Liquidity Ratios:

Current Ratio :

Current Ratio = Current Assets / Current liabilities

Quick Ratio:

Quick Ratio = Current Assets less inventory / Current liabilities

Profitability Ratios:

Return on Capital Employed/ROCE:

ROCE= Operating Profit before Interest and Tax/Capital Employed x 100

Gross Profit Margin:

Gross Profit Margin = Gross Profit / Net Sales x 100

Operating Profit Margin:

Operating Profit Margin= Operating Profit before interest and taxes / Net Sales x 100

Profit Margin:

Operating profit after income tax / Net Sales Revenue x 100

Cost/Sales Ratio:

Production cost of sales/ Sales x 100

Distribution and marketing costs/Sales x 100

Administrative Costs/Sales x 100

Market /Investor Ratios:

Earnings per share :

(Profit after income tax = Net profit provision for Tax)

Earnings per share=

Operating profits after income tax less Preference dividends / Number of ordinary shares issued

Price-earnings ratio :

Price-earnings ratio = Market price per ordinary share / Earnings per ordinary share

Dividend Cover:

Dividend Cover = Earnings per share/Dividend per share

Dividend Yield:

Dividend Yield = Dividend of the share for the year / Current market value of the share x 100

Capital Employed Formula:

Capital employed = non-current assets + investments + current assets current liabilities

Capital employed =share capital + reserves + long term liabilities

Efficiency Ratios:

Receivables turnover:

Receivables turnover=Net sales revenue / Average receivables balance

Average collection period:

Average collection period = Average receivables balance x 365 (12) / Net sales revenue

or

No of days or months/Receivables Turnover Ratio

Inventory turnover:

Inventory turnover= Cost of goods sold / Average inventory

Payables Turnover ratio :

Payables Turnover ratio = Net Credit Purchases / Average Payables

Average Payment period :

Average Payment period = Average Payables x 365 (12) / Net purchases OR

No of days or months/ Payables Turnover Ratio

Fixed Assets turnover ratio:

Fixed Assets turnover ratio = Net sales revenue / Average total assets

Working Capital Turnover:

Working Capital Turnover= Net Sales / Working Capital

Assets turnover: (Working Capital Turnover)

Assets Turnover= Net Sales / Net assets

Gearing/Financial stability ratio/Solvency/Leverage:

Gearing Ratio:

Gearing Ratio =(Total Long Term Debt + Preference Share Capital)/ Total Capital employed x 100

Times interest earned/ Interest Cover Ratio:

Times interest earned/ Interest Cover Ratio=Operating profit before income tax + Interest expense / Interest expense on long term debts

The financial statements for Harris Ltd are given below for the two years ended 30 June 2104 and 2015. Harris Ltd operates a department store in the centre of a small town. INCOME STATEMENTS FOR THE YEARS ENDE 2014 $'000 Sales Revenue 2,600 Cost of Sales 1,560 Gross Profit 1,040 Expenses 730 Operating Profit 310 Interest Payable 50 Profit before taxation 260 Taxation Profit after taxation 155 105 STATEMENT OF FINANCIAL POSITION AS AT 30 2014 ASSETS $'000 Non Current Assets 1,265 Current Assets Inventories 250 Trade Receivables 105 Cash at Bank 380 Total Assets 2,000 Share Capital and Reserves 1.100 Non Current Liabilities 10% Loan Notes 500 Current Liabilities Trade Payables 300 Other Payables 100 Total Capital and Liabilities 2,000 Required: Calculate the following ratios: (Use year end values and calculates ratios for both 2014 and 2015.) 1. ROCE 2. Gross Profit Margin 3. Operating Profit Margin 4. Current Ratio 5. Acid Test Ratio 6. Receivables Collection Period 7. Payables Payment Period 8. Inventory Turnover Period 9. Gearing Ratio 10. Interest Cover