What are ratios of chromex plc, Financial Management

Ratios

A great number of ratios might be appropriate for this purpose depending on the specific kind of financial performance which is being compared. Amongst those appropriate for such a purpose are

  • Return on equity
  • Asset turnover (by classes of asset type)
  • Gross/net profit margins
  • Inventory days
  • Receivables days
  • Interest cover
  • Dividend cover
  • Financial and operating gearing
  • P/E ratio

The ratios selected is able to be justified on the grounds that they measure the key determinants of financial performance namely

(1) The company's profit performance gross as well as net profit margins and the returns it offers its investors (ROE & P/E ratio).

(2) Liquidity which will influence its ability to continue trading: inventory/receivables days and dividend and interest cover.

(3) Capital structure as well as level of business risk financial and operating gearing. A comparison which is to be used to assess the relative performance of a particular company should be based on data from companies in the same sector for the reason that other businesses in other sectors may have different operating technology, production systems and sources of finance.

Consequently the average rates of return the scale of operations and the risks of a business will vary from sector to sector. For example a retail bank may face very high fixed costs as it has a large branch network to support. On the contrary a franchised restaurant chain will have very low fixed costs because fixed assets are owned by the franchisees and not the main company. In such circumstances judgement on the relative levels of operating gearing in the two businesses would be impossible because of the variation in the cost structures. Likewise the risks of operating a shoe factory are fundamentally different from those of a chemical plant and so the financial ratios generated by each operation will differ widely.

At the same time it is valuable to compare ratios with firms of differing sizes in the one sector because market dynamics and profitability may well be linked to the scale of a company's operations. For instance in some product markets larger companies may report higher net profit margins as a result of being able to exploit scale economies in production or distribution or the benefits of vertical integration. With contrast in other markets specialisation and niche marketing may increase margins. Comparing ratios among companies of differing sizes facilitates some analysis of the factors which can add to profit.

Posted Date: 7/9/2013 3:34:38 AM | Location : United States







Related Discussions:- What are ratios of chromex plc, Assignment Help, Ask Question on What are ratios of chromex plc, Get Answer, Expert's Help, What are ratios of chromex plc Discussions

Write discussion on What are ratios of chromex plc
Your posts are moderated
Related Questions
Restatement of investment appraisal In the following solution the tax allowances in relation to the initial outlay on equipment are evaluated separately. Other approaches are a

Suppose you are planning to make regular contributions in equal payments to an investment fund for your retirement. Which formula would you use to figure out how much your investme

Ratio Calculation:   A 'Financial Ratio' is an index that relates two accounting numbers and is obtained by dividing one number by the other. Various Ratios are - 1. L

Q. Demerits of net present value method? (i) Difficult to Understand as well as Implement:- This method is tricky to understand as well as implement in comparison to the paybac

To what extent does empirical evidence on corporate objectives support the predictions of Baumol’s “Sales Maximisation Hypothesis?”

Why is it important to study international financial management? Answer:  We are now living in a world in which all the main economic functions, that are production, consumption,

Explain how earnings available to common stockholders and common stock dividends paid from the current income statement affect the balance sheet item retained earnings. The cha

limitations of using a periodic inventory system

Banks like to make short-term, self-liquidating loans to businesses.  Why? Banks like can see where the funds are likely to come from such that the borrower is able to use to m

Explain and compare forward vs. backward internalization. Forward internalization takes place when MNCs with intangible assets make FDI in order to use the assets on a larger sca