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Unit 4 Topic 5- Ratio Analysis, FORMULAS, FORMULAS - Coggle Diagram
Unit 4 Topic 5- Ratio Analysis
Info from P&L Account
and Balance sheet
(Final Accounts)
Limitations
Based on past preformances
State of Industrial Relations
Profitability
Gross Profit Margin
Net Profit Margin
Return on Investment (ROI)
State the %
State wether there has been an Increase/Decrease, by how much?
State company’s Preformance (Good or Bad) And stakeholders interest
Suggest ways to improve Profitability
Liquidity
Current Ratio
Acid Test Ratio
State the Ratios
State Increase/Decrease
Is there a liquidity problem?
State ideals and meaning
Suppliers/Creditors interested in this ratio
Stricter credit control policy
Discounts for prompter payments
Issue remaining shares
Postpone paying dividends
Ability to pay short term debts
Gearing
DEBT:EQUITY
Long Term Loan : Ordinary Share capital+Retained Earnings
(>50%)=Highly Geared
May have difficulty repaying the loan,interest payments (Short Term)
May have difficulty getting another loan which may interfere with growth/expansion
Greater Risk of failure
(<50%)=Lowly Geared
Better position to avail of loan finance for expansion
Less interest payments which helps liquidity
Compares level of debt to the level of equity
Determines how exposed the business is to financial risk
DEBT
-Long Term Loans/Debentures
EQUITY
-Personal Savings,Share Capital, Retained Earnings
Money borrowed from bank repaid with interest
FORMULAS
FORMULAS