventory turnover

Cost of sales / Average inventory

Trade receivables turnover

(Trade receivables / Credit sales) x 365

Trade payables turnover

(Trade payables / Credit purchases) x 365

Gearing ratio

(Non current liabilities / Capital employed) x 100

Dividend yield ratio

(Dividend per share / Market share price) x 100

Dividend per share

Total annual dividend / Total no of issued shares

Dividend cover ratio

Profit for the year / Annual dividends

P/E ratio

Market share price / Earnings per share

Earnings per share

Profit for the year / No of shares issued

Additional months to payback

Additional net cash flow needed / annual Cashflow in year 3 * 12

ARR

Avg annual profit / avg investment * 100