Page 300 - AFM Integrated Workbook STUDENT S18-J19
P. 300
Chapter 14
1.3 Ratio analysis
A comprehensive analysis of performance will cover the following four
areas: profitability, liquidity, gearing and stock market ratios.
Key ratios
Liquidity ratios
Profitability ratios Current ratio = CA/CL
Return on capital employed (ROCE) Debtor days
= (EBIT/capital employed) ×100% = (Receivables/Cr sales) × 365
Creditor days
Asset turnover = (Payables/Cr purchases) × 365
= revenue/capital employed Inventory holding period
= Inventory/Cost of sales) × 65
Profit margin
= (EBIT/revenue) × 100% Cash operating cycle
= Debtor days + Inventory holding
period – Creditor days
Stock market ratios
Gearing ratios (if the entity is listed)
SOFP gearing:
Debt value/Equity value, or P/E ratio = Share price/EPS
Debt value/(Value of equity + debt) Dividend cover
= EPS/Dividend per share
P&L gearing:
Interest cover = EBIT/Interest
(Finance charges) Dividend yield
= Dividend per share/Share price
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