1. COMMONLY USED RATIOS
Note: In 2005 all listed companies in EU member states converted to the use of
International Financial Reporting Standards (IFRS). Similar changes have already
occurred, or are taking place, in many other countries. This change has brought some
changes in terminology where IFRS-related descriptions originating in the United States
are replacing descriptions originating in Britain. The formulae listed below give the
traditional British words in brackets.
Profitability
Return on Capital Employed Profit before deducting interest and taxation x 100
Equity (Shareholders’ funds) plus long term borrowing (debt)
Return on Shareholders Funds Net profit after taxes x 100
(also called Return on Equity) Equity (Shareholders’ funds)
Net Profit Percentage Net profit before interest and taxes x 100
Revenue (sales)
Gross Profit Percentage Gross profit x 100
Revenue (sales)
Liquidity Ratios
Current Ratio Current Assets
Current Liabilities
Quick Ratio (Acid Test) Current Assets less Inventory (stock)
Current Liabilities
Efficiency Ratios
Inventory (stock) holding period Inventory (stock) x 365
(days) Cost of Sales
Receivables (debtor) payment Trade receivables (debtors) x 365
period (days) Revenue (sales)
Payables (creditor) payment Trade payables (creditors) x 365
period (days) Purchases or Cost of sales
Financial Structure
Leverage (gearing) Long Term borrowing (debt)
Long Term borrowing plus Equity
Interest Cover Profit before interest and tax
Interest expense