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Ratios
Ratios for Leaving Certificate Accounting
| Term | Definition |
|---|---|
| Current Ratio/Working Capital Ratio | Current Assets/Current Liabilities X:1 (Ideal 2:1) |
| Acid Test/Quick Ratio | Current Assets-Closing Stock/Current Liabilities = X:1 Ideal 1:1 |
| Return on Capital Employed/Return on Investment/ROI | Profit before Interest Subtracted/Capital Employed X 100/1 = X% Should be more than 4% |
| Return on Shareholders'Funds/Return on Equity | Profit after Preference Dividends have been subtracted/Shareholders' Funds X 100/1 = X% Should be more than 4%. |
| Shareholders' Funds | Capital Employed - Loans - Preference Shares |
| Shareholders' Funds | Issued Capital + Profit + Reserves |
| Earnings per Share (EPS) | The Profit after Preference dividends have been paid/The number of Ordinary Shares Issued = X Cent per Share |
| Gearing | Debentures + Preference Shares/Capital Employed X 100/1 = X%. Answer should be < 50% (Lowly geared.) |
| Dividend per Share (DPS) | Ordinary Dividends/Number of Ordinary Shares = X Cent per Share |
| Dividend Cover | Profit after Preference Shares have been subtracted/Ordinary Dividends = X Times. The higher the better. |
| Dividend Yield | Dividend per Share (DPS)/Market Price per Share (MPS)X 100/1 = X%. Ideally should be more than the stock exchange average of 3%. |
| Price Earnings Ratio/Number of years taken to recoup price of one share at current rate of earnings. | Market Price per Share (MPS)/Earnings per Share (EPS)= X:1 if asked for P/E ratio or X years if number of years asked for. Ideally should be < 16 or 17 years. |
| The Length of Time taken to recoup Share’s Value at Present Pay-out Rate | Market Price per Share (MPS)/Dividend per Share (DPS)= X Years. ideally should be < 25 years. |
| Market Capitalisation | Number of Ordinary Shares issued X Market Value of one Share = €X.Should be greater than the book value of equity funds. |
| Gross Profit Percentage/Margin | Gross Profit/Sales x 100/1. The higher the better. |
| Net Profit Percentage/Margin | Net Profit/Sales x 100/1. The higher the better. |
| Total Expenses as a Percentage of Sales. | Total Expenses/Sales x 100/1. The lower the better. |
| Creditor Collection Period | Trade Creditors/Credit Purchases x 365/1 = X days. Trade Creditors /Credit Purchases x 12/1ore = X days. Should be < 2 months and m than the period of credit given to Debtors. |
| Debtor Collection Period. | Debtors/Credit Sales x 365/1 = x Days. Debtors/Credit Sales x 12/1 = X Months.Ideally less than 2 months. This figure should be less than the average creditor collection period. |
| Stock Turnover | Cost of Sales/Average Stock = X Times. |
| Average Stock | Opening Stock + Closing Stock/2 = € |
| Asset Turnover | Sales/Total Net Assets |
| Interest Cover | Net Profit before Interest is subtracted/Interest = X Times. The higher the better. |
Created by:
egibbonsnotes
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