Review of accounting ratios

TASK 1 A. Give the English equivalents of the words in bracKets to complete the sentences.

Overall performance ratio

1. Return on capital employed (ROCE). This is the кeУ (отношение, коэффициент) as it relates the profit earned to (количество) of long-term capital invested in the business. (Рабочий капитал) in this calculation means (собственный капитал) plus any (долгосрочные обязательства).

2. Return on owners' equity. This gives the (фактический возврат) to the shareholders only, as (выплата процентов) to long-term lenders has been (вычитается).

What should these ratios be? It is difficult to give a set figure but they could (соотноситься) to (возможный возврат) from investment with a bank or building society.

Case study 1. Explain which of these three companies has had the most consistently high performance?

Here are some example Return on capital employed figures for three companies in different types of business:

Company			YEAR
	1	2	3	4	5
JVC	13.8	15.3	33.3	23.7	19.4
Preference Stores	24.7	21.3	20.9	20.2	21.6
Czech Breweries	15.6	13.9	13.2	15.0	13.0

A relatively low ROCE will indicate that there are weaknesses in either the profitability or productivity of the business. These can be assessed by using further ratios.

TASK 2 A. Fill in the gaps with the proper words from the box.

Profitability ratios

a) gross profit margin	b) overall	c) profitability	d) sales
e) the cost of goods	f) in order to	g) reduction	h) a fall
i) assessing	j) profit	k) percentages	1) ratios

Here you are___1___the amount of___2___that has been or can be made on___3___The other factor in determining___4___profit will be volume of sales

- the productivity of the business.

____5___ /mark-up. These ratios are used to analyse the trading___6___of the business. They are very similar__7__which express the cost + gross profit = sales relationship in different ways.

Acceptable gross profit_8_vary from one type of business to another as can be seen from the survey examples.

Cash trade classification	Mark-up on cost (%)	Gross profit on sales (%)
Antique dealer	51	34
Bakers	54	35
Builders' merchants	27	21
Builders' and decorators	43	30
Butchers	27	21
Coal merchants	33	25
Confectioners and tobacconists	19	16
Chemists	39	27
Cycle and motorcycle dealers	37	27
Dentists	59	37
Driving instructors	100	50
Fish and chip shops	72	42
Florists	64	39
Footwear retailers	41	32
Grocers	16	14
Greengrocers	27	21
Jobbing plumbers	203	67
Milk retailers	31	24
Off licences	33	25
Opticians	35	26
Public houses	45	31
Restaurants	100	50
Radio and electrical retailers	49	33

As the ratios are based on___ 9 __, labour intensive businesses such as plumbers and driving instructors will have much higher gross profit margins.

___10___below expectations may be the result of number of factors such as:

• ___11___in selling prices

• poor buying

• poor stock control

All these are areas, which the management could look into _12

improve the performance of the business.

Case study 2. A business finds that its gross profit percentage has fallen from 25% to 22% in the current year. Define which of the following factors might have accounted for the decrease.

(a) fewer items had been purchased during the year;

(b) selling price were reduced during the year;

(c) pilferage of stock was high;

(d) fewer items were sold during the year;

(e) increased costs of purchases which were not passed on in selling price.

TASK 3. Translate into Russian.