ratios

• liquidity - current ratio


  formula: CA/CL

  found on: balance sheet

  good: 2:1
• solvency (gearing) - debt to equity ratio


  formula: TL/TE x 100

  found on: balance sheet

  good: under 100% (over 100% = highly geared)
• liquidity strategies

  cash flow management:

  • discounts on early payments
  • distribution of payments
  • factoring

  working capital managament:

  • current assets and current liabilities control
  • leasing
  • sale and lease back
• solvency strategies

  not in syllabus: better loan rates, retain more profits
• profitability - return on equity ratio


  formula: NP/TE

  on: income statement

  good: higher
• profitability - gross profit ratio

  formula: GP/sales x100

  found on: income statement

  good: 30-50%
• profitability - net profit ratio


  formula: NP/sales x 100

  found on: income statement

  good: 20-35%
• profitability strategies- profitability managament


  Cost control

  • fixed costs and variable cost management
  • cost centres
  • expense minimisation

  Revenue control

  • marketing objectives
• efficiency - expense ratio


  formula: expenses/sales x100

  found on: income statement

  good: lower
• efficiency - accounts recieveable turnover ratio


  formula: sales/accounts recievable AND THEN 365/ARTR

  on: income statement and balance sheet

  good: under 30 days
• efficiency strategies (expense ratio) - profitability management

  Cost control

  • fixed costs and variable cost management
  • cost centres
  • expense minimisation

  Revenue control

  • marketing objectives
• efficiency strategies (ARTR)


  not in syllabus

  • late fees
  • discounts for early payments