ratio thread

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Primble
Primble Registered Posts: 734 Epic contributor 🐘
right here we go, just like the other revision threads but specifically for ratio

what is the gearing ratio?

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  • Rinske
    Rinske Registered Posts: 2,453 Beyond epic contributor 🧙‍♂️
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    The gearing ratio is a myth, it doesn't actually exist....

    Non-current liabilities/ capital employed or non-current liabilities/ equity.

    It shows how much of the company is funded by debts, so the financial stability of the company and the higher the percentage the less secure the company is. Because debt is costly, you would prefer it to be low. It's hard to set a standard though.

    I think in general investors would like to see it below 50%.

    As always any additions are welcome!

    What is the gross profit percentage?
  • jewels.p
    jewels.p Registered Posts: 1,774 Beyond epic contributor 🧙‍♂️
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    Gross Profit/Revenue x 100

    What is ROCE?
  • reddwarf
    reddwarf Registered Posts: 528 Epic contributor 🐘
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    operating profit/ capital employed plus non current liabilities
  • crispy
    crispy Registered Posts: 466 Dedicated contributor 🦉
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    Hello,

    Remember that the Captai Employed figure should be inclusive of any Non-Current Liabilites (ie: Equity + Non Current Liabilities) this can also be calculated as total Assets less Current Liabilities.
  • Andypandy
    Andypandy Registered Posts: 526 Epic contributor 🐘
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    Asset turnover in days?
  • jilt
    jilt Registered Posts: 2,903 Beyond epic contributor 🧙‍♂️
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    Andypandy wrote: »
    Asset turnover in days?

    asset turnover = sales/capital employed


    in days????
  • reddwarf
    reddwarf Registered Posts: 528 Epic contributor 🐘
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    Just going back to gearing, a point our lecturer made..

    If capital gearing has increased in the period, the hiigher gearing means an increase in the possibility of a better % return for the equity shareholders. However there is an increased risk of the co not being ableto meet the increased fin charges from the increased loan capital in the capital structure. It depends on whether the ROCE is greater than the cost of capital, if it is the equity shareholders will reap the benefits of the higher gearing.
    If it is not, higher gearing is disadvantageous to the equity shareholders.

    The reverse applies, lower gearing means decrese in the possibility of better % returns to the equity shareholders. However there is decreased risk of the co being unable to meet the finance charges arising from loan capital as these are lower.
  • Rachey
    Rachey Registered Posts: 589 Epic contributor 🐘
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    reddwarf wrote: »
    Just going back to gearing, a point our lecturer made..

    If capital gearing has increased in the period, the hiigher gearing means an increase in the possibility of a better % return for the equity shareholders. However there is an increased risk of the co not being ableto meet the increased fin charges from the increased loan capital in the capital structure. It depends on whether the ROCE is greater than the cost of capital, if it is the equity shareholders will reap the benefits of the higher gearing.
    If it is not, higher gearing is disadvantageous to the equity shareholders.

    The reverse applies, lower gearing means decrese in the possibility of better % returns to the equity shareholders. However there is decreased risk of the co being unable to meet the finance charges arising from loan capital as these are lower.

    Please take my exam for me?

    That just all blurred into one :-(

    Time for a large glass of wine!
  • Esme
    Esme Registered Posts: 711 Epic contributor 🐘
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    jilt wrote: »
    asset turnover = sales/capital employed


    in days????


    Isn't asset turnover Revenue/Net Assets (Non-current Assets + Current Assets - Current Liabilties.)


    What is the ratio for return on equity?
  • noodles
    noodles Registered Posts: 308 Dedicated contributor 🦉
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    Return on equity is Profit after tax/equity

    Q - Explain IFRS 8

    I feel all studied out, how many exams are you taking in June????
  • reddwarf
    reddwarf Registered Posts: 528 Epic contributor 🐘
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    Something about Segmental Reporting (all it brings to my mind is oranges!!),off to swot up!
  • reddwarf
    reddwarf Registered Posts: 528 Epic contributor 🐘
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    A entity must report information about the different products and the different geographical regions in which it operates.

    Only applies to entities who are publicly traded.

    Do we need to know anymore than this?
  • noodles
    noodles Registered Posts: 308 Dedicated contributor 🦉
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    My understand of this is that it states that if your company has over 10% of an operating segment then it must report it seperately in the accounts. I.e If operating leases are 15% of the expenses, then it is to be shown seperately and not say part of misc car expenses. May be a bad example!
    I did not realise it is just with public traded. I think I need to re read this section!!
  • reddwarf
    reddwarf Registered Posts: 528 Epic contributor 🐘
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    hmm bit more, it seems it applies to companies who choose to disclose segment info and those who are in the process of becoming public.

    purpose is to help users understand an entity's past performance and to assess it's future prospects and

    makes users aware of the impact of changes in significant components of a business have on the whole business

    ifrs 8 says entity should disclose for eachof its operating segments
    profit or loss
    total assets
    total liabilities - if management uses this info to make decisions about the entity

    defines operating segment as a component of an entity

    that engages in business activities from which it earns revenues and incurs expenses

    whose operating results are regularly reviewed by the entity's chief operating decision maker who decides about resources allocation to the segment and assesses it's performance and
    for which discrete financial info is available.

    entities must disclose the factors used to identify the entity's reportable segments, including the basis of segmentation. ie. geographical, products/services, or a combination.

    the type of products and services from which each reportable segment receives revenue.

    Management analyses each segment's financial and other info about the future running of the business, the information management uses is disclosed per IFS8

    number of problems

    as the directors define the segments there is still scope for hiding loss making divisions.

    not comparable company to company because each companies definitions are unique.

    difficult to allocate common costs to segments and to deal with inter segment transfers
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