Slide 47.1

Wood and Sangster, Frank Wood's Business Accounting Volume 1 Power Points on the Web, 11th Edition © Pearson Education Limited 2008

Categories of ratios

Exhibit 47.1 Categories of ratios

Slide 47.2

Wood and Sangster, Frank Wood's Business Accounting Volume 1 Power Points on the Web, 11th Edition © Pearson Education Limited 2008

Profitability ratios

The profitability ratios are as follows:

• Return on capital employed (ROCE)• Gross profit as a percentage of sales• Net profit as a percentage of sales.

Slide 47.3

Wood and Sangster, Frank Wood's Business Accounting Volume 1 Power Points on the Web, 11th Edition © Pearson Education Limited 2008

Liquidity ratios

The liquidity ratios are as follows:

• Current ratio• Acid test ratio.

Slide 47.4

Wood and Sangster, Frank Wood's Business Accounting Volume 1 Power Points on the Web, 11th Edition © Pearson Education Limited 2008

Efficiency ratios

The efficiency ratios are as follows:

• Inventory turnover• Accounts receivable/sales ratio• Accounts payable/purchases ratio.

Slide 47.5

Wood and Sangster, Frank Wood's Business Accounting Volume 1 Power Points on the Web, 11th Edition © Pearson Education Limited 2008

Shareholder ratios

The shareholder ratios are as follows:

• Earning per share (EPS)• Price/earnings ratio (P/E)• Dividend yield• Dividend cover.

Slide 47.6

Wood and Sangster, Frank Wood's Business Accounting Volume 1 Power Points on the Web, 11th Edition © Pearson Education Limited 2008

Changing the gearing of a companyTo reduce gearing

• By issuing new ordinary shares

• By redeeming loan notes• By retaining profits

To increase gearing

• By issuing loan notes• By buying back ordinary

shares in issues• By issuing new preference

shares

Capital structure ratios

Slide 47.7

Wood and Sangster, Frank Wood's Business Accounting Volume 1 Power Points on the Web, 11th Edition © Pearson Education Limited 2008

Accounting policies

Accounting policies are defined in IAS 8 as:

The specific principles, bases, conventions, rules and practices applied by an entity in preparing and presenting its financial statements.

Slide 47.8

Wood and Sangster, Frank Wood's Business Accounting Volume 1 Power Points on the Web, 11th Edition © Pearson Education Limited 2008

Selecting appropriate accounting policies

Its appropriateness should be considered in the context of the following four objectives:

• Relevance• Reliability• Comparability• Understandability.

Slide 47.9

Wood and Sangster, Frank Wood's Business Accounting Volume 1 Power Points on the Web, 11th Edition © Pearson Education Limited 2008

IAS 38: Intangible assets

Research and development costs can bedivided between:

• Research: Carried out to advance knowledge or application of knowledge.

• Development: Work undertaken to develop research that creates an asset that will generate economic benefits.

Slide 47.10

Wood and Sangster, Frank Wood's Business Accounting Volume 1 Power Points on the Web, 11th Edition © Pearson Education Limited 2008

IAS 10: Events after the balance sheet date

These events can be divided between:

Adjusting events: Where financial statements must be amended (e.g. discovery of errors that show the financial statements to be incorrect).

Non-adjusting events: These do not lead to amendments to the financial statements (e.g. changes in the market value of investments).