It gives an indication of liquidity by showing how many times the current liabilities are covered by the current assets. Companies with low inventory will have a low ratio.
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What does the ROCE show?
It measures how much profit is generated for every £1 of assets deployed. It indicates how efficiently the company uses its assets.
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What does the gearing ratio show?
This measures the percentage of debt to the total financing. High gearing means there will be less profit available to distribute to shareholders as the profit will have been reduced by high interest charges.
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Why else is a high gearing bad?
High gearing also means that lenders are less likely to want to lend the company more money.
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What does interest cover measure?
It measures how easily the company can make its interest payments out of its profit.
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What is window dressing?
A company may recover lots of debts just before the year end or ensure that stock is delivered at the start of the new year. This may mean that cash is higher than usual and receiveables lower than usual. If year end figures are used this can skew the rat
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What is non-financial information?
Ratios only consider the financial impacts of a business, they do not consider qualitative aspects, staff morale, the environment , the community.
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Other cards in this set
Card 2
Front
What does the ROCE show?
Back
It measures how much profit is generated for every £1 of assets deployed. It indicates how efficiently the company uses its assets.
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