Already have an account? Get multiple benefits of using own account!
Login in your account..!
Remember me
Don't have an account? Create your account in less than a minutes,
Forgot password? how can I recover my password now!
Enter right registered email to receive password!
Exam technique for analysing performance
The below steps must be adopted when answering a question on analysing performance:
Step 1 Review figures as they are and comment on them.
Step 2 Calculate relevant ratios according to performance, potential and position (if possible).
1 Performance (profitability) -how well has the business done
Return on capital employed (ROCE)
{Profit before interest & tax (PBIT)/Capital employed (CE)} X 100%
Operating profit margin
(PBIT/Turnover)X 100%
Asset turnover
Turnover/Total assets (number of times)
(Operating profit margin x asset turnover = ROCE)
Return on equity (ROE)
[Profit aftertax/ Shareholder funds (capital + reserves) ] x 100%
2 Position (liquidity)-short term standing of the business
Current ratio
Current assets/Current liabilities(number of times)
Quick ratio
Current assets -inventory/ Current liabilities (number of times)
Gearing -equity
Debt capital/ Equity (shareholders' funds)X 100%
Gearing -total
Debt capital/ [Debt + equity (total capital] X 100%
Interest cover
Profit before interest & tax (PBIT) / Interest paid (Number of times)
Trade payable days
Trade payables/Cost of sales (or purchases)x 365 days
Inventory days
(Inventory/Cost of sales) x 365 days
Trade receivable days
(Trade receivable/ Sales) x 365 days
Working capital cycle
Trade receivable days + inventory days -trade payable (Days)
3 Potential (investor) -what investors are looking at
Earnings per share (EPS)
Profit after tax/Number of shares
P/E ratio
Share price/Earnings per share
Dividend yield
(Dividend per share/ Share price) X 100%
Dividend cover
(Earnings per share/ Dividend per share)
The above is not the complete list, but are the main ratios.
Step 3 Add value to the ratios by:Interacting with other ratios and giving reasons
a) State the significant fact or change (i.e.decrease orincrease)b) Explain the change or how it may have occurred by looking at business activities and other information.c) Explain significance of the ratio in terms of implications for future and how it fits in with the user’s needs.d) Limitations of ratio analysis. Look at the 2 figures used to compute ratio and criticise them. Also look at other factors that may distort the information (seasonal fluctuations, creative accounting etc.)
Another way of at discussing ratio's is to adopt 3W'sfor each ratio calculated:
WHAT
What has happened to the figures or ratios? Have theydecreased orincreased?
WHY
Explain why changes may have occurred by giving illustrations (think creatively!).
WOW
How do these changes affect the user of information -WOW that's great or not so great!
Air Manchester (AM) is a new airplane manufacturer. It is considering investing in a software package, e.g. SAS, which would make its daily operations more efficient
the following information related to sun ltd.paid-up capital-1000000. earnings of the co-100000. dividend paid-80000. price-earning ratio(pie)-20. no of equity shares-100000.find o
What are some of the primary advantages when a corporation has operations in countries other than its home country? What are some of the risks? Foreign operations may decrease a
challenges that the finance manager face in fulfilling the managerial function
Sapp Trucking's balance sheet illustrates a total of noncallable $45 million long-term debt with a coupon rate of 7.00% and a yield to maturity of 6.00%. This debt presently has a
explain the significance of operating leverage and financial with the help of example?
Q. Show the Analysis of Credit Information? Analysis of Credit Information: - Subsequent to obtaining the desired information from various sources the information is examined t
Milan Corporation is interested in buying a machine that will cost $50,000, and it will depreciate it on straight-line basis over a 5-year period. The machine is expected to last f
Financial System: The economic development of a nation is reflected by the progress of the various economic units, broadly classified into corporate sector, government and hous
Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!
whatsapp: +1-415-670-9521
Phone: +1-415-670-9521
Email: [email protected]
All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd