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27 Cards in this Set
- Front
- Back
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Liquidity indicators |
Performance indicators which show the extent of the liquidity of a business: current ratio, quick ratio, rec collection period, pay payment period, inv holding period |
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Current ratio |
Current assets ÷ current liabilities - working capital as a ratio |
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Quick ratio |
Current assets - inventories ÷ current liabilities - comparing liquidity with short term debts but excluding inventories |
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Receivables collection period (days) |
Trade receivables ÷ sales revenue X 365 - number of days on average that it takes for a trade receivable to pay |
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Payable payment period (days) |
Trade payable ÷ cost of sales X 365 - the number of days on average that it takes to pay a supplier |
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Inventory holding period (days) |
Inventory ÷ cost of sales X 365 - the number of days on average that inventory is held |
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Profitability indicators |
Ratios show the ability of the business to generate profit needed to provide liquidity: gross profit margin, operating profit margin, profit for the period margin, interest cover, return on capital employed |
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Gross profit margin |
Gross profit ÷ sales revenue X 100 - profit made before deduction of expenses |
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Operating profit margin |
Operating profit ÷ sales X 100 - profit before deduction of tax and interest |
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Profit for the period margin |
Profit ÷ sales X 100 - profit made after deduction of all expenses |
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Interest cover |
Profit before interest and tax ÷ interest - ability of a business to pay interest out if it's profits |
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Return on capital employed |
Operating profit ÷ capital employed (total equity+non current liabs) X 100 |
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Financial position |
The extent of the reliance of the business on external debt as apposed to capital: gearing, short term debt ratio |
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Gearing |
Total debt ÷ total debt+equity X 100 - the extent to which the business is financed by debt |
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Short term debt ratio |
Short term debt ÷ total debt X 100 - reliance on short term debt by a business |
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EBITDA |
Earnings Before Interest Tax Depreciation and Amortisation |
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EBITDA interest cover |
EBITDA ÷ interest payable - ability of a business to pay debt interest shown in the P&L |
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EBITDA interest paid |
EBITDA ÷ interest paid - ability of the business to pay cash interest shown in the statement of cash flows |
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EBITDA total debt |
EBITDA ÷ total debt - a measure of cash profits in relation to total debt |
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Ratio analysis summary |
Extract performance indicators relating to liquidity, profitability and the financial position. Giving information about the customers ability to repay invoices when due |
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Credit scoring summary |
Applies a numerical value known as a score to a number of performance indicators and the total of these scores is applied to a scale of risk |
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Overtrading |
Business expands it's level of sales and finds it has a shortage of working capital and not enough cash available to support that increased level of sales |
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Liquidity definition |
The ability of the business to repay debts as they fall due |
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Profitability definition |
The ability of the business to maintain its capital and to provide funds for repayment of debts in the future |
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Gearing definition |
The financial risk taken on by the business shown by comparing interest bearing liabilities and total capital employed |
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Overtrading-warning signs |
Rapidly increasing sales without an increase in resources Reduction in the level of credit control (lengthining credit periods&trade receivables not paying on time or at all) Increase in irrecoverable debts Bank account going overdrawn on a permanent or regular basis Suppliers not being paid on time Profit margins falling |
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Over trading remidies |
Reduce sales levels to a manageable level Managing the sales ledger accounts more effectively Increase recourses by introducing capital |
