Unit 3 Equations

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  • Created by: georgia
  • Created on: 21-05-13 11:45
current ratio= current assets/ current liabilities
Looks at whether the business has enough short term assets to be able to pay its short term debts if demanded. The higher the ratio, the more liquid a business
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acid test ratio = (current assets- inventories)/ current liabilities
Same as current ratio but takes into account that it may be hard to turn its inventories quickly into cash. The higher the ratio, the more liquid the business.
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liquidity ratio
measure of a firms ability to meet a day to day expenditure
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profitability ratio
Analysis of a firm's profits in relation to either its trading performance of the capital used in generating that profit
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operating profit margin= operating profit/ sales revenue x100
Firm can compare performance year on year, against other firms & agains market. Declining OPM indicates its not managing its costs effectively or that sales are declining without proportionate fall in costs
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ROCE= operation profit/ (total equity+ non current liabilities) x 100
How effectively management is able to use the capital tied up in the business to generate profits.
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financial efficiency ratios
Can be used for inter firm comparison, but dominantly to see how effectively management are controlling the finance operation of the business
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asset turnover= sales/ net assets
Measures how efficiently assets have been used to generate sales rev. Will aim to achieve high asset turnover to show that assets are working hard for the business
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inventory/stock turnover= cost of sales/ inventory
Measures how many times a business turns over its inventories in a year. High inventory turnover shows that a firm is selling inventories quickly to generate revenue.
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payables (creditor) days= (payables x 365)/ credit purchases
A measure of the average amount of time it takes to pay for supplies purchased on credit and is expressed as a number of days.
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receivables (debtor) days= (receivables x 365)/ revenue
A measure of the average number of days it take to receive payment from customers.
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gearing= non current liabilities/ (total equity + non current liabilities) x 100
A measure of the percentage of a firm's capital that is financed by long term loans.
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share holders ratios
Help measure the return to a shareholder.
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dividend per share= total dividends/ number of issued shares
How many pence per share a shareholder can expect to receive in dividends.
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dividend per yield= (dividend per share/ market share price) x100
Measure of the dividend received as a rate of return compared to the current market share price.
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Other cards in this set

Card 2

Front

Same as current ratio but takes into account that it may be hard to turn its inventories quickly into cash. The higher the ratio, the more liquid the business.

Back

acid test ratio = (current assets- inventories)/ current liabilities

Card 3

Front

measure of a firms ability to meet a day to day expenditure

Back

Preview of the back of card 3

Card 4

Front

Analysis of a firm's profits in relation to either its trading performance of the capital used in generating that profit

Back

Preview of the back of card 4

Card 5

Front

Firm can compare performance year on year, against other firms & agains market. Declining OPM indicates its not managing its costs effectively or that sales are declining without proportionate fall in costs

Back

Preview of the back of card 5
View more cards

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