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```Using Financial Ratios
Aims and Objectives
Aim:
 To understand how to use financial ratios.
Objectives:
 Explain the uses of financial ratios.
 Calculate financial ratios.
 Analyse financial ratios.
 Evaluate financial ratios.
Starter Activity
• Brainstorm in groups the reasons why businesses and
stakeholders may use financial ratios.
Using Financial Ratios
• Ratio analysis can be extremely useful as a management tool.
• Can be used to measure performance.
• Decision making tool.
• Investors can judge performance.
• Shareholders can judge how well managers are performing.
Using Financial Ratios
Use ratios to analyse Apple’s performance.
• Operating Profit Margin
• Current Ratio
• Acid Test Ratio
• ROCE
• Asset Turnover
• Stock Turnover
• Creditor Days
• Debtors Days
A Worked Example
Operating Profit Margin.
 Shows the relationship between profit and sales.
 (Operating profit / Sales) X100
 (545/1390) X 100 = 39.2%
 This shows for every £1 of sales 39.2p is operating (Net)
profit.
 This is reasonably high, showing that Apple has a tight control
over their expenses whilst benefitting from high profit
margins.
 Apple however is in very competitive markets, and this high
profit margin may not be sustainable. Ultimately it will depend
on technological advances and whether Apple can remain as a
first mover in the market, whilst keeping a tight control over
their costs.
Using Financial Ratios
Use ratios to analyse Apple’s performance.
• Operating Profit Margin = 39.2%
• Current Ratio = 1:1.15
• Acid Test Ratio = 0.96:1
• ROCE = 41.9% 42p profit generated for every £1 on Capital
• Asset Turnover = 42.7 for every £1 spent on assets 42.7p
was generated in profit.
• Stock Turnover = 13.52 times a year
• Creditor Days = 57.5 days
• Debtors Days = 35.4 days
Apple’s Finances
Discussion of Apples’ Financial Situation.
• Is it sustainable?
• What factors may affect Apples’ financial ratios?
• What effects may these financial ratios have on potential
investors?
• Would you invest in Apple at 374.60 per share having
calculated their ratios?
```
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