Ratios

System
System Posts: 100,534 🤖 Admin 🤖
edited 10:25AM in AAT student discussion
Any tips on which are the most common ratios to learn for DFS section 2?

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  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Ratios

    ROCE
    Inventory Turnover
    Trade Receivable turnover and trade payables
    Current Ratio
    Quick ratio
    Working capital ratio
    capitalisation rate
    asset turnover
    gross profit and net profit
    Interest Cover
    gearing ratio
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Ratios

    thanks
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Ratios

    Hiya,

    Don't mean to sound stupid but please could someone tell me what capitalisation rate is? I have never heard of it and it isn't in my book?????
    :?:
    Thanks
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Ratios

    I have also never heard of that one.
    Please can someone let me know how they calculate ROCE and Inventory turnover.
    I know in PEV roce is OP profit over Net Assets however in DFS is it Op profit over Equity + Long term loans. Also inv turnover is calc as Inv over C of S *365 in the specimin paper for DFS however after yesterdays PEV a few people said that was incorrect calc??
    please reply thanks
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Ratios

    Capitalisation rate is associated with IAS23, borrowing costs. In the event that there is no applicable borrowing rate of interest appplied then you need to work out a capitalisation rate.

    = total expense payable / average borrowings
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Ratios

    ROCE = Profit before tax and interest/capital employed x 100

    Inventory turnover =
    Inventory/Cost of sales or purchases x 12 for months or 365 for days

  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Ratios

    petrolmonkey - can i ask what level you are qualified to, as you seem very knowledgable on technician level queries
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Ratios

    On Technician, should finish this year and go on to acca by jan 07, with any luck.
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Ratios

    you seem to know your stuff, you re sitting or just well read?
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Ratios

    Sitting three exams this week and final tax papers in dec 06. Havent had to resit papers yet!!

    I do home study and it helps to have a photographic memory.

    You find that I only surface these forums when its exam time. I'll go into hibernation until Dec 06.

    Good way of learning on the forums and testing your own knowledge.

  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Ratios

    I have to re sit PCR dec06, and maybe DFS or PTC if things dont go well. I have struggled with college this year, and Im thinking of distance learning in september but i dont know how it works
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Ratios

    I find Distance learnging easier, suits me better and I am no good in a class room. I am likely to drift off.

    Find yourself a good local college. I have had problems in my first year in the respect that my tutors kept leaving and none of my work was getting marked.

    Most colleges either they or you will order the books and you get allocated a tutor/s. Tutor is normally available by email or monthly meeting to discuss and problem or help if you get stuck.

    Only thing I would say is you need to motivate yourself to read your books. I normally read the books within a months and practise for at least 6 weeks before going on to the next subject. It would be so easy for me to do nothing.



  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Ratios

    pertol monkey thanks for those ratios- how would you calculate capital employed though. Unless they actually gave you a faigure called' capital employed' would it just be the bottom part of balance sheet i.e shares ret earnings etc or would you do the bottom part plus long term loans ?? or am i mixed it up with gearing with in long term loans/ equity plus Long term loans??
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Ratios

    Capital employed is your total net assets (current assets less current liabilities plus your non current assets.
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Ratios

    so you dont include non current liabilities in your Cap Emp??
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Ratios

    Current liabilities not long term liabilities
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Ratios

    I checked the book it says Capital Employed is
    ordinary and share capital, reserves and debentures and long term loans.

    I think i need to stop looking at this forum as i just seem to be getting more confussed !

    Angie x


  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Ratios

    Don't worry angie, this is all confusing me too!!!
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Ratios

    Surely with the gearing ratio in mind it doesnt make sense to include long term loans in capital employed?
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Ratios

    hi, i feel the same i thought i knew all my ratios but people have obviously learnt them differently.
    My book says for ROCE use Cap emp and they define that as just Non current assets plus net current assets.But my tutor has said you should really use Equity plus long term loans which is what u said. There are differnt ways of calculating ratios so as long as we show how we have calculated the ratio i.e put down the formula i think it will be ok.
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Ratios

    paul,
    i dont really get that either but its calc like that in book and our tutor taught us like that so i think we just need to remember how to do it for the exam and then forget about it for evermore!
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Ratios

    Hi what is the 'working Capital Ratio' I have not hear this term before and is not in the book.

    Well it has the working capital cycyle is this just another name for it?

    thanks

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