Ratio Definitions BUSS 3

Beschreibung

All ratio definitions needed for buss 3.
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Return on Capital Employed (%) To assess whether the business is making a satisfactory level of profit from the capital it has available to it.
Current Ratio (2 points) 1. To see if a business is likely to run short of liquid assets in the short term. 2. To ascertain whether a cash-flow problem might occur in the short-term.
Acid Test Ratio (2 points) 1. To see if the business has sufficient liquid assets in the short-term, even if it has difficulties in selling its stocks (inventories). 2. To ascertain whether a cash-flow problem might occur in the short term, especially if the business cannot rely on receiving cash from selling its inventories.
Gearing (%) (3 points) 1. To measure how reliant a business is on borrowed money. 2. To study the likely impact on the costs of a business if there are changes in interest rates. 3. To gauge whether a business may be vulnerable for having to repay loan in the next few years.
Asset Turnover To measure the efficiency of a business in terms of how well it uses its assets to generate sales revenue.
Inventory Turnover (2 points) 1. To calculate how many times a year a business is able to sell its stock. 2. To measure the speed at which a business is able to convert its inventories into sales.
Receivables Days (2 points) 1. To discover the time taken for its receivables to pay their debts to the business. 2. To assess whether individual receivables are possibly going to become bad debts.
Payables Days (2 points) 1. To discover the time taken for the business to pay its debts to its payables. 2. To assess whether the business is in danger of defaulting on the debts it owes.
Dividends per share To calculate the direct financial reward that a shareholder will receive from the company every 6 months, in return for owning its shares.
Dividend Yield (%) To assess the percentage return that a shareholder receives from a share, based on the assumption that the shareholder is considering purchasing shares at the current market price. This return can be compared to current interest rates for savings in a bank.
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