Financial ratios

Overview of terms related to capital, profitability and liquidity ratios

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Working capital
Current assets - current liabilities; used to pay short-term debts
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Net assets
Fixed assets + working capital; shows the net value of all the assets owned by the business
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Shareholders' funds
The total sum of money invested into the business by the owners of the company
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Capital employed
Shareholders' funds + long-term liabilities; the total long-term and permanent capital of the business used to pay for the net assets of the company
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Profitability
A business's ability to generate earnings as compared to its expenses during a specific period of time
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Liquidity
A business's ability to pay back its short-term debts
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Gross profit margin
Gross profit / sales turnover x 100
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Net profit margin
Net profit / sales turnover x 100
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Return on Capital Employed
Operating profit / capital employed x 100
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Current ratio
Current assets - current liabilities
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Acid test ratio
Current assets - stocks / current liabilities
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Other cards in this set

Card 2

Front

Fixed assets + working capital; shows the net value of all the assets owned by the business

Back

Net assets

Card 3

Front

The total sum of money invested into the business by the owners of the company

Back

Preview of the back of card 3

Card 4

Front

Shareholders' funds + long-term liabilities; the total long-term and permanent capital of the business used to pay for the net assets of the company

Back

Preview of the back of card 4

Card 5

Front

A business's ability to generate earnings as compared to its expenses during a specific period of time

Back

Preview of the back of card 5
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