Main equations for Interpretation of Financial Statements

1. Gross Profit Margin:

( Gross Profit / Revenue ) * 100%

2. Operating profit margin:

( Operating profit / Revenue ) * 100%

3. Current ratio:

( Current assets / Current liabilities )

4. Quick ( acid ) ratio:

( Current assets – inventory ) / Current liabilities

5. Asset turnover:

( Revenue / Capital employed )

6. Inventory holding period:

( Inventory / Cost of sales ) × 365

7. Trade receivables collection period:

( Trade receivables / Credit sales ) × 365

8. Trade payables payment period:

( Trade payables / Cost of sales ) × 365

9. Return on Capital Employed ( ROCE ):

( Operating profit / Capital employed ) × 100 Capital Employed = Equity + Long-term loans

10. Debt-equity ratio:

( Long-term loans / Equity ) × 100

11. Gearing ratio:

( Long-term loans / ( Equity + long-term loans )) × 100

12. Interest cover:

( Operating profit / Interest payable ) × 100