Financial ratios

In this lesson

1. 0:00 Financial ratios and profit margins
2. 0:36 Operating profit and cost control
3. 2:04 Return on Investment and capital employed
4. 3:41 Asset turnover and efficiency
5. 5:19 Earnings per share and valuation
6. 8:09 EBITDA as performance measure
7. 13:47 Liquidity risk and cash management
8. 15:15 Current and quick ratios
9. 17:12 Gearing and financial risk
10. 19:43 Operational gearing and fixed costs
11. 20:50 Interpreting ratios in practice

About this lesson

This video covers profit margins, return on investment (ROI), asset turnover, earnings per share, EBITDA, current and quick ratios, gearing, and operational gearing, showing you what causes each ratio to improve or deteriorate and how to apply them in real-world analysis. Understanding financial ratios is critical for performance management and strategic analysis. Rather than simply calculating figures, you'll develop the ability to interpret what ratios reveal about a business, compare them against industry benchmarks, and identify underlying causes of change. The video emphasises that profit margins indicate trading success and operational efficiency; ROI and asset turnover show how effectively management deploys capital and assets; earnings per share measures shareholder value; and liquidity and gearing ratios reveal financial risk and the organisation's ability to survive. The practical focus is on assessment and commentary. Exam questions typically ask you to analyse given figures and explain what's driving improvements or deterioration, rather than perform calculations from scratch. You'll learn to distinguish between ratios that signal positive performance and those that indicate risk, and how to use language precisely—discussing whether ratios improve or deteriorate rather than simply increase or decrease. The video also highlights common pitfalls: why comparing companies with different capital structures can distort EPS, how EBITDA strips out factors beyond management control, and why context matters—a current ratio of 0.7 may signal problems in one industry but be entirely normal in supermarket retail. By the end, you'll be confident selecting the right ratios for different contexts, explaining their limitations, and suggesting additional measures when analysis gaps exist. This foundation supports performance management assessment and strategic decision-making across CIMA and ACCA qualifications.

Duration: 22m