A-level Accounting₇₁₂₇

Capital gearing

$\frac{\text{Non-current liabilities}}{\text{Issued share capital + Reserves + Non-current liabilities}}\mathit{ }\text{x 100}$

Current ratio

$\frac{\text{Current assets}}{\text{Current liabilities}}$

Expressed as x:1

Dividend cover

$\frac{\text{Profit after interest and tax}}{\text{Ordinary share dividends paid}}$

Dividend yield

$\frac{\text{Dividend per share}\mathsf{ }}{\text{Market price per share}}\mathit{ }\text{x 100}$

Earnings per share

$\frac{\text{Earnings in pence (}\text{ie}\text{ profit after tax in pence)}}{\text{Number of issued ordinary shares}}$

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

$\frac{\text{Expenses}\mathsf{ }}{\text{Revenue}}\mathit{ }\text{x 100}$

Gross profit margin

$\frac{\text{Gross profit}}{\text{Revenue}}\text{ x 100}$

Interest cover

$\frac{\text{Profit before interest and tax}}{\text{Interest payable}}$

Liquid capital ratio (acid test ratio)

$\frac{\text{Current assets - inventory}}{\text{Current liabilities}}$

Expressed as x:1

Markup

$\frac{\text{Gross profit}}{\text{Cost of sales}}\text{ x 100}$

Price earnings

$\frac{\text{Current market price}}{\text{Earnings per share}}$

Profit in relation to revenue

$\frac{\text{Profit for year (before tax)}}{\text{Revenue}}\text{ x 100}$

Rate of inventory turnover

$\frac{\text{Cost of sales}}{\text{Average inventory}}$

Average inventory: normally the average of the opening and closing inventories.

Rate of inventory turnover (days)

$\frac{\text{Average inventory}}{\text{Cost of sales}}\text{ x 365}$

Return on capital employed (sole trader)

$\frac{\text{Profit before interest}}{\text{Capital employed}}\text{ x 100}$

Capital employed is capital + non-current liabilities (either opening or closing capital could be used in the calculation).

Return on capital employed (limited company)

$\frac{\text{Profit from operations}}{\text{Capital employed}}\text{ x 100}$

Capital employed is Equity + non-current liabilities (either opening or closing figure for equity could be used in the calculation).

Trade payable days

$\frac{\text{Trade payables}}{\text{Credit purchases}}\text{ x 365}$

Trade receivable days

$\frac{\text{Trade receivables}}{\text{Credit sales}}\text{ x 365}$