RATIOS

Question	Answer
Current ratio	Current Assets/Current Liabilities
Acid-test ratio	(CA-Stock)/CL
Raw materials stock period	Average value of raw materials/usage of raw materials per day
WIP period	Average value of WIP /cost of goods sold per day
Finished goods period	Average value of fin goods /cost of goods sold per day or: Stock/cost of goods sold x 365
Debtor turnover	average value of debtors/ average value of sales per day or: Debtors/sales x 365
Creditor turnover	average value of creditors/ purchases on credit per day or: Creditors/purchases x 365
ROCE	profit Before Interest & Tax ÷ Capital Employed Capital Employed is : (Shareholders' funds + long-term liabilities) or (Total Assets -Current Liabilities)
What should you look at with ROCE ?	1. Change from oneyear to next 2. Roce earned by other companies 3. Compare with current market borrowing rates . nb: Roce often reflect higher risk than borrowings. i) What would the cost of extra borrowing to the company be if neededand is it earning an Roce that suggests itcould make enough profits to make such borrowing worthwhile ? ii ) Is the company making a Roce which suggests that it is making profitable use of its current borrowing ?

Resource summary

	Created by Denise Harper about 10 years ago