Page 140 - DMGT403_ACCOUNTING_FOR_MANAGERS

Unit 6: Financial Statements: Analysis and Interpretation

Notes
Fixed Assets Ratio
Shareholders' Funds + Outsiders' Funds
Fixed Assets Ratio =
Net Fixed Assets
Coverage Ratios
Earnings before Interest and Taxes
1. Interest Coverage Ratio =
Interest
Earnings after Taxation
2. Dividend Coverage Ratio =
Preference Dividend
Profitability Ratios

Gross Profit
1. Gross Profit Ratio = ×100
Sales
Net Profit
2. Net Profit Ratio = ×100
Sales
Cost of Goods Sold + Operating Expenses
3. Operating Ratio = ×100
Net Sales
Net Profit After Taxes
4. Return on Assets = 100
Average Total Assets
Net Profit After Taxes
5. Return on Total Capital Employed = 100
Total Capital Employed
Turnover Ratios
Activity Turnover Ratio
Cost of Goods Sold Sales
1. Stock Turnover Ratio = or
Average Stock Closing Stock
365 days /52 weeks /12 months
2. Stock Velocity =
Stock Turnover Ratio
Opening Stock + Closing Stock
3. Average Stock =
2
Debtors Turnover Ratio

Net Credit Sales Net Credit Sales
1. Debtors Turnover Ratio = or
Average Debtors Debtor + Bills Receivable
365 days /52 weeks /12 months
2. Debtors Velocity =
Debtor Turnover Ratio
Creditors Turnover Ratio

Credit Purchase Credit Purchase
1. Creditors Turnover Ratio = or
Average Creditors Bills Payable + Sundry Creditors
365 days /52 weeks /12 months
2. Creditors Velocity =
Creditors Turnover Ratio

LOVELY PROFESSIONAL UNIVERSITY 135