The 'Income Statement'
Liquidity:
1. Current Ratio
2. Acid Test Ratio
Profitability
1. Gross Profit Margin
2. Net Profit Margin
2. Return on Capital Employed
Financial Efficiency
1. Asset Turnover
2. Stock Turnover
3. Creditor Days
4. Debtor Days
You also need to be aware of Working Capital.
A business is solvent if it
can meet its short-term debts when they are due for payment. To do this it
needs adequate working capital. There are three main reasons why a
business needs adequate working capital. It must:
Pay staff wages and salaries.
Pay staff wages and salaries.
·Settle debts and therefore avoid legal action by creditors.
·Benefit from cash discounts offered in return for prompt payment.
You can calculate a firm's working capital by using the following equation:
Current Assets minus Current Liabilities
You can calculate a firm's working capital by using the following equation:
Current Assets minus Current Liabilities
This is the day-to-day finance for running a business.
You need to know the consequences of having too little or too much working capital.
You need to know the consequences of having too little or too much working capital.
Excellent resource for ratio analysis. Click on the picture:
