In our post number (164) to (184) has gone into quite a lot of detail about basic ratio analysis. The ratios you should be able to calculate and/or comment are as follows.
- Return on capital employed
- Net profit as a percentage of sales
- Asset turnover ratio
- Gross profit as a percentage of sales
Debt and gearing ratios
- Debt ratio
- Gearing ratio
- Interest cover
- Cash flow ratio
Liquidity and working capital ratios
- Current ratio
- Quick ratio (acid test ratio)
- Debtors days (average debt collection period)
- Average stock turnover period
Ordinary shareholders’ investment ratios
- Earnings per share
- Dividend cover
- P/E ratio
- Dividend yield
- Earnings yield
With the exception of the last three ratios, where the share’s market price is required, all of these ratios can be calculated from information in a company’s publish accounts.
Ratios provide information through comparison:
- Trends in a company’s ratios from one year to the next, indicating an improving or worsening position.
- In some cases, against a “norm” or “standard”.
- In some cases, against the ratios of other companies, although differences between one company and another should often be expected.