Author: Windows User

Profitability Ratios: Allow for analysis of firms profits in relation to its trading performance or the capital used in generating the profit.

Operating Profit Margin:
The same as Net Profit Margin but for public limited companies.
Relationship between profit and sales
Operating Profit / Sales Revenue x 100
A percentage of 39 shows that for every £1 of sales 39p is profit.

Return on Capital Employed:
Shows the overall performance of the business expressed as a percentage
Measures how efficiently the business is able to use the capital in the business to generate profit.
Operating profit x 100 / capital employed
A percentage of 16% shows that for every £1 of capital invested, 16p was generated in profit

Financial Efficiency Ratios: Can be used to compare between firms. Management can also assess their own performance.

Asset Turnover Ratio:
Measures how efficiently assets have been used to generate sales revenue.
Sales / Net Assets
Vary between industry depending on level of capital.

Stock Turnover:
Measures how many times a business turns its’ stock over in a year
Cost of Sales / Stock

Creditor Days
Measures how long it takes to pay for supplies purchased on credit.
Creditors X 365 / sales

Debtors Days
Measures how long it takes to receive payments from customers.
Debtors X 365 / sales

Shareholder Ratios: Help measure the value of return to a shareholder.

Dividend Per Share:
How many pence per share a shareholder can expect in dividends.
Total Dividends / Number of Shares Issued

Dividend Yield:
Measure of the dividend received as a rate of return compared to a current market share price.
(Dividend Per Share / Market Share Price) X 100
Yield of 6.5% would mean that if a dividend of £1 was returned the share would be worth £6.50

Financial Efficiency Continued……
Gearing Ratio:
Measure of the percentage of a firms’ capital that is financed by long term loans.
Long term liabilities / total capital employed.
Ratio of 53% means that for every £1 invested in a business 53 p is from a long term liability.

Profitability Ratios: Allow for analysis of firms profits in relation to its trading performance or the capital used in generating the profit.

Operating Profit Margin:
The same as Net Profit Margin but for public limited companies.
Relationship between profit and sales
Operating Profit / Sales Revenue x 100
A percentage of 39 shows that for every £1 of sales 39p is profit.

Return on Capital Employed:
Shows the overall performance of the business expressed as a percentage
Measures how efficiently the business is able to use the capital in the business to generate profit.
Operating profit x 100 / capital employed
A percentage of 16% shows that for every £1 of capital invested, 16p was generated in profit

Financial Efficiency Ratios: Can be used to compare between firms. Management can also assess their own performance.

Asset Turnover Ratio:
Measures how efficiently assets have been used to generate sales revenue.
Sales / Net Assets
Vary between industry depending on level of capital.

Stock Turnover:
Measures how many times a business turns its’ stock over in a year
Cost of Sales / Stock

Creditor Days
Measures how long it takes to pay for supplies purchased on credit.
Creditors X 365 / sales

Debtors Days
Measures how long it takes to receive payments from customers.
Debtors X 365 / sales

Shareholder Ratios: Help measure the value of return to a shareholder.

Dividend Per Share:
How many pence per share a shareholder can expect in dividends.
Total Dividends / Number of Shares Issued

Dividend Yield:
Measure of the dividend received as a rate of return compared to a current market share price.
(Dividend Per Share / Market Share Price) X 100
Yield of 6.5% would mean that if a dividend of £1 was returned the share would be worth £6.50

Financial Efficiency Continued……
Gearing Ratio:
Measure of the percentage of a firms’ capital that is financed by long term loans.
Long term liabilities / total capital employed.
Ratio of 53% means that for every £1 invested in a business 53 p is from a long term liability.