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Using ratios to analyse companies

Introduction| Course| Q&As | Recommended reading| Quiz |

Introduction

Context

The workshop focuses on specific ratios and does not consider the interpretation of a set of accounts generally. We recommend that after this tutorial you also take the 'Interpreting Company Reports and Accounts' tutorial which looks at the 'soft' signals from a set of accounts.

Prior knowledge required

You need a reasonably enquiring mind and a positive approach to numbers. You might need to have a calculator to hand.

Contents

1. Why bother with ratios?
2. A word of warning
3. The P&L and the balance sheet
4. Grouping the ratios
5. Profit margin
6. Return on capital employed (ROCE)
7. Sales as a multiple of capital employed
8. Stockturn
9. Debt collection
10. Payment of trade creditors
11. Cash-to-cash cycle
12. Gearing
13. Interest cover
14. Current ratio
15. Quick ratio (acid test)
16. Earnings ratios
17. Dividend ratios
18. Other ratios
19. Sources of information
20. Conclusion