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Ratios

Ratios for Leaving Certificate Accounting

TermDefinition
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