What you’ll learn10 learning objectivesChoose one objective for a focused lesson, or study the complete topic.10.2.1Liquidity ratios• Liquidity ratios- the meaning and importance of liquidity- current ratio: calculation and interpretation- acid test ratio: calculation and interpretation- methods of improving liquiditySyllabus objective—Formula reference—Liquidity ratios• Liquidity ratio formulae- current ratio = current assets / current liabilities; acid test ratio = (current assets - inventory) / current liabilities; answers are presented as ratiosSyllabus objective10.2.2Profitability ratios• Profitability ratios- the meaning and importance of profitability- return on capital employed: calculation and interpretation- gross profit margin: calculation and interpretation- profit margin: calculation and interpretation- methods of improving profitabilitySyllabus objective—Formula reference—Profitability ratios• Profitability ratio formulae- gross profit margin = gross profit / revenue x 100; operating profit margin = profit from operations / revenue x 100; return on capital employed = profit from operations / capital employed x 100; capital employed = issued shares + reserves + non-current liabilitiesSyllabus objective10.2.3Financial efficiency ratios• Financial efficiency ratios- the meaning and importance of financial efficiency- rate of inventory turnover: calculation and interpretation- trade receivables turnover (days): calculation and interpretation- trade payables turnover (days): calculation and interpretation- methods of improving financial efficiencySyllabus objective—Formula reference—Financial efficiency ratios• Financial efficiency ratio formulae- trade receivables turnover = trade receivables / credit sales x 365 days; trade payables turnover = trade payables / credit purchases x 365 days; rate of inventory turnover = cost of sales / average inventorySyllabus objective10.2.4Gearing ratio• Gearing ratio- the meaning and importance of gearing- gearing ratio: calculation and interpretation- methods of improving gearingSyllabus objective—Formula reference—Gearing ratio• Gearing ratio formula- gearing = non-current liabilities / capital employed x 100Syllabus objective10.2.5Investment ratios• Investment ratios- the meaning and importance of return to investors- dividend yield: calculation and interpretation- dividend cover: calculation and interpretation- price/earnings ratio: calculation and interpretation- methods of improving investor returnSyllabus objective—Formula reference—Investment ratios• Investment ratio formulae- price/earnings ratio = market price per share / earnings per share; dividend yield = dividend per share / market price per share x 100; dividend cover = profit for the year / annual dividendSyllabus objective