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Ratio Analysis

Acid Test
Measures the firm's ability to pay of their short term debts.

Total Current Assets ­ Stock
Current Liabilities

How to Improve it
Increase the amount of assets held in liquid form by cutting stock levels of selling
underused fixed assets
Lower the level of current…

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Stock turnover = Cost of sales

How to Improve it
Reduce stock levels, perhaps invest in more efficient stock control techniques.
A switch to JIT would increase a firms stock turnover but cannot be done overnight

Factors that will make it Worse
Buying items that are no longer wanted…

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Return on Capital Employed
The return on money that was invested into the business.

Return on Capital Employed = Operating Profit X 100
Capital Employed

Factors that will Improve it
Increased profit levels using the same capital employed
Generate the same level of profit while paying off loans or returning…


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