The document discusses various financial ratios used to analyze a company's profitability, liquidity, efficiency, gearing, and evaluate investments. It provides examples and definitions of key ratios including gross profit margin, net profit margin, current ratio, acid test (quick) ratio, return on capital employed, stock turnover, gearing ratio, and average rate of return.

1. Formulae and Ratio Analysis Jr Vi, Lilia Karimi, MeghVakaria, Kyle Petty, Linh Le and Jordan Alfaro

2. Profitability Ratios

4. Price structure

5. Amount of business done

6. How well expenses are controlled

7. Return after variable cost are taken from the sales revenue

9. Liquidity Ratios Ability to meet its near-term obligations, and it is a major measure of financial health Liquidity= cash that is within a business/ability to generate cash quickly The higher value the ratio is, the larger the margin of safety the business has to pay off debts

10. Liquidity Ratios Creditors are the people interested in the ratio because it shows if you can pay off your business If you're looking to secure money via the sale of some stock through an initial public offering, many State Securities Bureaus will require that you have a current ratio of 2:1 or better.

11. Liquidity RatiosCurrent Ratio It signifies a company's ability to meet its short-term liabilities with its short-term assets Current Ratio= Current Assets/ Current Liabilities $48 Million/ $34 Million= 1.4 Times Current assets includes cash, marketable securities, accounts receivable, prepaid expenses and inventories. Current liabilities include accounts payable, current maturity of long term debt and accrued income taxes.

12. Liquidity RatiosAcid Test (Quick) Ratio Refined version of current ratio It eliminates certain current assets such as inventory and prepaid expenses that may be more difficult to convert to cash. Example: $48 Million- $10 Million/ $34 Million = 1.1 Times In general, a quick or acid-test ratio of at least 1:1 is good. That signals that your quick current assets can cover your current liabilities.

13. Efficiency Ratios

14. Efficiency RatiosReturn on Capital Employed (ROCE) The “primary ratio” Tells how effective the business is at returning a profit from the capital it has Can compare small businesses to big businesses Shareholders – compare ROCE with other investments Should be higher for more risk as a good investment

15. Efficiency RatiosStock Turnover Low ratio = poor sales and therefore excessive inventory High ratio = strong sales or effective buying.

16. Efficiency RatiosStock Turnover (Number of Days) Calculates the days it takes to sell the stock and how many days’ worth of stock is held by the business

17. Gearing Ratio

19. Companies borrow money

20. Expand

21. New machinery and equipment

22. More capital = more interest pay

23. Borrowing is a risk

24. Assess how big that risk is

26. Investment Appraisal

27. Investment Appraisal Average Rate of Return (ARR) Used in investment appraisal Measures profitability/accounting of a project of its life Considers all data, not just cash flows up the point of payback

28. Investment Appraisal Average Rate of Return (ARR) Example: “Stilgitz Instruments AG is considering buying a new calibrating machine for €200,000. The extra costs and revenues over its useful life are shown in Table 1.0.”

29. Investment Appraisal Average Rate of Return (ARR)