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Financial Ratios (Profitability Ratios (Gross Profit Margin ((Gross…
Financial Ratios
Profitability Ratios
Gross Profit Margin
(Gross Profit/Revenue)*100
Percentage
Operating Profit Margin
(Operating Profit/Revenue)*100
Percentage
Return on Capital Employed (RoCE)
(Operating Profit)/(Total Equity + Non-Current Liabilities)*100
Percentage
Most firms’ main aim is to make a profit for the owners.
Profitability – A firm’s profit in relation to its size.
Gearing
Gearing Ratio
(Non-Current liabilities)/(Total Equity + Non-Current Liabilities)*100
.>50% = High Gearing
.<25% = Low Gearing
Shows what percentage of capital invested comes from bank loans
Efficiency Ratios
Receivables Days
(Receivables)/(Revenue)*365
Payable Days
(Payables)/(Cost of Sales)*365
Inventory Turnover
(Cost of Goods Sold)/(Average Inventory Held)
Measures how efficiently the business manages its current assets and liabilities.
Liquidity Ratio
Current Ratio
Current Assets/Current Liabilities
Written as a ratio X:1
Recommended ratio is 2:1 but anywhere between 1.5-2:1 is seen as alright depending on the industry
Liquidity is a firm’s ability to pay their short-term debts