accounting ratios

Definition:
Tools for performance ANALYSIS often used to evaluate profitability and liquidity. As with all ratios, percentages and yields, they are of little use if viewed in isolation. It is necessary to compare a ratio with some standard, the most common being budgets, previous year's figures, or external industrial AVERAGES, compiled from observing the ratios of companies operating in the same or similar field. The most common ratios used are: return on capital employed = profit (before interest) x 100 / capital employed acid test/quick ratio/liquidity ratio = current assets - stock / current liabilities current ratio = current assets / current liabilities price earnings ratio = market price per ordinary share / earnings per ordinary share after tax Other accounting ratios of most interest to marketing managers are: operating profit/net operating assets; operating profit/sales; production costs/sales; marketing expenses/ sales; distribution expenses/sales; administration expenses/sales; cash/average day's sales; debtors/creditors; STOCK/average day's sales.

Cross-References:
[stock] [average] [analysis]

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