Flashcards in Chapter 13 - Performance measurement and control Deck (18)

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1

## What are the four main profitability ratios?

###
-Gross profit margin

-Operating profit margin

-Return on capital employed

-Asset turnover

2

## How do you calculate the Gross profit margin

### (Gross profit) ÷ (Turnover) x 100

3

## How do you calculate the Operating profit margin

### (Operating profit) ÷ (Turnover) x 100

4

## How do you calculate Return on capital employed

###
(Operating profit) ÷ (Capital Employed) x 100

or

Operating profit x asset turnover

5

## How do you calculate capital employed

###
Total assets - current liabilities

or

Total equity + long term debt

6

## How do you calculate Asset turnover

### (Turnover) ÷ (Capital Employed)

7

## What are the five liquidity ratios?

###
-Current ratio

-Quick ratio (acid test)

-Inventory days

-Receivables days

-Payables days

8

## How do you calculate the current ratio?

### (Current assets) ÷ (Current liabilities)

9

## How do you calculate the quick ratio?

### (Current assets- Inventory) ÷ (Current liabilities)

10

## How do you calculate the Inventory days

### (Inventory) ÷ (Cost of sales) x 365

11

## How do you calculate the Receivables days

### (Receivables) ÷ (Credit sales) x 365

12

## How do you calculate the Payable's days

### (Payables) ÷ (Credit purchases) x 365

13

## What are the three risk ratios?

###
-Financial gearing

-Interest cover

-Dividend cover

14

## How do you calculate financial gearing?

###
(Debt) ÷ (Equity) x 100

or

(Debt) ÷ (Debt + Equity) x 100

15

## How do you calculate Interest cover

### (Operating profit) ÷ (Finance costs)

16

## How do you calculate Dividend cover

### (Net profit) ÷ (Dividend)

17

## What does a high level of gearing mean?

### That a company relies heavily on debt to finance its long term needs

18