Summary MAC2602 study notes

Ratios



Gross profit % (Margin) Gross profit / Sales x 100 Calcu 1
Operating profit margin Operating profit/ Revenue x 100
Net profit % (Margin) Net profit after tax / Sales(revenue) x 100 Calc u2

Current ratio Current assets /Current liabilities Calcu 3

Liquid asset ratio or Acid test Ratio Current assets - Inventory /Current liabilities Calcu 4

Inventory turnover Cost of sales / Average inventory Calcu 5

Debtors collection period Accounts receivable / Credit sales x 365 Calcu 6

Creditors payment period Accounts payable / Credit purchases x 365 Calcu 7

Earnings per share (EPS) Profit after tax / number of shares issued x 100 Calcu 8

Return on equity (ROE) Net profit after tax / Total equity x 100 Calcu 9

Return on Assets (ROE) (Asset turnover) Operating Profit /Total Assets x 100 Calcu 11
Long-term interest bearing debt (including its current
Debt to equity ratio portion):Equity
Total assets to total debt ratio Total assets/Total Debt Calcu 10
Debt to assets Debt ratio (or gearing) Total Debt /Total assets x 100
Debt to Equity Non current Debt /Equity x 100 Calcu 12

Interest Coverage (EBIT) Operating Profit /Interest Expense Calcu 13

Dividends per Share (DPS) Dividends for year /Number of shares issued x100 Calcu 14
Dividend payout ratio Dividends per share/ earnings per share
Price /Earnings Ratio Market price share/Earnings per share Calcu 15

Earnings Yield Earnings per share /Market price share x 100 Calcu 16

Dividends Yield Dividends per share/Market share price x 100 Calcu 17

1. Profitability Ratios

1.Growth in turnover ( current year - previous year) / Previous year

2. Growth in gross/ net profit ( current year – previous year) / previous year

3. Increase/ decrease in operating costs ( current year – previous year) / previous year

, 4. Operating costs as % of turnover Operating costs/ Turnover

5. Gross profit margin Gross profit / Turnover

6. Profitability margin EBIT/ Turnover

7. Operating profit margin Operating profit / Turnover

8. Net profit margin Net profit before or after tax/ Revenue

9. Effective interest rate Total interest/ interest bearing debts

10. interest cover EBIT/ interest paid

11. Earnings per share Earnings after tax and preference dividends/ number of
shares in issue
12. ROCE( return on capital employed) EBIT/ long- term debt + equity

13. Operating leverage Contribution/ EBIT

14. Operating cash flow to income Operating cash flow/ net profit

15. Book value per share Ordinary equity / number of shares in issue


2. Liquidity

1. current ratio Current assets /current liabilities

2. Quick / acid test ratio Current assets- inventory / current liabilities

3. operating cash flow to current liabilities Operating cash flow/ current liabilities


3. Working capital
Cash and cash equivalent + marketable securities/
1. cash ratio
current liabilities

2. Receivables collection period Accounts receivables /credit sale x 365

3. inventory turnover period Inventory/ cost of sales x365

Or inventory turnover ratio Cost of sales/ inventory

4.Creditors collection period Accounts payable/ credit purchases x 365

Receivables collection period + inventory turnover
5. Cash operating cycle
period – creditors payment period