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!
A trade is assessed on the basis of its performance. Performance can be defined as the expected total return over and above the investment horizon of the trade. T
How would you judge the potential profit of Bajaj Electronics on the first year of sales to Booth Plastics and give your views to increase the profit.
Rating denote an issuer's ability to respond to adverse changes in circumstances and economic conditions. The rating scale is generally differentiated into variou
Method to Identify the Component of Seasonal Variation in a Time Series This technique is called as Ratio to Moving Average Method. In this technique, we construct an index wh
a) Product orientated businesses tend to be produce products and inward looking that they hope will sell in the marketplace. For example, Sony hoped that its $101,500 audio systems
Performance evaluation One can determine this by comparing the cash flow from assets and cost of capital. 1. Cash flow from assets Cash flow from assets is calculated
How do tax considerations affect the cost of debt and the cost of equity? As interest on debt is tax deductible to the issuing firm, as much higher the tax rate the lower the aft
Q. What do you signify by Cost of Capital? What do you signify by 'Cost of Capital'? What is its meaning and what are the problems in determination of cost of capital? Ans.
what are the stages involved in investment decision making
Mutual funds Mutual funds pool resources from a lot of individuals and companies and invest these resources in diversified portfolios of bonds, stocks and money market instrume
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: +91-977-207-8620
Phone: +91-977-207-8620
Email: [email protected]
All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd