Investor Ratios – A Level Business CAIE Revision – Study Rocket (2024)

FAQs

What are the investor ratios? ›

Level: AS, A-Level Board: AQA, Edexcel, OCR, IB. Last updated 22 Mar 2021. Gearing focuses on the capital structure of the business – that means the proportion of finance that is provided by debt relative to the finance provided by equity (or shareholders).

Profitability ratios measure a company's ability to generate earnings relative to its sales, assets and equity. These ratios reflect how well a company can utilise its resources to generate profit. Key profitability ratios include gross profit margin, operating profit margin, net profit margin and return on assets.

The current ratio calculation allows a business to explore its liquidity by comparing current assets with current liabilities. Current ratio can be calculated using: Current assets ÷ current liabilities.

Return on investment, or ROI, is the ratio of a profit or loss made in a fiscal year expressed in terms of an investment and shown as a percentage of increase or decrease in the value of the investment during the year in question. The basic formula for ROI is: ROI = Net Profit / Total Investment * 100.

Investors. Investors use gearing ratios to establish whether a company is a worthwhile investment. Generally, investors prefer companies with strong balance sheets and low gearing ratios. A highly geared company is servicing huge loans and may not be able to deliver attractive returns to the investor.

Since ratios compare data between two numbers of the same kind, this means your formula would be A divided by B. For instance, if A equals 5 and B equals 10, then your ratio will be 5 divided by 10.

What is the formula for profitability in a level business? ›

Profit = total revenue – total costs. This is a simple and yet very important formula.

The current ratio measures a company's capacity to pay its short-term liabilities due in one year. The current ratio weighs a company's current assets against its current liabilities. A good current ratio is typically considered to be anywhere between 1.5 and 3.

Generally speaking, a good quick ratio is anything above 1 or 1:1. A ratio of 1:1 would mean the company has the same amount of liquid assets as current liabilities. A higher ratio indicates the company could pay off current liabilities several times over.

5 Essential Financial Ratios for Every Business. The common financial ratios every business should track are 1) liquidity ratios 2) leverage ratios 3)efficiency ratio 4) profitability ratios and 5) market value ratios.

An ideal current ratio should be between 1.2 to 2, which indicates that the business has 2 times more current assets than liabilities to covers its debts. A current ratio below 1 means that the company doesn't have enough liquid assets to cover its short-term liabilities.

For example, if you're 30, you should keep 70% of your portfolio in stocks. If you're 70, you should keep 30% of your portfolio in stocks. However, with Americans living longer and longer, many financial planners are now recommending that the rule should be closer to 110 or 120 minus your age.

The golden ratio of 1.618 – the magic number – gets translated into three percentages: 23.6%, 38.2% and 61.8%. These are the three most popular percentages, although some traders will also look at the 50% and 76.4% levels.