RATIO

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  • Created by: walkl8
  • Created on: 06-04-14 12:05
GROSS PROFIT MARGIN - gross profit/revenue (x100)
this tells us about the business's ability to control its costs and to maintain a profit, a small increase/decrease in profit margin can affect overall profits
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NET PROFIT MARGIN - net profit(before tax&interest)/revenue (x100)
this measures the bottom line level of profit, after all expenses have been deducted
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ROCE (return on capital employed) net profit(before tax&interest)/capital employed (x100)
this percentage shows the return the business is making on its long term capital, capital employed is worked out by (ordinary share capital+reserves+preference share capital+loan capital)
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GROSS PROFIT MARK UP - gross profit/cost of sales (x100)
this tells us that every £1 of purchases contributes £1 to cover the companys overheads
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NET CURRENT ASSET RATIO - currents assets/current liabilites
A decent figure is between 2:1 to 1.8:1 , high ratios indicate a business has too much cash and have no idea what to invest in
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RATE OF INVENTORY TURNOVER - average inventoryx360days/cost of sales
average inventory = opening inventory+closing inventory/2
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TRADE RECEIVABLES COLLECTION PERIOD - receivablesx365/credit sales
this is the average number of days trade receivables take to pay, 30-60 days is acceptable
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Other cards in this set

Card 2

Front

this measures the bottom line level of profit, after all expenses have been deducted

Back

NET PROFIT MARGIN - net profit(before tax&interest)/revenue (x100)

Card 3

Front

this percentage shows the return the business is making on its long term capital, capital employed is worked out by (ordinary share capital+reserves+preference share capital+loan capital)

Back

Preview of the back of card 3

Card 4

Front

this tells us that every £1 of purchases contributes £1 to cover the companys overheads

Back

Preview of the back of card 4

Card 5

Front

A decent figure is between 2:1 to 1.8:1 , high ratios indicate a business has too much cash and have no idea what to invest in

Back

Preview of the back of card 5
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