1. Slide 27.1 Frank Wood and Alan Sangster, Business Accounting, Volume 2, 11 th Edition, © Pearson Education Limited 2008 Ratios and interested groups

2. Slide 27.2 Frank Wood and Alan Sangster, Business Accounting, Volume 2, 11 th Edition, © Pearson Education Limited 2008 Profitability The profitability ratios are as follows: Gross profit: Sales Net profit after tax: Sales Return on capital employed Return on share capital Net profit after tax: Total assets Net operating profit: Operating assets

3. Slide 27.3 Frank Wood and Alan Sangster, Business Accounting, Volume 2, 11 th Edition, © Pearson Education Limited 2008 Solvency The solvency ratios are as follows: Current ratio Acid test ratio

4. Slide 27.4 Frank Wood and Alan Sangster, Business Accounting, Volume 2, 11 th Edition, © Pearson Education Limited 2008 Efficiency ratios The efficiency ratios are as follows: Asset turnover Inventory turnover Accounts receivable days Accounts payable days

5. Slide 27.5 Frank Wood and Alan Sangster, Business Accounting, Volume 2, 11 th Edition, © Pearson Education Limited 2008 Shareholder ratios The shareholder ratios are as follows: Dividend yield Earning per share (EPS) Dividend cover Price earnings (P/E) ratio

6. Slide 27.6 Frank Wood and Alan Sangster, Business Accounting, Volume 2, 11 th Edition, © Pearson Education Limited 2008 Capital structure The capital structure ratios are as follows: Net worth: Total assets Non-current assets: Net worth Non-current assets: Net worth + long-term liabilities Debt ratio Capital gearing ratio Debt: Equity ratio Borrowing: Net worth Interest cover

7. Slide 27.7 Frank Wood and Alan Sangster, Business Accounting, Volume 2, 11 th Edition, © Pearson Education Limited 2008 Signs of overtrading Signals suggesting overtrading include: (a)Significant increases in the volume of goods sold; (b)Lower profit margins; (c)Deteriorating accounts receivable, accounts payable and inventory turnover ratios; (d)Increasing reliance on short-term finance.