Accounting Unit 2 Ratio's

Question	Answer
Net current asset	current asset/ current liability
Liquid capital	current asset - inventory/ current liabilites
Gross Profit Margin	Gross profit/ revenue x 100
Net profit margin	Net profit/ revenue x 100
Payable days	Trade payables/ Cost of Sales x 365
Recievable Days	Trade Recievables/ Revenue x100
Mark Up Margin	Gross Profit/ Cost Of Sales x 100
Inventory Turnover	Cost Of Sales/ Average Inventory
Average Inventory	Opening Inventory + Closing Inventory/ 2
Return On Capital Employed	Net profit/ Capital Emplyed x 100
Gearing	Net Current Liability/ Debenture + Equity (Net Assests) x 100
What is the Prime Ratio for the Liquidity ratio's?	1.5:1
What Does Gearing measure?	Risk of long term debt <50% is low risk 50-75 % is warning <75% is high risk
The higher the ratio's are the better apart from...	Recievable Days and Gearing
The Three Limitations of the ratio's are...	- Doesn't count any externalities, only hard facts - Compares old data that may be irrelevant -Different needs for different businesses

Resource summary

	Created by Luca Sansone almost 10 years ago