Profitability
Name 3 profitability ratios?
ROCE
ROSF
Gross profit percentage (margin)
Net profit percentage (margin)
Gross profit mark-up
Total expenses to sales
How do these ratios help current or future investors?
It provides them with information to assess the investment and whether to invest or leave.
List the two liquidity ratios?
Current ratio
Acid test ratio
Explain what profitability ratios measure?
These ratios measure the overall profitability (performance) of the business.
What does the price earnings ratio tell investors?
The price earnings ratio indicates the number of years it would take one ordinary share to recover the share price based on current earnings.
What is the current ratio formula?
Current assets: Current liabilities
What does capital employed consist of?
issued share capital, reserves and long term liabilities.
Is a high p/e ratio or a low p/e ratio better?
A high p/e ratio.
What is the formula for Acid test ratio?
Current assets - Closing stock / current liabilities
What is the formula for ROCE and what way is it expressed?
ROCE= Net profit before interest x 100 / capital employed
Expressed as: %
What is the formulas for dividend yield?
Dividend per ordinary share x 100 / market value
What is the recommended ratio for the current ratio?
2:1 or higher.
How do you overcome a FALLING gross profit percentage? (ONE example)
Increase selling price
Reduce costs by finding cheaper suppliers.
Change the sales mix.
Avail of discounts from suppliers.
What is a dividend?
A dividend is a distribution of profits by a corporation to its shareholders. When a corporation earns a profit or surplus, it is able to pay a portion of the profit as a dividend to shareholders.
What is the recommended ratio for the acid test ratio?
1:1 or higher.