Ratio analysis 0.0 / 5 ? Business StudiesFinancial PlanningA2/A-levelCCEA Created by: Football03Created on: 29-03-22 09:49 What are the 3 types of ratios? -Profitabilities -Liquidity -Shareholders 1 of 16 What 3 ratios concern profitabilities? -ROCE/Gross/Net Profit 2 of 16 What 2 ratios concern liquidity? -Gearing/Current ratio 3 of 16 What 2 ratios concern shareholders? -EPS/ROE 4 of 16 What are 3 advantages of ratio analysis? -Identify areas of potential strength/weaknesses -Used to identify and explain trends (year-to-year comparisons) -Enables financial comparisons (same size business) 5 of 16 What are 3 disadvantages of ratio analysis? -Data provided may be unreliable (manipulated by manager) -Accounts show historic view (may not be relevant) -Has to be compared to similar business (no 2 businesses face identical circumstances )| 6 of 16 What are 2 AJIM possibilities? -Use alongside decision trees/investment appraisal 7 of 16 How would a business improve their profitability ? 3 ways -Increase selling price (demand could drop) -Increase sales (advertise through social media) -Reduce expenses (cheaper supplier=quality would suffer) 8 of 16 How would a business improve their liquidity ? 3 ways -Sell unused non-current assets=increase cash -Use factoring services -Reduce closing inventories (use JIT/Lean production/have sales=less waste) 9 of 16 What is ROCE equation? ROCE=Net profit/Total assets-Current Liabilities x 100 10 of 16 What is the equation for GP? GP=Gross profit/Revenue x 100 11 of 16 What is the equation for net profit margin? NP=Net profit/Revenue x 100 12 of 16 What is the equation for current ratio ? Current Ratio=Current assets/Current liabilities 13 of 16 What is the equation for gearing margin? Gearing=long term loans(non-current liabilities)/Capital employed x 100 14 of 16 What is the equation for EPS? EPS=Profit after tax/number of ordinary shares 15 of 16 What is the equation for Return on equity(ROE)? ROE=Profit after tax/equity x 100 16 of 16
Comments
No comments have yet been made