Financial Ratio formulas

• What does ROCE stand for?

  Return on Capital Employed
• What type of ratio is ROCE?

  Profitability ratio
• What is the formula for ROCE?

  Operating profit / Capital employed
• How is capital employed calculated?

  Total equity plus non-current liabilities
• How do you express ROCE as a percentage?

  Multiply by 100
• What is the current ratio?

  Current assets / Current liabilities
• What type of ratio is the current ratio?

  Liquidity ratio
• What is the formula for gearing?

  Non-current liabilities / Capital employed
• How is gearing expressed?

  As a percentage
• What does gearing help analyze?

  Debt levels of the business
• What is the formula for payable days?

  Payables / Cost of sales * 365
• What type of ratio are payable days?

  Efficiency ratio
• What is the formula for receivable days?

  Receivables / Revenues * 365
• What is the easy way to remember receivable days?

  Triple R
• What is the formula for inventory turnover?

  Cost of sales / Average inventories held
• What type of ratio is inventory turnover?

  Efficiency ratio
• What are the key financial ratios to learn?

  • Return on Capital Employed (ROCE)
  • Current Ratio
  • Gearing
  • Payable Days
  • Receivable Days
  • Inventory Turnover
• What is the significance of financial ratios?

  • Assess profitability
  • Evaluate liquidity
  • Analyze efficiency
  • Understand debt levels