Registered Posts: 19 Dedicated contributor ๐ ๐ต ๐
Hi, i'm doing DFS tomorrow but i want to ensure that the following formula's are correct for the following ratios but are there any im missing and are any of these wrong??

GP Ratio = GP/Revenue x 100

NP Ratio = NP/Revenue x 100

Return on Capital employed = Net profit/Equity x 100

Inventory turnover = Inventories/COS x 100

Trade receivable turnover = Trade receivables/Revenue x 365

Trade payables turnover = Trade payables/COS x 365

Okay this is where im a little more unsure ;

Acid Ratio
Quick Ratio
Gearing ratio

one of these is current assets/current liabilites
another is current assets - inventories/current liabilities
another is long term debt/LTD + equity ????

• Registered Posts: 40 ๐ซ ๐ฏ ๐ซ
Be carefully where you've put net profit. I believe its Operating profit (PBIT), net profit would be after interest and tax. Payables you could also use purchases instead of COS.

Acid and quick are the same = current assets - inventories / current liabilities

Gearing = debt / equity or long term debt / equity + debt
• Registered Posts: 12 Regular contributor โญ ๐ผ โญ
inventories turnover is calculated in days so it is inventories / cost of sales x 365
• Registered Posts: 373
A few other ratios that you may find helpful are:

Current Ratio = Current Assets / Current Liabilities

Interest Cover = Profit from operations / Finance Costs

Also, I calculate ROCE as Profit from operations / Equity + Long-term liabilities (ie loans)
• Registered Posts: 19 Dedicated contributor ๐ ๐ต ๐
gearing ratio

i dont understand what u mean by this as you come out with different answers;

Gearing = debt / equity or long term debt / equity + debt

So say debt is 10 k n equity is 40k =

debt (10k) / equity (40k) = 0.25
debt (10k) / long term debt (10k) = 1
debt (10k) / equity (40k) + debt (10k) 0.20

Im confused......
• Registered Posts: 19 Dedicated contributor ๐ ๐ต ๐
Return on capital employed

Im a little confused on this aswell - is return on equity and return on capital employed the same thing??

And if so and you calculate as follows why does it give different answers;

Profit attributable to shareholders (after tax and int) / equity

Profit before Int and tax / equity + long term loans

help im worried!!
• Registered Posts: 373
i dont understand what u mean by this as you come out with different answers;

Gearing = debt / equity or long term debt / equity + debt

So say debt is 10 k n equity is 40k =

debt (10k) / equity (40k) = 0.25
debt (10k) / long term debt (10k) = 1
debt (10k) / equity (40k) + debt (10k) 0.20

Im confused......

Either method is acceptable in an exam, just stick with the one you feel happier with. Just remember that if a question asks you to compare the ratio for 2 years or companies, be consistent with your formula to give an accurate like-for-like comparison.

Debt / Debt + Equity will always give a lower answer than Debt / Equity.

Gearing ratio is showing you how much lending the company is being financed with, so the higher the figure, the more lending it has.
• Registered Posts: 373
Im a little confused on this aswell - is return on equity and return on capital employed the same thing??

And if so and you calculate as follows why does it give different answers;

Profit attributable to shareholders (after tax and int) / equity

Profit before Int and tax / equity + long term loans

help im worried!!

Return on equity would be used by the shareholders who have invested in the company. You use the Profit after tax and interest as this is the profit that the shareholders would get back, in the event of the company going into liquidation the tax and interest liabilities would be settled first.

Whereas ROCE is more interested in the overall performance of the investments which is why long term lending is included.

I hope this makes sense to you. Good luck for tomorrow! I'm sitting DFS too.
• Registered Posts: 19 Dedicated contributor ๐ ๐ต ๐
gearing ratio
Either method is acceptable in an exam, just stick with the one you feel happier with. Just remember that if a question asks you to compare the ratio for 2 years or companies, be consistent with your formula to give an accurate like-for-like comparison.

Debt / Debt + Equity will always give a lower answer than Debt / Equity.

Gearing ratio is showing you how much lending the company is being financed with, so the higher the figure, the more lending it has.

So i will get marks for debt/equity cuz i find that easy to remember but i just get confused when different formulas are thrown at me when i've learnt one.

Sorry....for everybody thats taking the exam good luck this is my 2nd attempt...im cool with the income statement, balance sheet, consolidate balance sheet & cashflow its just these stupid ratios!!!! ARGH!!!
• Registered Posts: 373
I'm using Osborne study books and they say that either method is acceptable.
• Registered Posts: 19 Dedicated contributor ๐ ๐ต ๐
Current ratio

Is the current ratio the same as the acid test?

Are they both C.Assets/C.Liabilities?

Sorry bout all the questions
• Registered Posts: 373
No, quick and acid are the same. Current is c.assets/c. liabilities. Quick/acid is c.assets-stock/c.liabilities. As stock is the least liquid asset, it is taken out of the equation.
• Registered Posts: 19 Dedicated contributor ๐ ๐ต ๐
Ratios

So have i covered most/all below?

Stock turnover