profit figures.
Here are some of the most important ratios used in business:
Profit margin ratios:
Gross profit % = (Gross profit / Sales) x 100%
Operating profit % = (Operating profit / Sales) x 100%
Gearing ratio:
Gearing ratio = (Preference share debt - cash at bank) / Equity
Management ratios:
Return on ordinary shareholders funds = (Net profit before tax / Average Equity) x 100%
Return on capital employed (ROCE) = (Operating profit / Average capital employed) x 100%
Investment ratios:
Earnings yield = (Earnings per share / Share Price) x 100%
Earnings per share = Net profit (after tax and preference divi) / Number of ordinary shares
Price/earnings ratio = Market price of share / Earnings per share
Dividend yield = (Dividend per share / Market price of share) x 100%
Dividend cover = Net profit / Dividends
Interest cover = Profit (before interest and tax) / Intrest payable for year
Solvency ratios:
Working capital (current ratio) = Current assets / Current Liabilities
Acid or quick test ratio = (Current assets - stock) / Current Liabilities
Debtor days and creditor days:
Debtor days = (Average trade debtors / Credit sales) x 365 days
Creditor days = (Average trade creditors / Credit Purchases) x 365 days displayed 300 characters
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Ratios help us to instantly check whether a business is sound, and also to compare ratios over a period in time. Ratios can be used for the following purposes:
1. Examining trends in results over a number of years.
2. Comparing the results of a business with results of other businesses.
3. Comparing the results of the business with the average results of all businesses in that sector... displayed 300 characters
