Accounting Ratios - AQA BUSS3

BUSS3 - Accounting Ratios. A clear and concise guide for anyone sitting or retaking any A2 Business modules.

This pack includes information on:

Profitability Ratios: Measure the relationship between gross/net prfit and revenue, assets
and capital employed. Includes Gross Profit Margin and RoCE.

Activity Ratios: Used to see how efficiently a business is using its resources. Includes Stock
turnover, Debtor/Creditor days and Asset turnover.

Liquidity Ratios: Investigate the short-term financial stability of a firm. Includes Current
ratio and Acid test ratio.

Gearing: Examines the extent to which a business is dependent upon borrowed money. 

Shareholder Ratios: Analyses the return for shareholders. Includes DPS, EPS and Dividend
Yield.

This pack has helpful information such as:

  • Example Questions
  • Example Calculations
  • Revision Links

Made by David. Feedback Welcome.

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  • Created on: 17-04-11 18:07
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Page 1

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Accoun ting Ra tios
Pages 6 2 - 7 6
Ratio Analysis: An examination of accounting data by relating one figure to another. This
gives a meaningful interpretation of the data and the identification of trends.

NOTE: All of these ratios apart from EPS, Gross Profit Margin and Net Profit…

Page 2

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Financial Efficiency Ratios
Stock Turnover: Measures the number of times per year a business sells and replaces its
stock. This cannot be used for businesses in the service sector as they do not buy/sell stocks.
Cost of Goods Sold
Average Stock Value
Example: The Carphone Warehouse has sold £830,126 worth…

Page 3

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Financial Efficiency Ratios Cont...
Asset Turnover: Measures how many pounds worth of sales a company can generate from
its net assets. Net assets are (non-current assets + net current assets ­ non-current liabilities).
Annual Income
Assets Employed
Example: Burberry has an annual sales revenue of £742.90m with assets employed of…

Page 4

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Gearing
Measures the firm's level of debt, giving insight into a firms long-term financial stability. It
shows how reliant a firm is on borrowed money.
Long-Term Loans
X 100
Capital Employed
Example: Tesco have non-current liabilities (long-term loans) of £7,999m and a capital
employed of £19,901m. This gives a Gearing…

Page 5

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Shareholder Ratios Cont...
Dividend Yield: Directly relates the amount of dividend to the market value of the shares.
Ordinary Share Dividend
X 100
Market Price (in pence)
Again, the higher result, the better for the shareholders. Useful to compare against the
results of competitors.

To Improve: Many factors can effect…

Page 6

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Ratio Calculation Result
Gross Profit Margin (158/295)*100 53.50%
Net profit Margin (16/295)*100 5.40%
RoCE 16/(500+280) 2.1% (This is dreadful!)
Stock Turnover 137/64 2.14
Stock Turnover (in days) 365/(137/64) 171 days
Gearing (280/(500+280) 35.90%
Current Ratio 140/160 0.88
Acid Test (140-64)/160 0.48

Note: Capital Employed is total equity + non-current liabilities…

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