# Ratio Analysis

Mind Map by , created almost 6 years ago

## Mind Map on Ratio Analysis, created by megan.s on 12/19/2013.

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 Created by megan.s almost 6 years ago
Unit A Study Guide
term 3 topic test
Ratios, Rates, and Proportions
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Ratios & Ratio Notation
Using Ratios to Solve Problems
Ratio Analysis
1 Financial Statements
1.1 Values published are absolute figures
1.2 Difficult to compare different sized businesses
1.3 Need to compare
1.3.1 Info from a ratio on its own is v.limited
1.3.2 Past Periods
1.3.4 Objectives/targets
2 Types of Ratio
2.1 Profitability
2.2 Liquidity
2.3 Efficiency
2.4 Debt
2.5 Investors
3 Gross Profit Percentage

Annotations:

• Gross Profit = Revenue-Cost of sales
3.1 Gross Profit/Revenue X 100
3.2 Relationship between revenue and direct costs
3.3 % of each £ left after the business has paid for its materials, labour etc
3.4 The higher the better
3.5 Important to competitiors
4 Cash
4.1 Comes from: investors putting in capital, receipts from sales, sales of non-current assets, banks agreeing to loans and overdrafts
4.2 critical balance between inflows and outflows
4.3 Big profit doesn't necessarily mean the business is doing well

Annotations:

• This is when a business invests too much in non-current assets(often during rapid expansion) and not enough is kept for day-to-day trading and emergencies.
4.4 liquidity

Annotations:

• Good=business has lots of cash/near cash assets compared to bills
4.4.1 working capital=current assets-current liabilities
5 Markup
5.1 Amount added to the cost of sales to give the selling price
6 Net profit Percentage
6.1 profit from operations/revenue X 100
6.2 Profit before finance and tax deducted
6.3 Represents pure profits earned on each £ of revenue after expenses
7 Return on Capital Employed(ROCE)
7.1 Rate at which the business is earning profit relative to the money invested-relates earnings to the level of investment in the business
7.2 Profit from operations/capital employed

Annotations:

• Capital employed= shareholder's funds + long term liabilities
7.3 reflects the financial risk
7.4 gives shareholders a % to compare to the interest rates
8 Asset turnover
8.1 revenue/capital employed X 100
8.2 link between investment + income and ultimate profit
8.3 Indicates the efficiency of the business' use of its assets to generate revenue.
8.4 great interest to management
8.5 Higher the better but too high >overtrading
9 Earnings per share(EPS)
9.1 profit after tax/number of ordinary shares

Annotations:

• profit after tax=all costs deducted
9.2 fundamental measure of share performance
9.3 Assesses potential-relates available profit for distribution to number of shares
9.3.1 trends created
9.4 less shares=more per share