Tuesday, 11 April 2017

Accounting Ratios - these are among the most important

There are many useful ratios that can be taken from accounts.

The following are among the most important but there are many others.

  • Profit turnover
  • Return on Capital Employed 
  • Stock turn
  • Number of Days' Credit Granted
  • Number of Days' Credit Taken
  • Dividend per Share
  • Price/earnings ratio

When going through a set of accounts, it is a good idea to pick out relevant figures, work out the ratios and try to draw conclusions.

For all the ratios, if you have access to frequently produced management accounts, the ratios will be more useful.

Questions to ask yourself regarding Accounting Ratios:

  1. What was the ratio of Profit to Turnover?
  2. What was the Return on Capital Employed?
  3. What was the Stock Turn?
  4. What was the number of days' credit granted?  (Ignore possible GST or VAT implications)
  5. What is the working capital?  Does this give cause for concern?

No comments: