Page 64 - AA Integrated Workbook STUDENT 2018-19

Chapter 5 3

Performance

Ratio Formula Interpretation

Assess profitability before
Gross profit taking overheads into
margin
account

Assess profitability after
Operating margin taking overheads into
account

Short term liquidity

Ratio Formula Interpretation

Assess ability to pay
Current ratio current liabilities from
current assets

Assess ability to pay
Quick ratio current liabilities from
reasonably liquid assets

Efficiency

Ratio Formula Interpretation

Assess the average time
Trade receivables taken to collect cash from
collection period
credit customers

Inventory holding Assess the average length
period of time inventory is held

Trade payables Assess the average time
payment period taken to pay suppliers

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