Financial Ratios (Profitability Ratios (Gross Profit Margin ((Gross…
Gross Profit Margin
Operating Profit Margin
Return on Capital Employed (RoCE)
(Operating Profit)/(Total Equity + Non-Current Liabilities)*100
Most firms’ main aim is to make a profit for the owners.
Profitability – A firm’s profit in relation to its size.
(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
(Payables)/(Cost of Sales)*365
(Cost of Goods Sold)/(Average Inventory Held)
Measures how efficiently the business manages its current assets and liabilities.
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