• Join over 1.2 million students every month
  • Accelerate your learning by 29%
  • Unlimited access from just £6.99 per month

Unit 2 Exploring Business Activity P6 - ratios

Extracts from this document...


Unit 2: Exploring Business Activity Assignment 3 P6 Profitability Ratios Return on capital employed (ROCE) Net Profit / Average capital employed x 100 = % return This ratio measures the efficiency of capital investments. It is worked out by considering the net profit as a percentage of the capital employed by that business. The reason this ratio is so useful is because it shows the amount of money an investor is receiving back on their capital as a percentage. Return on Net Assets Net Profit for year / Net Assets x 100 = % return Gives a percentage of how much return of net assets the business is getting from its investments. Gross Profit % Gross Profit / Sales x 100 = Gross Profit % This gives the gross profit percentage which is the profit made over a period without taking into account the operating costs or taxation. ...read more.


Solvency Ratios An organisation is able to pay its expenses as it has money available within the business, solvency ratios help measure this. Working Capital Ratio (Or Current Ratio) Current Assets / Current Liabilities = Working Capital Ratio Working capital ratio measures how much money you have to pay bills and looks at left over cash within the business. This shows how many assets a business has compared to liabilities, in other words how easy it would be for a business to pay its creditors. This figure should be between 1.5 and 2 so that the business can be sure it pays liabilities easily. Liquid Ratio (Quick Ratio or Acid Test) (Current Assets ? Stock) / Current Liabilities = Liquid Ratio This ratio shows the assets compared to liabilities like the current ration, but by taking out the stock figure from the current assets it shows how well a business can meet its liabilities without having to sell stock. ...read more.


The fewer the number of days, the better credit control the business has because it collects what is owed to it more quickly. If information about credit sales is not available the calculation can still be worked out by using the total sales figure. Credit Days Creditors / Cost Of Goods Sold x 365 = Creditor Days Creditor days are similar to debtor days but they look at how long it takes the business to pay their debts. The shorter the time period taken to pay for the debts the better it is for the business. Asset Turnover Sales / Net Assets = Asset Turnover This ratio looks at the sales as a percentage of the total assets that a business owns. By dividing the sales by the total assets, the business is able to work out how many pounds it earns for every pound invested in total assets. ...read more.

The above preview is unformatted text

This student written piece of work is one of many that can be found in our AS and A Level Accounting & Financial Management section.

Found what you're looking for?

  • Start learning 29% faster today
  • 150,000+ documents available
  • Just £6.99 a month

Not the one? Search for your essay title...
  • Join over 1.2 million students every month
  • Accelerate your learning by 29%
  • Unlimited access from just £6.99 per month

See related essaysSee related essays

Related AS and A Level Accounting & Financial Management essays

  1. Assignment 2-Unit 1 Exploring Business Purpose

    For example if a business aim is to make profit and their objective is to make 12%profit they have to sell more products which is specific. They can compare the current years product sold record to previous and calculate that they are selling more each month that is measurable.

  2. Investigating Business Resources Unit 2 P3

    Approached in the right way, this type of funding can provide a fast, affordable solution to your loan requirements. Friends and family are more likely to be able to: * offer you a low interest loan or one with no interest attached at all * lend to you over a

  1. A2 Business CourseWork

    in town centres with the introduction of Tesco express. As you can see from the chart on the right Tesco are clearly dominant in the supermarket market. They are the biggest power buy quite some distance keeping clearly ahead of their rivals.

  2. Sainsbury's Ratio Analysis

    This ratio is calculated to judge profitability. It shows the amount of money an investor is receiving back on their capital as a %. The ROCE in 2007 is 5.0% which is at a reasonable stage means that if all sales revenues are disappeared, Sainsbury's will still be able to meet its current obligations with the readily convertible funds on hand.

  1. Financial Ratio Analysis.

    4.48 5.61 6.73 7.66 Assets Turnover (in Times) 1.36 1.51 1.66 1.76 Fixed Assets Turnover (in Times) 1.95 2.07 2.20 2.28 Investors' Ratios Earnings per Share (EPS) (in $) 0.15 0.18 0.18 0.24 Dividend Cover (in Times) 1.08 1.04 1.06 1.16 Gearing Ratio Debt Ratio (%) 52.20 60.59 66.27 72.13 � Appendix 2 - Trend Analysis (Historical Summaries)

  2. Accounting Ratios. By using ratios Hills System ltd can monitor their businesss performance. ...

    Bank/cash This is the business's money which is in the bank or the cash box. In 2007 they had �373,000 and �40,000. Creditors This the money the business owes. In 2007 the owed �225,000 and �325,000 in 2008. It is separated from the current assets and put under as less

  1. Edexcel Applied Business A2 unit 11 finance task A

    On the other hand having an overdraft has drawbacks as banks can recall the overdraft at anytime. If a bank is struggling and needs money it will decide to recall large business overdrafts and Thomas Cook will have to find a new source of finance such as a loan to pay them.

  2. Calculating Business Ratios

    Comparing to the market Marks and Spencer has 43.3p on every £1 which is bad compare to this business. So if I compare this business in the market the business has done a lot better compare to Marks and Spencer.

  • Over 160,000 pieces
    of student written work
  • Annotated by
    experienced teachers
  • Ideas and feedback to
    improve your own work