Ratios - help!!!

System
System Posts: 100,534 🤖 Admin 🤖
edited 10:28AM in AAT student discussion
I'm doing alrightish on everything else, but I can't get anywhere with these, and exam is 2 weeks away! Anyone got any tips please? All welcome.<BR>Good luck to everyone sitting in December,

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  • System
    System Posts: 100,534 🤖 Admin 🤖
    Ratios - help!!!

    Im in the same boat. Cant rememeber the calculations, let alone writing about them!!<BR>Any tips for revision please?
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Ratios - help!!!

    I'm not sure of the current syllabus but when I was doing it the ratio's fell into two camps, Liquidity ratio's and working capital ratio's.<BR><BR>The liquidity ratio, basically total assets over total liabilities should give you an answer of better than 1. This indicates that the company can meet its total liabilities as it has assets to cover it. The current ratio is current assets over current liabilities , again anything over 1 means that a company can meet its short term liabilities. A potential creditor of the company would be interested in this as would a bank considering a loan application. It is usual to deduct stocks from current assets ( acid test ratio) as often stocks cannot be converted to cash as quickly as debtors, for example.<BR><BR>Working capital ratio's look at the companies use of cash and how it is managing it. Average debtors x 365 divided by credit sales gives you the debtor days ratio. Investors, customers and other companies in the same trade will look at this ratio to see how good you are at collecting cash. For example, if you have sales terms of 'payment 30 days from invoice' and your Debtor days are 65 then your average customer is taking 65 days to pay you. Is this bad ? ... it may be brilliant if competitors in your sector are averaging 100 !<BR><BR>The creditor days ratio works on the same principle except you substitute average creditors for average debtors and credit purchases for credit sales. If your answer is 30 days and your average payment terms are 30 days then you will have suppliers queueing up to supply you, If the answer is 70 days then you are doing a good job holding onto the companies money but suppliers could charge you late payment penalties or increase their prices to compensate them for your poor payment record.<BR><BR>These are some of the easier ones. Try comparing Turnover with Gross Profit and Net profit or Cost of Sales with your average stock and work out what the answer might tell you !<BR><BR>
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Ratios - help!!!

    I have been doing these at the moment and have found that the best way to remember them is practice! I did all the section 2 of the exams that I could find and found that a certain few kept being asked i.e. ROCE and gross and net profit margins. I found a book with loads in and did those but when the past paper asked for a capacity ratio, they gave you the formula themselves.<BR><BR>This is what worked for me, hope it helps.
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Ratios - help!!!

    Many thanks for all the tips and info. I will let you know how I get on!<BR><BR>Good luck for the exam everyone!
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Ratios - help!!!

    Maybe this will help - this is how i remember them - its BAS<BR><BR>Budgeted<BR>Actual<BR>Standard<BR><BR>Variances - <BR>Volume - (Budgeted - standard)<BR>Capacity - (Budgeted - Actual)<BR>Efficiency - (Actual - Standard)<BR><BR>For the ratios turn them round<BR>Volume - Std/Budgeted<BR>Capacity - Actual/Budgeted<BR>Efficiency - std/actual<BR><BR>This is how im remebering them and it seems to be helping
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Ratios - help!!!

    Sorry to be pedantic but you are talking about variances here not ratios

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