Cards (14)

    • what is a liquidity ratio?
      assess whether a business has sufficient cash or equivalent current assets to be able to pay its debts as they fall due
    • what are the liquidity ratios?
      current ratio
    • what is gearing?
      measures the proportion of business' finance provided by debt
    • Why is the gearing ratio useful?
      Measures financial health of business, focuses on level of debt, high gearing means business risk
    • What is the capital structure of a business?
      equity (share capital, retained profits), debt (bank loans)
    • evaluating gearing
      Gearing of 50%+ is high, gearing of less than 20% is low, level of acceptable gearing depends on business and industry
    • benefits of high gearing
      • Less capital required to be invested by the shareholders
      • Debt can be a relatively cheap source of finance compared with dividends
      • Easy to pay interest if profits and cash flows are strong
    • benefits of low gearing
      • Less risk of defaulting on debts
      • Shareholders rather than debt providers “call the shots”
      • Business has the capacity to add debt if required
    • what does efficiency ratios measure?
      analyse how effectively a business is managing its assets
    • What are the three key efficiency ratios?
      inventory turnover, payable days, receivable days
    • What is inventory turnover?

      measures how often a year a business sells and replaces its inventory
    • What is receivable days?
      the average length of time taken by customers to pay amounts owed
    • what is payable days?

      the average length of time taken by a business to pay amounts it owes
    • What are the profitability ratios?

      GPM, OPM, ROCE
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