lo: to know what ratio analysis is and the different methods that can be used
TRANSCRIPT
Ratio analysisLO: To know what ratio analysis
is and the different methods that can be used
What do you check for when buying new car?
You should check it’s performance
Miles per gallon
CO2 emissions
PERFORMANCE!
RATIOS HELP US CHECK BUSINESSES PERFORMANCE…
What is ratio analysis?Helps to draw conclusions about how well the
business is doingGives a more precise picture
2 MAIN PERFORMANCE INDICATORS
PROFITABILITY – Comparing revenue to costs
LIQUIDITY (cash) Comparing assets to liabilities
A.k.a – Working Capital
Profitability ratiosMeasure the performance of the business and focus on
profit, turnover and investmentGross profit marginGross profit x100 Sales Revenue
Net profit marginNet profit x100 Sales Revenue
Return on capital employedNet profit x100Capital employed
Liquidity ratiosMeasure how easily the business can pay its
debts and so how quickly things can be turned into cash
Current ratioCurrent assetsCurrent liabilitiesAcid test ratioCurrent assets - stockCurrent liabilities
Other ratiosGearing ratios – Compare the amount of
share capital to the amount of loan capitalShareholders’ ratios – Measure the return to
shareholders on their investment
https://www.youtube.com/watch?v=TZZFBkbC2lA
Questions Why would investors perform ratio analysis
What do liquidity ratios show
What are the different types of ratio analysis
What’s difference between net profit margin and ROCE?
Explain another ratio that could be used?