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7 Cards in this Set
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- Back
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Current Ratio |
It is a Liquidity Ratio Current assets/Current Liabilities Shows the ability for the business to pay its debts with its current assets 2:1 is the ideal range higher equals resources not being used efficiently Lower means the business is in danger of not paying their debts |
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Debt- To - equity ratio (%) |
It is a solvency/gearing ratio It is calculated as a percentage Total Liabilities/Total Equity Measures the amount of debt compared to the owners equity Small businesses should aim for below 50% while large businesses can aim for below 100% |
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Gross profit ratio (%) |
It is a profitability ratio Gross profit / sales It is calculated as a percentage It calculates what percentage of sales was gross profit The Higher the better however it can't be to high or the prices become uncompetitive |
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Net Profit Ratio (%) |
It is a profitability Ratio Net profit/ Sales It is calculated as percentage The net profit ratio (return on sales) measures thepercentage of each dollar of sales that is left over to pay taxand returns to lenders Higher is better (However might show prices are uncompetitive) |
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Return on Owners equity ratio (%) |
It is a profitability ratio Net profit/ Total equity The return on equity ratio measures the net profit before tax, andcompares it to the equity in the business. The return on equity ratio is a measure ofthe owner’s reward for the risks A business wants a return of at least (10%-20%) to be considered a worthwhile investment |
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Expense ratio (%) |
It is an Efficiency ratio Calculates the proportion of expenses when compared to sales The expenses ratio should go down over time Total Expenses/ Sales |
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Accounts receivable turnover ratio |
The accounts receivable turnover ratio measureshow long it takes for the business to ‘turn over’ itsaccounts receivables; that is how long it takes tocollect money from creditors. 360/(Sales/Accounts Receivable) The lower the better ,anything above 40 means the business is having trouble collecting money from people |
