Interpreting Published Acounts 0.0 / 5 ? Business StudiesFinancial PlanningA2/A-levelAQA Created by: Hayleyginny2345Created on: 08-11-13 12:58 Ratio Analysis means A technique for analysing a bussiness's financial performance by comparing one piece of infomation with another 1 of 35 What can ratios be classified into 1) profitablitiy, 2) Financial efficiency, 3) liquidity and gearing, 4) Shareholders' ratios 2 of 35 Net profit margin is a ratio that measures the relationship between the net profit and the level of turnover or sales made 3 of 35 Net profit margin calculation net profit / revenue...X100 4 of 35 Results... The higher the % the better. Establishes whether the firm have been efficient at controlling costs 5 of 35 Return on Capital Employed Measures the efficiency of the business in using it's capital to generate profits 6 of 35 ROCE calculation net profit before tax / Total capital employed,,,X100 7 of 35 Results... The higher the figure for ROCE the better 8 of 35 To asses the ROCE figure for a firm it should be compared with previous years figures, figures from other companies and current interest rates 9 of 35 Financial efficiency is measured using what figures Asset turnover, Inventory turnover, recivables, payables 10 of 35 Asset turnover Measures a bussiness's sales in relation to the assets used to generate these sales 11 of 35 Asset turnover calculation rev. / Net assets employed 12 of 35 Incresing ratio over time = Firm is operating with greater efficiency 13 of 35 Fall in ratio over time = Decline in sales or increase in assets employed 14 of 35 Inventory turnover means The no. of times per year a b.s turns over it's inventories ofgoods for sale 15 of 35 Inventory turnover calc. Cost of goods sold / average inventories (x) 16 of 35 Inventory turnover expressed in days calc Average inventories X365 / Cost of goods sold 17 of 35 Recivables measures how long, on average, it takes the company to collect debts owed by customers 18 of 35 Recivables calc Recivables X 365 / revenue (days) 19 of 35 Payables Shows how long on average it takes a company to pay its suppliers 20 of 35 Payables calc. Payables X 365 / cost of goods sold 21 of 35 Liquidity = Business's assets that can easily be turned into cash 22 of 35 Current ratio - measures liquidity calculation current assets / current liabilities (: - ratio) 23 of 35 Acid test calc liquid assets (current assets - inventories) / current liabilities (: ratio) 24 of 35 Gearing Shows long term financial stability of business 25 of 35 What does gearing measure Proportion of capital employed by the business that is provided by long - term lenders against proportion that has been invested by owners 26 of 35 Gearing calc Non - current liabilities / total capital employed... X 100 27 of 35 Dividend per share Total dividend declared by company divided by the number of shares the business has issued 28 of 35 Dividend per share calc Total dividends / No. shares issued 29 of 35 Results... The higher the figure the better 30 of 35 Dividend yield calc Dividend per share / market share price... X 100 31 of 35 Drawbacks of ratio analysis... ... 32 of 35 1) Retrospective concerned on past performance doesnt look to future 33 of 35 2 )Different companies may use different accounting policies Hard to compare 34 of 35 3) No. infomation about non - financial matters State of market or morale of workforce 35 of 35
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