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3.5.1 Interpretation of financial statements & 3.5.2 Ratio analysis Typeit
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Ratios will take information from the Statement of Comprehensive Income (SOCI) and the Statement of Financial Position (SOFP), which make up the financial statements that a Ltd or plc business has to produce at the end of each financial year.
Ratios from the SOCI
Gross Profit Margin (GPM) = Gross Profit (GP) / Sales (SR) × 100
Operating Profit Margin (OPM) = Profit (OP) / Sales Revenue (SR) × 100
Net Profit (NPM) = Net Profit (NP) / Sales Revenue (SR) × 100
Ratios from the SOFP
Current Ratio = Current (CA) / Current Liabilities (CL)
Acid Test = Current Assets (CA) – Stock or inventory / Current (CL)
Ratios from the SOFP and the SOCI (needs both)
Capital employed = Non-Current Liabilities (NCL) + Total (TE)
Gearing = Non-Current Liabilities (NCL) / Capital (CE) × 100
on Capital Employed (ROCE) = Operating Profit (OP) / Capital Employed (CE) × 100