115 Chapter 20 Paper F7 Interpretation of Accounts – Ratio Analysis September/December 2016 The key ratios Profitability PBIT Return on capital expressed as a employed (or ROCE) TALCL percentage PBIT Profit before interest and tax. It is often referred to internationally as IBIT (Income before interest and tax) TALCL Total assets less current liabilities. It is equal to the capital invested in the business (equity plus non-current liabilities) PBIT Profit margin expressed as a Revenue percentage Revenue Asset turnover expressed as a TALCL multiple Profit available for equity Return on equity expressed as a Equity shareholders’ funds percentage Liquidity Current ratio Current assets : Current liabilities expressed as ratio eg 3:1 Quick ratio (or acid test) Current assets less inventory : Current liabilities expressed as a ratio Cost of sales Inventory turnover expressed as a Average inventory multiple Trade receivables Receivables collection period × 365 expressed as a number of Credit days sales Trade payables Payables payment period × 365 expressed as a number of Credit days purchases Gearing Interest bearing net debt Debt/equity expressed as a Shareholders’ funds percentage Interest bearing net debt Debt/debt + equity expressed as a Shareholders’ funds + Interest bearing net percentage debt Net debt long term debt net of any spare cash. In some cases, a long term bank overdraft is classed as long term debt. PBIT Interest cover expressed as a
Chapter 20 Paper F7 Interpretation of Accounts – Ratio Analysis September/December 2016 The key ratios Profitability 115 Return on capital employed (or ROCE) PBIT expressed as a percentage TALCL PBIT Profit before interest and tax. It is often referred to internationally as IBIT (Income before interest and tax) TALCL Total assets less current liabilities. It is equal to the capital invested in the business (equity plus non-current liabilities) Profit margin PBIT expressed as a percentage Revenue Asset turnover Revenue expressed as a multiple TALCL Return on equity Profit available for equity expressed as a percentage Equity shareholders’ funds Liquidity Current ratio Current assets : Current liabilities expressed as ratio eg 3:1 Quick ratio (or acid test) Current assets less inventory : Current liabilities expressed as a ratio Inventory turnover Cost of sales expressed as a multiple Average inventory Receivables collection period Trade receivables × 365 expressed as a number of days Credit sales Payables payment period Trade payables × 365 expressed as a number of days Credit purchases Gearing Debt/equity Interest bearing net debt expressed as a percentage Shareholders’ funds Debt/debt + equity Interest bearing net debt expressed as a percentage Shareholders’ funds + Interest bearing net debt Net debt long term debt net of any spare cash. In some cases, a long term bank overdraft is classed as long term debt. Interest cover PBIT expressed as a
ACCA_F7_S16_Notes.docx