Ratios and Accounts

• Working Capital = Current Assets - Current Liabilities
• Net Assets (Shareholders Funds or Equity) = Total Assets - Total Liabilities
• Capital Employed = Non-Current Liabilities + Shareholders’ Funds
• Capital Employed = Total Assets - Current Liabilities
• Current Ratio = Current Assets / Current Liabilities
• Acid Test Ratio = Current Assets - (Stock / Current Liabilities)
• Gearing Ratio = (Non-Current Liabilities / Current Equity) x 100
• Gross Profit = Revenue - Cost of Sales
• Gross Profit Margin = (Gross Profit / Revenue) x 100
• Net Profit = Gross Profit - Expenses
• Net Profit Margin = (Net Profit / Revenue) x 100
• Return on Capital Employed (ROCE) = (Net Profit ÷ Capital Employed) x 100
• Return on Capital Employed (ROCE) - How effectively a company is using its capital to generate profits
• Fixed (Non-Current) Assets - Assets expected to be retained by the business for more than a year e.g. land, buildings, machinery
• Current Assets - Assets that are expected to be converted into cash within one year e.g. stock, debtors, cash balances
• Working Capital - The capital of a business used in it’s day-to-day operations
• Liquidity - How quickly an asset can be converted into cash
• Acid Test Ratio - Excludes stock from current assets
• Gearing Ratio - Compares the amount of capital employed that is financed by borrowing with the total capital employed
• Gross Profit - Shows how effective the business is at making and selling it’s products
• Net Profit - Shows how profitable a business is overall
• Low GPM businesses may include supermarkets, mass producers and food manufacturers
• High GPM businesses may include car dealerships, fashion retailers and luxury goods suppliers
• An NPM of 18% or more may be regarded as good
• An NPM of 10% to 17% may be seen as satisfactory
• An NPM of less than 10% may be regarded as poor