Slide 47.1 Wood and Sangster, Frank Wood's Business Accounting Volume 1 Power Points on the Web, 11 th Edition © Pearson Education Limited 2008 Categories.

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Presentation transcript:

Slide 47.1 Wood and Sangster, Frank Wood's Business Accounting Volume 1 Power Points on the Web, 11 th Edition © Pearson Education Limited 2008 Categories of ratios Exhibit 47.1 Categories of ratios

Slide 47.2 Wood and Sangster, Frank Wood's Business Accounting Volume 1 Power Points on the Web, 11 th Edition © Pearson Education Limited 2008 Profitability ratios The profitability ratios are as follows: Return on capital employed (ROCE) Gross profit as a percentage of sales Net profit as a percentage of sales.

Slide 47.3 Wood and Sangster, Frank Wood's Business Accounting Volume 1 Power Points on the Web, 11 th Edition © Pearson Education Limited 2008 Liquidity ratios The liquidity ratios are as follows: Current ratio Acid test ratio.

Slide 47.4 Wood and Sangster, Frank Wood's Business Accounting Volume 1 Power Points on the Web, 11 th Edition © Pearson Education Limited 2008 Efficiency ratios The efficiency ratios are as follows: Inventory turnover Accounts receivable/sales ratio Accounts payable/purchases ratio.

Slide 47.5 Wood and Sangster, Frank Wood's Business Accounting Volume 1 Power Points on the Web, 11 th Edition © Pearson Education Limited 2008 Shareholder ratios The shareholder ratios are as follows: Earning per share (EPS) Price/earnings ratio (P/E) Dividend yield Dividend cover.

Slide 47.6 Wood and Sangster, Frank Wood's Business Accounting Volume 1 Power Points on the Web, 11 th Edition © Pearson Education Limited 2008 Changing the gearing of a company To reduce gearing By issuing new ordinary shares By redeeming loan notes By retaining profits To increase gearing By issuing loan notes By buying back ordinary shares in issues By issuing new preference shares Capital structure ratios

Slide 47.7 Wood and Sangster, Frank Wood's Business Accounting Volume 1 Power Points on the Web, 11 th Edition © Pearson Education Limited 2008 Accounting policies Accounting policies are defined in IAS 8 as: The specific principles, bases, conventions, rules and practices applied by an entity in preparing and presenting its financial statements.

Slide 47.8 Wood and Sangster, Frank Wood's Business Accounting Volume 1 Power Points on the Web, 11 th Edition © Pearson Education Limited 2008 Selecting appropriate accounting policies Its appropriateness should be considered in the context of the following four objectives: Relevance Reliability Comparability Understandability.

Slide 47.9 Wood and Sangster, Frank Wood's Business Accounting Volume 1 Power Points on the Web, 11 th Edition © Pearson Education Limited 2008 IAS 38: Intangible assets Research and development costs can be divided between: Research:Carried out to advance knowledge or application of knowledge. Development:Work undertaken to develop research that creates an asset that will generate economic benefits.

Slide Wood and Sangster, Frank Wood's Business Accounting Volume 1 Power Points on the Web, 11 th Edition © Pearson Education Limited 2008 IAS 10: Events after the balance sheet date These events can be divided between: Adjusting events:Where financial statements must be amended (e.g. discovery of errors that show the financial statements to be incorrect). Non-adjusting events:These do not lead to amendments to the financial statements (e.g. changes in the market value of investments).