# Financial Ratios for Revision

*Screenshots are taken from past exam papers.*

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### # Payable days

Payables = Trade Payables / Cost of Sales x 365

### # Receivable days

Receivables = Trade Receivables / Revenue x 365

### # ROCE

ROCE (%) = Operating Profit / Total Equity + Non-current liabilities x 100

- Bigger is better
- Useful for
- Benchmarking
- Overviews

### # Inventory turnover

Inventory Turnover = Cost of Sales / Inventories

### # Current ratio

Current ratio = current assets/ current liabilities

- Determine the risk of running out of cash
- Normally presented as a ratio, but can be shown as a decimal or a fraction

### # Gearing ratio

Non-current liabilities / total equity + non-current liabilities x 100

- Optimum is between 20-50%
- Below 20% is too low
- Above 50% is too high
- The above is usually correct, there can be exceptions however

*For question, see current ratio.*