Ratios are used to look at the performance of a business

Liquidity ratios look at the firms ability to meet its debts

Current ratio = current assets – current liabilities

Acid test ratio = current assets - stock  : current liabilities

Shareholder ratios these are ratios that shareholders would be interested in

Dividends per share = total dividends / number of shares issued

Dividend yield = ordinary share dividend / market price x 100

Efficiency ratios are how well the business is operating

Gearing = Long term loans / Capital employed x 100

Stock turnover ratio = cost of sales / stock

Asset turnover = sales (turnover) / net assets

Debtors collection period debtors x 365 / turnover

Profitability ratios – assess the profitability of the business

Gross profit = Gross profit / turnover x 100

Net profit = Net profit / turnover x 100

Return on capital employed = Profit / capital employed x 100

Limitations of ratio analysis – need to be able to compare figures over time and between companies to be most effective