In this section…
In this section we shall look at how financial ratios can be calculated using information taken from financial statements and how these ratios can improve our understanding of a company’s performance and risk.
Links
7.01 Financial ratios
- Interpretation of financial statements
- Types of ratios
- Taking care when using ratios
7.02 Profitability ratios: profit and expenses percentages
- Gross profit percentage
- Operating profit percentage
- Specified expense percentage
7.03 Profitability ratios: ROCE and ROSF
- Return on capital employed
- Return on shareholders’ funds
7.04 Liquidity ratios
- Current ratio
- Quick ratio or Acid test ratio
7.05 Use of resources ratios: working capital
- Inventory turnover
- Inventory holding period (days)
- Trade receivables collection period (days)
- Trade payables payment period (days)
- Working capital cycle (days)
7.06 Use of resources ratios: asset turnover
- Asset turnover (net assets)
- Asset turnover (non-current assets)
7.07 Financial position ratios
- Interest cover
- Gearing
7.08 Commenting on ratios
- Comment on all the ratios
- Make qualitative statements
- Explain what the ratio means
- Put the ratios into context
- Recommendations
7.09 Commenting on ratios – questions
- Questions requiring written analysis of financial ratios
- Suggested answers to the questions