Term
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Definition
Owners Equity = Assets - Liabilities
(OE = A - L) |
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Term
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Definition
Current Ratio =
Current Assets
Current Liabilites |
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Term
Current Ratio -
What Does It Mean? |
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Definition
i.e. 0.35:1
for every $1 of short-term debt, there is 35 cents to pay that debt |
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Term
Solvency -
The Gearing Ratio
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Definition
The Gearing Ratio =
Non-current Liabilities x 100
Owners' Equity |
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Term
Gearing Ratio -
What Does It Mean? |
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Definition
i.e. 47%
long-term debt as a % of owners' equity is 47%.
60% regarded satisfactory level of debt |
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Term
Solvency -
The Gearing or Equity Ratio |
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Definition
Gearing or Equity Ratio =
Total Liabilities x100
Total Assets |
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Term
Gearing or Equity Ratio-
What Does It Mean? |
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Definition
| should be the same as the industry average or lower |
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Term
Solvency -
Debt to Equity Ratio |
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Definition
Debt to Equity Ratio =
Total Liabilities x 100
Equitity Funds |
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Term
Debt to Equity Ratio-
What Does It Mean? |
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Definition
| high ratio indicated high geating and therefore a high risk - should be less than 100% |
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Term
Profitability -
Gross Profit Ratio
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Definition
Gross Profit Ratio =
Gross Profit x 100
Sales |
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Term
Gross Profit Ratio -
What Does It Mean? |
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Definition
i.e. 85%
85¢ out of every dollar of sales stays w/in the business and 15¢ of every dollar goes to pay for goods |
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Term
Profitability -
Net Profit Ratio |
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Definition
Net Profit Ratio =
Net Profit x 100
Sales |
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Term
Net Profit Ratio -
What Does It Mean? |
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Definition
i.e. 29%
for every $1 of sales, 29¢ stay in the business after all the expenses have been paid |
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Term
Profitability -
Return on Owners Equity Ratio |
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Definition
Return of Owners Equity Ratio =
Net Proftit x 100
Owners' Equity |
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Term
Return on Owners Equity Ratio -
What Does It Mean? |
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Definition
i.e. 43%
for every $1 of ownership in the business, the owner/investor is getting a return of 43¢ |
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Term
Efficiency-
Total Operating Expenses Ratio |
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Definition
Total Operating Expenses Ratio =
Total Operating Expenses x 100
Sales |
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Term
Efficiency-
Accounts Receivable Tunrover Ratio |
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Definition
Accounts Receivable Turnover Ratio =
Accounts Receivable
Average Sales per Day |
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Term
Accounts Receivable Turnover Ratio-
What Does It Mean? |
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Definition
i.e. 80 days
it takes on average 80 days to collect customer debts.
- Effective business would ensure debts are repaid within 30 days
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Term
Efficiency-
Expense Ratio |
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Definition
Expense Ratio =
Total Expenses x 100
Sales |
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Term
Expense Ratio-
What Does It Mean? |
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Definition
| used to determine the proportion of each dollar earned that is absorbed by expenses |
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