Appendix: accounting ratios
Students will be required to know the formulae for the following accounting ratios.
Ratio |
Formula |
---|---|
Capital gearing |
|
Current ratio |
Expressed as x:1 |
Dividend cover |
|
Dividend yield |
|
Earnings per share |
Note: for a group the ratio is: Profit attributable to ordinary shareholders of the parent company (Profit after tax in pence)/Number of issued ordinary shares. |
Expenses in relation to revenue |
|
Gross profit margin |
|
Interest cover |
|
Liquid capital ratio (acid test ratio) |
Expressed as x:1 |
Markup |
|
Price earnings |
|
Profit in relation to revenue |
|
Rate of inventory turnover |
Average inventory: normally the average of the opening and closing inventories. |
Rate of inventory turnover (days) |
|
Return on capital employed (sole trader) |
Capital employed is capital + non-current liabilities (either opening or closing capital could be used in the calculation). |
Return on capital employed (limited company) |
Capital employed is Equity + non-current liabilities (either opening or closing figure for equity could be used in the calculation). |
Trade payable days |
|
Trade receivable days |
|